Reverse-Engineering A Six-Figure RMD Problem
Episode 33
Reverse-Engineering A Six-Figure RMD Problem
Published on April 29th, 2026
Episode Summary
Episode 33 of Retirement Tax Matters incorporates a concept from Garrett's engineering background: reverse-engineering. By starting with the desired outcome and working backwards, this episode reframes a six-figure RMD from a problem into a solvable puzzle that helps you reach your financial goals. This discussion helps high-net-worth retirees understand how deferring income taxes indefinitely often builds a larger-than-expected taxable distribution for heirs subject to the current 10-year distribution rule. Garrett explains the strategic benefit of levelizing lifetime tax liability, using proactive Roth conversions to flatten the tax hill that typically arrives later in retirement for those with large IRA balances. The conversation challenges Retirees to recognize that mandated distributions can be a psychological catalyst to either pay taxes that will eventually be owed or begin spending to fund meaningful family goals and experiences. By applying a systems-design approach to retirement, families can move from tax aversion to intentional stewardship of their hard-earned wealth.
Key Tax Planning Questions
Question 1: What is a six-figure RMD?
Every industry utilizes its own terminology, but to build a successful financial plan you must learn retirement planning language to make prudent retirement decisions. A Required Minimum Distribution (RMD) is the IRS response to a tax benefit you likely received during your working career. If you contributed to a pre-tax 401(k) or traditional IRA, you deferred federal taxes on those earnings for decades. The logic for most workers was to pay taxes later in retirement when their income was lower. However, for high-net-worth Retirees with portfolios between $2M-$8M continued growth often keeps them in the same tax bracket, or even pushes them higher, once these RMDs begin.
The IRS will eventually require you to withdraw a specific percentage of your pre-tax investment accounts each year based on a life expectancy table and the amount. These distributions are taxed as ordinary income at both the federal level and then, potentially again, at the state level. While you are forced to take the distribution, you are not forced to spend it. All the IRS cares about is that you pay the federal tax on that RMD amount. You have strategic options such as (1) spending it, (2) reinvesting the after-tax proceeds into a brokerage account, or (3) utilizing a Qualified Charitable Distribution (QCD) to satisfy the requirement tax-free if you are at least 70½.
The term six-figure RMD refers to the point where your required minimum distribution exceeds $100,000. For a married couple born in 1958 with $2,000,000 in pre-tax accounts, a modest 6% annual growth rate would result in a first-year RMD of ~$100K. For many Retirees in our above $2M, a six-figure distribution is not a distant possibility but coming at them quick forcing pro-active tax planning now. Understanding the magnitude of these future distributions is the first step in reverse-engineering a proactive plan to levelize your lifetime tax liability.
Question 2: How do I calculate my future RMD amounts?
If you haven’t thought deeply about how Required Minimum Distributions (RMDs) will impact your plan, figuring out these RMD amounts is one of the best first steps you can take. Since my early days as a financial planner, I’ve enjoyed using the Schwab RMD calculator to get a handle on these values. If you scroll to the bottom of that tool, they have a great FAQ list that covers the technical details most people aren't familiar with. It is important to remember that RMDs look different depending on who originally owned the account. If it’s your own pre-tax IRA, the rules are more straightforward, but inherited IRAs from a spouse or a non-spouse come with extra stipulations. In recent years, Congress and the IRS have updated the starting ages and the withdrawal windows so often that even I have to constantly refer back to my saved guidelines to ensure I’m following the latest 2026 RMD rules correctly.
For your own accounts, the tool will ask for your date of birth, your prior-year December 31st balance of all of your pre-tax IRA accounts, and your spouse's age. A key detail here is that if your spouse is at least 10 years younger you may be eligible for a reduced RMD amount. This is a great lever for wide age gaps who don't need the full RMD amount. The real planning happens when these tools ask you to estimate an investment rate of return. There isn't a black-and-white answer here. If you're a conservative investor, assuming a 7% to 10% return is going to give you a distorted view. On the flip side, if you're 100% in stocks and using a 4% estimate, you’re likely underestimating just how large of impact those RMDs may have on your tax bracket.
It is very easy to look at an RMD chart and feel some surprise of how quickly the numbers grow, but it’s also easy to forget that you might need to withdraw even more than the RMD amount in certain years. Any 30-year projection in a basic tool is going to lack nuance. My perspective is that while this estimate is a vital baseline, it’s the ongoing tax-return driven financial planning where you are proactively choosing when to defer or accelerate income that actually gets these RMDs under control. We aren't trying to eliminate them entirely, but we want to make sure they aren't the ones dictating your tax bracket 15 years from now.
Question 3: My spouse and I have $6M in pre-tax accounts. We realize now we were too focused on reducing taxes during our working years, but when we put our information into an RMD calculator, we fear we may not spend a lot of this money and the taxes will push us into a tax bracket we never expected. We are now in our early 60s. What can we do now to move more into a situation where we can avoid some of those RMD dollars getting taxed in top-tier tax brackets?
