Personal Finance

Beware of How This RMD Torpedo Can Hit Your Social Security and Medicare Benefits

Maurie Backman

Published: February 28, 2025 8:36 am

There’s a reason workers are often encouraged to house their retirement savings in a Roth IRA or 401(k). Not only do Roth accounts offer the benefit of tax-free investment gains and tax-free withdrawals, but they also don’t force savers to take required minimum distributions (RMDs).

RMDs were introduced by the IRS as a means of preventing IRAs and 401(k)s from being used as tools to pass down generational wealth. RMDs effectively force you to withdraw much of your tax-advantaged savings, leaving you with fewer assets to pass down in a tax-advantaged manner.

Now for some retirees, RMDs aren’t a problem. If your RMD for a given year is $10,000 and you were already planning to tap your IRA or 401(k) for $1,000 a month to cover living expenses, then your RMD isn’t an imposition.

It’s when you don’t need the money that RMDs can become much more problematic. That’s because they create an automatic tax liability, forcing you to add to your income at a time when you’d probably rather keep it as low as possible.

But RMDs don’t just cause you to pay the IRS more the year you take them. There’s another big problem with RMDs all savers need to be aware of.

RMDs can trigger taxes on Social Security

It’s not a given that you’ll pay federal taxes on your Social Security benefits in retirement. But if your combined income exceeds $25,000 as a single tax-filer or $32,000 as a joint filer, taxes on those benefits start to apply.

Your combined income is measured as 50% of your annual Social Security income, tax-exempt income, and your adjusted gross income. But RMDs drive up your adjusted gross income and combined income, making it more likely that you’ll exceed the above thresholds and lose a portion of your Social Security to taxes.

RMDs can make Medicare cost more

There’s a standard monthly premium Medicare enrollees pay for Part B that changes every year. In 2025, it’s $185. But higher earners are slapped with a surcharge for Medicare Part B known as an income-related monthly adjustment amount, or IRMAA.

The thresholds for IRMAAs change each year. In 2025, they apply to single tax-filers with a modified adjusted gross income above $106,000, or $212,000 for joint tax-filers. But because RMDs are included in that number, having to take them means you may be more likely to pay more for Medicare Part B in retirement.

How to avoid RMDs

There’s no avoiding RMDs if you have a traditional IRA or 401(k). So if you want to get out of taking them, your best bet is to house your savings in a Roth IRA or 401(k). And if you can’t do that because you earn too much for a Roth IRA or your employer’s retirement plan doesn’t have a Roth component, you could always do a Roth conversion ahead of retirement.

That said, a Roth conversion will trigger a tax bill — and a potentially large one, depending on the sum of money you’re moving over. So it’s a good idea to consult a financial advisor or tax professional before doing a conversion. They can help you time that conversion just right and walk you through the financial repercussions you need to prepare for.