Michael Fox — Licensed Insurance Advisor
Michael Fox Insurance
Phone: 856-676-9358
Email: michaelfox13@gmail.com
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The RMD Trap
Printed June 18, 2026
The IRS is your silent partner.
At 73, they collect.
Every dollar in your traditional IRA or 401(k) is taxed eventually — at whatever rate Congress sets then, on whatever schedule the IRS dictates. Required Minimum Distributions force you to pull money out, whether you need it or not. Wait too long and the bill compounds into the largest tax event of your life.
What an RMD actually is
A Required Minimum Distribution is a forced withdrawal from your tax-deferred retirement account, starting the year you turn 73. The IRS sets the percentage with the Uniform Lifetime Table — and the percentage grows every year you live. You don't get to skip it. You don't get to decide the rate it's taxed at. Every dollar comes out as ordinary income, on top of Social Security, pensions, and anything else you're earning.
The trap
Bigger IRA = bigger forced taxes
Every year your IRA grows, you've grown the IRS's future tax bill — not just your retirement.
The compounding
The % climbs with age
At 73 the divisor is 26.5 (~3.8%). By 85 it's 16.0 (~6.25%). By 95 it's 8.9 (~11.2%).
The cascade
It taxes everything else too
Big RMDs push more Social Security into taxation, trigger IRMAA Medicare surcharges, and bump your bracket.
RMD trap simulator
Compare two paths with the same starting IRA: do nothing and let RMDs hit at 73, or proactively reposition IRA dollars into an Indexed Universal Life (IUL) policy before then. Tax law is unknown — this is the bet.
RMDs begin at age 73 (SECURE Act 2.0) and use the IRS Uniform Lifetime Table. The repositioning path withdraws from the IRA, pays ordinary-income tax at today's bracket, and funds a properly structured IUL with the after-tax remainder less policy charges (heavier in years 1–5, light by year 11+). Cash value grows on the illustrated index crediting rate, tax-deferred inside the policy, and is accessed via tax-free policy loans / death benefit. This is intentionally simplified — actual illustrations account for caps, participation rates, IRMAA, NIIT, state tax, Social Security taxation, and underwriting.
Do nothing — lifetime taxes
$649,113
Total taxes the IRS collects from RMDs between age 73 and 90. The IRA still has $2,177,487 left — and your heirs owe tax on every dollar of it.
IUL repositioning — lifetime taxes
$426,275
Taxes paid voluntarily at today's known rate as you move money out of the IRA into the policy. IUL cash value ends at $3,536,085 — accessed tax-free, no RMDs, and the death benefit passes income-tax-free to heirs.
Tax savings
$222,838
Less paid to the IRS over your lifetime by repositioning into the IUL instead of waiting. After-tax legacy is $2,432,692 larger.
What this actually means for you
You're 60 with $1,000,000 in a traditional IRA / 401(k). At a 6.0% growth rate, that money keeps compounding — and so does the IRS's future claim on it. At age 73, RMDs begin. You don't get to choose when, how much, or the rate.
Do nothing
The IRS collects $649,113 from age 73–90.
RMDs hit at 28% ordinary income tax — every year, growing as a percentage of your balance. The IRA still ends with $2,177,487, but every dollar left to heirs is fully taxable to them too. The IRS just keeps collecting.
Reposition $75,000/yr from IRA → IUL starting at age 60
Total taxes: $426,275 · IUL cash value: $3,536,085.
You voluntarily pay tax now at the rate you can see (24%), shrinking the IRA before it compounds into a bigger RMD bill. The after-tax dollars fund a properly structured IUL where cash value grows tax-deferred at the illustrated crediting rate (6.50%), is accessed via tax-free policy loans, has no RMDs, and the death benefit passes income-tax-free to heirs.
The bet you're actually making
Doing nothing only wins if your tax rate in retirement is lower than today's. With our national debt, looming Social Security/Medicare shortfalls, and the 2017 tax cuts scheduled to sunset, that's a bet on Congress lowering taxes for high-balance retirees over the next 20–30 years. Anyone who's watched Washington should ask: really?
Your rate today
24%
Known. Lockable.
Assumed future rate
28%
Set by future Congresses
Lifetime tax difference
−$222,838
Less to the IRS
- RMDs stack on top of everything. Social Security, pensions, dividends, part-time work — RMDs add to all of it, often pushing 85% of Social Security into taxation and triggering IRMAA Medicare surcharges that cost thousands more per year.
- The percentage grows every year. The IRS's table forces bigger withdrawals as you age, exactly when many retirees are spending less and need the income least.
- Heirs inherit the tax bill. Under the SECURE Act, most non-spouse beneficiaries must drain the entire inherited IRA within 10 years — fully taxable, often during their highest earning years.
Repositioning into a properly structured IUL, sized inside lower brackets, defuses all three at once: you pay a known rate today, cash value grows tax-deferred and is accessed tax-free via policy loans, RMDs disappear on every dollar moved out, and the death benefit passes income-tax-free to heirs — outside the IRS's RMD system entirely.
The bottom line
Your traditional IRA is not "your" $1,000,000. It is $720,000 that's yours and $280,000 that the IRS has lent you the use of, until they decide to collect. The RMD trap is what happens when retirees let that silent partner choose the timing and the rate. Proactive planning turns a forced future tax event into a controlled, lower-rate one — and in most realistic scenarios, leaves the family meaningfully wealthier on an after-tax basis.
Cumulative taxes paid to the IRS
Bars show the annual RMD tax bill on the do-nothing path. Lines show the running total for both paths. Watch how the do-nothing path explodes after age 73.
Account balances over time
The do-nothing IRA stays large — but every dollar is still taxable. The repositioning path shrinks the IRA on purpose and builds tax-advantaged IUL cash value alongside it.
Adjust the inputs above, add a name, then print or save the report as a PDF to share.
The window between retirement and 73 is the most valuable tax-planning window of your life
For most people, the years between when their paycheck stops and when RMDs and Social Security force taxable income back up are the lowest-tax-bracket years they will ever see again. Done right, that window can permanently move money out of the IRS's reach.
Bracket-managed IUL repositioning
Pull just enough from the IRA each year to fill the 12% or 22% bracket and fund a properly structured Indexed Universal Life policy. Cash value grows tax-deferred on the index, is accessed via tax-free policy loans, has no RMDs, and the death benefit passes income-tax-free.
Qualified annuities for income certainty
A QLAC (qualified longevity annuity contract) lets you defer a slice of RMDs to age 85, and a properly designed lifetime-income annuity converts forced RMDs into a predictable paycheck.
Tax-free death benefit & living benefits
A properly designed IUL adds a tax-free death benefit and chronic / terminal-illness living benefits — features the IRA simply cannot offer — while pulling assets out of the RMD system entirely.
Coordinated Social Security timing
Delaying Social Security while moving IRA dollars into the IUL in your 60s lets you reposition at lower rates, then enjoy a larger guaranteed-income base at 70.
Important — educational illustration only
The figures shown are hypothetical and produced by a simplified model for education and discussion only. They are not a quote, projection, recommendation, or guarantee of future results. Actual outcomes vary based on your individual circumstances — including age, health, income, tax filing status, state of residence, time horizon, market performance, product design, carrier underwriting, and changes in tax law. Tax-advantaged strategies referenced (e.g., Roth conversions, cash value loans, qualified plan withdrawals) carry rules and consequences that depend on your specific situation; cash value life insurance assumes the contract is properly structured (non-MEC) and remains in force. Nothing on this page constitutes tax, legal, accounting, or individualized investment advice. Please consult your own licensed tax professional, attorney, and financial advisor before acting on any concept presented here.