Schwab spotlights bold IRA move years before RMDs kick in

Americans spend decades funneling pretax dollars into 401(k) plans and traditional Individual Retirement Accounts (IRAs), trusting that a lower retirement bracket will reward that discipline.

For savers with sizable balances, that promise reverses the moment required minimum distributions (RMDs) arrive at age 73 and change retirement income.

A retiree who assumed the government would take a smaller cut can land in a bracket higher than any they hit while working.

Charles Schwab’s tax planning team warns savers not to wait until forced withdrawals begin to address the buildup in those tax-deferred accounts.

Hayden Adams, director of tax and financial planning at the Schwab Center for Financial Research, argues the strategic window sits between ages 59½ and 73.

Schwab’s $226,000 RMD example exposes the retirement bracket flip

Schwab’s modeling walks a 73-year-old single filer with $6 million in tax-deferred savings at the end of 2025 through a scenario that mirrors the position of many wealthy retirees today.

The 2026 RMD alone exceeds $226,000, and that figure climbs each year as the IRS distribution factor shrinks with each birthday, forcing a larger annual withdrawal.

When combined with Social Security, dividends, and pension income, the withdrawal can push a retiree into tax brackets higher than their peak working rate, according to Schwab’s tax analysis.

Ed Slott, founder of Ed Slott and Company and a widely cited authority on IRA taxation, told Morningstar in December 2025 that retirees approaching 73 have a narrowing window to convert traditional funds before mandatory withdrawals foreclose the option.

That's why we really push for conversions before RMDs start. If you're watching this and you're going to turn 73 next year, this may be the year to pile on Roth conversions to reduce them next year.

The bracket flip compounds over time because the remaining balance continues to grow tax-deferred, producing even larger mandatory withdrawals in later years.

A retiree who defers action through their mid-70s faces a distribution curve that accelerates rather than flattens, narrowing each subsequent year’s room to manage the tax hit.

The pre-73 window offers 3 levers for shrinking the future bill

The Schwab framework offers three levers to cut the eventual bill, and each targets a problem: the untouched balance compounding toward age 73.

Roth 401(k) contributions during working years, Roth IRA conversions, and voluntary distributions after 59½ each pull dollars into today’s known brackets.

Voluntary withdrawals routed into a taxable brokerage account also unlock a benefit that tax-advantaged plans do not offer.

More Charles Schwab:

• Charles Schwab, Fidelity sound alarm on Roth IRA rule
• Morgan Stanley doubles down on Schwab after earnings
• Schwab plots S&P 500 prediction markets push with Cboe

Realized losses there can offset capital gains and up to $3,000 of ordinary income annually through tax-loss harvesting, the Schwab analysis noted.

The mechanics matter for anyone with a large IRA heading into their seventies, since RMDs cannot be converted once distributions begin.

Every voluntary withdrawal or conversion completed in the pre-73 window also permanently reduces the account balance used to calculate future RMDs, compounding the tax-bracket benefit over time.

Partial conversions during lower-income years use unused bracket space today and keep forced income from spilling into higher brackets after 73.

Schwab’s analysis adds that the strategy is not all-or-nothing, noting that smaller annual conversions can smooth market swings and cash-flow uncertainty.

Israel Sebastian / Getty Images

Medicare’s IRMAA surcharge lands once RMDs push income above $109,000

The tax bracket damage from unmanaged RMDs is only part of the arithmetic. A larger required withdrawal can also drag a retiree into Medicare’s Income-Related Monthly Adjustment Amount (IRMAA), a surcharge tied to Modified Adjusted Gross Income (MAGI) from two years prior.

For 2026, the IRMAA cliff begins for single filers with MAGI above $109,000 and joint filers above $218,000.

Total monthly Part B premiums range from $284.10 at the first surcharge tier to $689.90 at the top, according to the Centers for Medicare & Medicaid Services.

Part D surcharges climb in parallel from $14.50 to $91.00 monthly, and $1 above the threshold triggers the full penalty for that year.

A retiree whose RMDs suddenly push MAGI across those thresholds can face Medicare bills thousands of dollars higher than the standard premium. The two-year lookback means the surcharge can follow the taxpayer even after they have corrected course.

Schwab noted that Roth conversions or voluntary distributions completed before Medicare eligibility can insulate a retiree from a one-year income spike. That spike could otherwise reprice their Part B and Part D coverage.

What retirees weighing an early distribution should know

Every dollar shifted from a traditional IRA before age 73 permanently reduces the balance forced distributions will hit. Each conversion taxed at today’s known bracket prevents that dollar from leaving at a higher forced rate later, according to Schwab’s tax analysis.

For savers with tax-deferred balances approaching or exceeding seven figures, the math can shape their retirement tax picture. It can mean the difference between a manageable tax burden and years of stacked brackets, IRMAA cliffs, and Social Security taxation.

Schwab recommends that savers map projected required minimum distributions against current tax-bracket ceilings with a qualified tax professional before making any conversion.

The balance size and years remaining before age 73 will determine whether the Schwab strategy fits a particular household.

Related: Schwab warns of a spending shift waiting for retirees

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.

This story was originally published September 18, 2026 at 8:47 AM.