Let’s look at a couple who is 64 years old with a combined $6,000,000 in pre-tax accounts. As the rules stand today in 2026, their first Required Minimum Distribution (RMD) isn't due until age 75. If those IRAs grow at 6%, that first combined RMD is going to be roughly $463,000. Once you add Social Security into the mix, you’re already staring at an uncomfortable 32% marginal tax bracket. It doesn’t take many years before those six-figure distributions really start to get out of control!
Before we get too far, this is where 30-year projection tools can be taken out of context. They often miss the fact that this couple has an 11-year window of opportunity to spend down these funds before RMDs and Social Security hit. This is what we call the Golden Window of financial planning. Just because you are high-net-worth doesn’t mean you lead a high-income lifestyle. For some, spending during these years is just a drop in the bucket. For others, it’s a chance to start chipping away at those later, painful tax amounts. Either way, this couple probably needs to buckle down and reverse engineer their future RMD “problem". It isn’t a bad problem to have, but this couple likely doesn’t want to be extra generous with the IRS just because they didn't know any better.
If I were this couple’s financial planner, I’d start with their most recent filed tax return. I’m looking for any thing out of the ordinary (such as royalties, business income, or rental property) that might compound the problem later. I’d then work with their tax preparer (if they don’t have one, it’s about time to seriously think about getting one) to triangulate an income projection for the year. Once we know where the income might land by December 31st of this year, we can look at their expected expenses and withdrawal needs to see if we have a real RMD conflict down the road. If so, we reverse engineer a way to accelerate that income into the current year through a Roth conversion and how they would pay for the federal taxes on the large Roth IRA conversion. We have to weigh the current cost of IRMAA penalties and Net Investment Income Tax against the reality of a much higher tax bracket later. Putting this plan in place early in the year lets us capitalize on market downturns, but we can also wait until the fall when the tax picture is clearer to execute the conversion confidently.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters. I'm Adam Reed. This is Garrett Crawford, our resident CFP® professional. How are we doing this morning, Garrett?
Garrett: I think we're back. It was a fun week for us. We had quite the engaging commentary on our last video, and it was validating of the idea that people are out there wanting to minimize taxes over a lifetime. I know you stayed up all night responding to questions. It was a fun week doing that.
Adam: It is always interesting to see what gets people talking. Sometimes you say something and you think it is going to be a hot button issue, and it is crickets. Then you say something that you do not feel is controversial and all of a sudden everybody is sharing their thoughts and what they do. It was encouraging as a content creator. We learned the term fin-influencer yesterday—finance influencers. So we're fin-influencers, I guess. It was cool to see a lot of respectful conversation, people sharing some of their experiences. That is what we want to do—bring people together as a community and start conversations about why you would do something or your unique experience. It was cool to see the thoughts of people who have been following along and to know that we're giving good information and starting the conversation for people in that $2 million to $8 million space.
Garrett: I agree.
Adam: Keeping it moving along, one of the overarching themes in that comment section was RMDs. You cannot talk about Roth conversions or large IRA balances without talking about RMDs. A lot of people see them as a looming tax bomb. People are worried about these distributions. How are you helping people think through this by reverse engineering? I know you have an engineering background.
Garrett: We were talking about it this morning and I am analytical by nature. Some of that is my upbringing. If you have been following along, you know my undergrad degree was in electrical engineering. I was on the drive to the office and knew we would be talking about RMDs. I recalled back to my days at the University of Tennessee at Knoxville sitting in engineering classes. There were some people in my class—I do not know if you had these in college—but just geniuses. It was like they could sit in a lecture and know exactly what the professor was saying.
Adam: I have a marketing degree, so there were not a ton of geniuses, but we had a really good time.
Garrett: There were some people in my class where it was like they already knew the answer to the problems the professors were giving us. I had to work at it; I had a lot of elbow grease on my homework papers and engineering problems. But one of the things I found really helpful in engineering was reverse engineering. You think of movies and espionage where countries are trying to steal secrets. You start with the rocket ship, you see it built, and then you reverse engineer it back to how they did that. I think this idea of reverse engineering is important. In my electrical engineering days, it was circuit designs and Laplace transforms. Laplace transforms were hard, and I remember starting at the answer and then having to work backwards in order to have understanding. I thought about RMDs where oftentimes the way we feel about them being a problem may not be grounded in reality. What if they really are not a problem? What if most people would do well to do proactive planning around them? When it comes to required minimum distributions, it is important to talk about it from the back to the beginning.
Adam: One of the things I have loved about working here with you and Paul is that you told me early on that we are practitioners. We do not have all the answers. We are learning and evolving as we go. Something that was a great financial tool five years ago may not be today. You brought up an interesting point this morning: what if there were no RMDs? Because I thought similarly to our viewers: RMDs are a tax bomb, how do we reduce them? But you brought up a thought experiment: what if there were no RMDs? Would we still leave everything in the tax-deferred account? It reframed the idea that it actually makes a lot of sense to get money out of IRAs even if there were no RMDs. How can you help a family understand that RMDs are not necessarily just a horrible thing?
