Pull up your retirement account online. Look at the balance. Say it’s $1.2 million. Feels good, doesn’t it?
Now let me ruin your afternoon.
That number is a lie. Not a big, dramatic lie — more like the kind your bathroom scale tells when you weigh yourself with your shoes on. The balance is real. But how much of it is actually yours? That’s a different question entirely.
Because if that $1.2 million sits in a traditional IRA or 401(k), you have a silent business partner. They’ve owned a piece of that account since the day you opened it. And when you approach retirement, they’re about to start collecting — on their schedule, not yours.
That partner is the IRS.
And before you decide this is a rich-person problem: It isn’t. Whether your number is $1.2 million or $120,000, the same slice belongs to the government. The problem scales.
I’ve been a CPA since 1981, and I’ve watched a lot of smart people get blindsided by this. They spend 40 years watching a number go up, mentally spending money that was never fully theirs. Then the tax bills arrive and the math gets ugly fast.
Here’s the good news: There’s a window to take some of that money back. Most people miss it. Let’s make sure you don’t.
Why your balance is smaller than it looks
A traditional IRA is tax-deferred, not tax-free. Every dollar you contributed skipped taxes on the way in. Which means every dollar owes taxes on the way out.
So that $1.2 million isn’t $1.2 million. It’s $1.2 million minus whatever the government takes when you withdraw it.
Say you’ll pay 22% on those withdrawals. That’s roughly $264,000 of your balance that was never yours. It’s the IRS’ stake, parked in your account, patiently waiting. Live in a state with income tax? Your silent partner brought a friend.
Nobody prints that number on your statement. But it’s there, every single month.
The part where you lose control
For years, you decide when to touch that money. Then you turn 73, and the IRS takes the wheel.
They’re called required minimum distributions, or RMDs. Once you hit 73, the government forces you to withdraw a chunk each year so it can finally tax it. The starting age rises to 75 for anyone born in 1960 or later, according to the IRS.
You don’t pick the amount. They do. The formula: Your Dec. 31 balance divided by a life expectancy factor from the IRS Uniform Lifetime Table.
At 73, that factor is 26.5. On a $1.2 million balance, your first forced withdrawal is about $45,283 — whether you need the money or not.
Skip it, and the penalty is a brutal 25% of what you should have taken. You can read more about that trap in the most expensive mistake a retiree can make.
And it gets worse every year
Here’s the part that really stings. That life expectancy factor shrinks annually. So the percentage the IRS forces out keeps climbing.
At 73, you’re pulling out roughly 3.8% of the balance. By 80, it’s about 5%. By 90, you’re north of 8% — every year, all taxable, all at ordinary income rates.
Translation: The older you get, the bigger the bites your silent partner takes. Just when you’d rather keep your income low, the tax code demands the opposite.
The Medicare ambush hiding inside your RMDs
Now watch how the damage spreads.
That forced withdrawal doesn’t just get taxed. It inflates your income — and Medicare is watching. Cross a certain income line and you owe a surcharge called IRMAA (income-related monthly adjustment amount) on top of your Medicare Part B and Part D premiums.
For 2026, that line sits at $109,000 for single filers and $218,000 for couples, per the Centers for Medicare and Medicaid Services. A $45,000 RMD stacked on Social Security and a pension can shove a single retiree right over it.
And this is a cliff, not a ramp. One dollar over, and the full surcharge hits — roughly $1,148 more per person that year, and it recurs.
Worse, Medicare looks at your income from two years back. So a withdrawal today raises your premiums in 2028. You can see the other income types that spring this trap in “8 Types of Income That Can Jack up Your Medicare Premiums.”
Quick gut-check — if your money advice is coming from random online influencers, you’re playing a dangerous game. I’ve been a CPA since 1981 and writing about money since before the internet existed. Sign up for the free Money Talks Newsletter and get expert advice that’s been tested by time.
Your new tax break? Your RMDs can eat that too
Congress just handed seniors a gift — and your silent partner can snatch part of it right back.
Under the 2025 tax law, filers 65 and older get a new $6,000 deduction, or $12,000 for a couple where both qualify, for tax years 2025 through 2028. The IRS says it stacks on top of your standard deduction whether you itemize or not.
But it phases out once your income climbs above $75,000 for single filers or $150,000 for couples filing jointly. Guess what counts toward that income? Your RMDs. So the very withdrawals the IRS forces on you can chip away at the deduction Congress just gave you.
One more gotcha: That senior deduction lowers your income tax bill, but it doesn’t lower the income figure Medicare uses for IRMAA. It won’t rescue you from the surcharge.
The co-owner follows the money to your kids
Think this ends when you’re gone? It doesn’t.
Leave a traditional IRA to your children and your silent partner tags along. Most non-spouse heirs now have to drain an inherited IRA within 10 years, paying ordinary income tax on every dollar.
Often that lands during their peak earning years, at their highest rates. I walk through the related tax hit for spouses in “The ‘Widow’s Penalty’: The Tax Ambush That Hits the Year After Your Spouse Dies — and 5 Ways to Beat It.”
So the tax you dodge today doesn’t disappear. It just gets handed to someone you love, usually at a worse time.
How to buy out your silent partner
Enough doom. Here’s how you fight back.
The best weapon is the stretch between the day you stop working and the day RMDs kick in. That’s your lowest-income window — and your best shot at moving money onto your terms.
1. Convert in the gap years
Move chunks from your traditional IRA into a Roth. You pay tax now, but it then grows and comes out tax-free, with no future RMDs. That shrinks the balance your silent partner gets to tax. Here’s how conversions work.
2. Fill a bracket, not a tier
Convert only up to the top of a low tax bracket, and stay under the IRMAA line while you do it. The whole game is moving money at a rate you choose instead of the rate the IRS chooses for you at 80.
3. Use QCDs once you’re 70½
A qualified charitable distribution (QCD) sends money straight from your IRA to a charity — up to $111,000 in 2026. It counts toward your RMDs but never shows up as taxable income. If you’re giving anyway, it’s the tax-smartest way to do it.
4. Pay the tax from outside the account
Cover the tax on a conversion with brokerage or savings money, not the IRA itself. Raid the IRA to pay the bill and you’ve shrunk the very thing you’re trying to protect — and maybe triggered a penalty if you’re under 59½.
The honest caveats
Converting isn’t always the right move. If your heirs will land in a lower bracket than you, if you’re deeply charitable and plan to give through QCDs, or if you have a genuinely short life expectancy, the math can flip against you.
And if you’re under 65 on an Affordable Care Act plan, a big conversion can torch your premium subsidy.
There’s no universal answer here. There’s only your answer, and it depends on your income, your heirs, your health, and your plans. Run the numbers — or hire someone who will.
Hint: If you have $100,000 or more in assets, SmartAsset will instantly match you with up to three fiduciary advisors — legally required to prioritize your interests. They spot tax savings, Social Security strategies, and planning gaps you’d never see alone. The match is free, and so are first appointments. So if you need help, get it.
Here’s the bottom line. The number on your statement isn’t fake. It’s just not the whole truth. Part of that balance always belonged to your silent partner. The only real question left is simple: Do you hand over their share on the IRS’ schedule, or on yours?