Garrett: I would start with the fact that people do not like being told to do something. Whether that is the government or a friend, this disdain retirees feel about required minimum distributions often comes from a lack of understanding. They just hear the government is going to make them take money out and they do not like that. They have been contributing and seeing that number grow, so the idea that the number would decline bothers them.
Adam: We had a client just the other day say, "What am I supposed to spend all that money on?" and we said, "You do not have to spend it." So there is some misunderstanding.
Garrett: People generally do not like being told they have to do something, and the RMD falls in that category. The thought experiment is: what if people got what they wanted? What if I could snap my fingers and get rid of the RMD rule at age 73 and 75? A lot of people would celebrate. They would have control over their IRAs and could let them grow. But I know our listeners did not get to $2 million to $8 million because they got lucky. Most of them got there because they worked hard and knew how to save more than they spent. In that category, some high-achieving people really do not want to see that balance decline. If there were no RMDs, you might be tempted to let that money grow forever. Let us say age 73 hits and you have a six-figure RMD—maybe $100,000 or $200,000—and you let that stay in your pre-tax IRA. Compound interest does a number on your account balances. If you have a $3 million IRA and it grows by 7%, that is a lot of money. If you are only taking out $40,000 because that is all you need to supplement Social Security, your IRA is ballooning. If the goal was to keep that money growing because you did not have to spend it, you want to leave money for your spouse, but after them, it goes to your kids. Then we hit a problem. Let us say that $3 million IRA has turned into $8 million. Now you have two kids who inherit $4 million apiece over 10 years. They might be in their sixties, their peak income-earning years. All those years spent not distributing money ends up with someone paying tax on that eventually. If RMDs were eliminated, you get the comfort of not paying the tax, but your beneficiaries are going to pay. Family members who inherit it have a 10-year period where they have to distribute every penny. Where you were avoiding the 24% tax bracket, a child would end up at 35% or 37%. Wouldn't it be great if that money could never be taxed and grow tax-free for your beneficiaries? The grand reveal is that if you convert it to Roth, it is that way. There are no required minimum distributions once you move funds to a Roth IRA. You pay the tax, and then it grows tax-free for the rest of your life, and then your kids get 10 additional years of tax-free growth. Reverse engineering the RMD problem shows that when you are going to need to live on some money anyway, leaving it in the IRA might mean you escape taxes, but your beneficiaries will not. Ed Slott says everyone needs a psychology change: reframing Required Minimum Distributions as Required Maximum Distributions. Treating your RMD like a strategy and less like a bill from the government is key.
Adam: A lot of people see it as a penalty instead of the rules of the game we are playing. Shifting that mindset—this is just the rules of the game—helps you play in the most efficient way so your team ends up with the most points at the end of the day.
Garrett: People like taking control of their planning. It is a broken record here, but tax-return driven financial planning is one of the best ways to take control of your lifetime tax liability so your family ends up as your biggest beneficiary, not the IRS. When you have big IRA balances, RMDs get out of control later because of compounding interest. While you may be in a 24% bracket now, if you do not get aggressive, you may eventually be in a situation where your balances are so big you are jumping to the 35% bracket. The goal is to levelize that tax hill. Let us not make those later days a steep incline. Let us accelerate the income and grade that tax liability down to be flat. Over a lifetime, you will get more money into a Roth and insulate yourself against future taxes.
Adam: For those people past 59 and a half, in that 60 to 62 range where there is no Medicare yet and no IRMAA charges, how do you help them view that Golden Window? And how can people proactively project what RMDs might be down the road?
Garrett: I will start with how we figure out our RMDs. It pays to do a little homework. Finding out what your required minimum distributions are going to be when you turn 73 or 75 is not black or white, but you can get some good ideas. I would start by adding up all the money in your IRA and 401(k) names. Use a tool like the Schwab RMD calculator. You put in your IRA balance as of December 31st and your date of birth. It calculates the year your first RMD is due. It lets you project your investment rate of return. Then the deeper step is to project through financial planning software over the next 30 years how that influences taxes. This sets the stage for the RMD problem, which may not be a problem. If you are 55 and retired with $4 million in an IRA, you have time to take advantage of this window where your income is lower. You have not started Social Security, and if you are younger than 65, you do not have to worry about Medicare IRMAA charges.
Adam: I learned last week that a lot of you do not like IRMAA surcharges.
Garrett: Even if you are 67 and on Medicare, there is plenty of time to make small adjustments each year to accelerate some of those future RMDs into this year. Fill up your current tax bracket and levelize taxes over time.
Adam: Check out the year-end tax planning checklist linked below. It is a great place to start with your projected income, future RMD numbers, and marginal tax brackets. Garrett also puts together content each week in an email format. Check out the website and get that free resource. Trade your email address and you get even more value.
Garrett: There you go.
Adam: We appreciate you tagging along. There will be more content around RMDs and Roth conversions because those are the biggest pain points for the high net worth retirees in that $2 million to $8 million space. We are teaching tax-return driven financial planning so the IRS is not your biggest beneficiary. I'm Adam Reed, this is Garrett Crawford, we are Retirement Tax Matters.