Ask an Advisor: I Have $1M in My IRA. How Much Will I Pay in Taxes When RMDs Begin?

I have $1 million in my IRA. Once I reach 73 years of age what are the withdrawal requirements? I retired five years ago with no income other than Social Security. What tax bracket will I be in when I begin withdrawing 4% of my IRA?

– Clifford

Once you reach age 73, you’ll need to take required minimum distributions (RMDs) from your traditional IRA each year. These withdrawals are subject to income tax and calculated using an IRS formula based on your age and account balance. We’ll walk through how RMDs work and then estimate the tax bracket you may fall into once you begin withdrawing 4% annually from your IRA.

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Required Minimum Distributions (RMDs)

Once you turn 73 (75 for people born in 1960 or later), you’re required to begin taking minimum withdrawals from tax-deferred retirement accounts like traditional IRAs and 401(k)s. These RMDs are taxed as ordinary income. The rule exists because Congress designed tax-deferred accounts to postpone taxes—not eliminate them entirely—so RMDs prevent indefinite tax deferral.

RMDs are designed to distribute your retirement account balance gradually over your expected lifetime. Each year, you calculate your RMD by dividing your account balance—measured as of December 31 of the previous year—by a distribution period or life expectancy factor from an IRS table. Most individuals use the Uniform Lifetime Table, but if your sole beneficiary is a spouse who is more than 10 years younger, you’ll use the Joint Life and Last Survivor Table, which typically results in smaller required distributions.

According to the IRS Uniform Lifetime Table, the distribution period for a 73-year-old is 26.5 years. So, if you were to turn 73 this year and your IRA had $1 million on Dec. 31, 2024, your RMD in 2025 would be $37,736 ($1,000,000/26.5). For next year, you would divide the balance of your IRA as of December 31, 2025, by the distribution period that corresponds with a 74-year-old, since that’s how old you’d be.

You mentioned that you plan to follow the 4% rule, so at least initially your planned distribution would exceed the RMD and you’d satisfy the requirement. (And if you need help planning for RMDs or managing your taxes in retirement, work with a financial advisor.)

Your Tax Bracket

While we can’t pinpoint your exact tax bracket without more details, we can get a reasonably close estimate. Walking through the numbers will give you a good sense of where you may land.

Let’s start with what we know. With a 4% withdrawal from a $1 million IRA, you’d have $40,000 in taxable income. The next step is to determine how much of your Social Security benefits are taxable. To illustrate that, we’ll use a hypothetical example and assume you’re receiving $3,000 per month in Social Security, or $36,000 annually.

How Much of Your Social Security Benefit is Taxable?

To determine how much of your Social Security benefit is taxable we need to do a separate calculation. Fair warning, the calculation can be somewhat complex, but it’s manageable when broken down step by step

The first step in that process is to add up what the Social Security Administration calls your “provisional” or “combined” income.

Combined income = Adjusted Gross income (AGI) + Nontaxable interest + half of your Social Security benefit.

Assuming you have no above-the-line deductions, your combined income would be the sum of your $40,000 IRA withdrawal and half of your $36,000 Social Security benefit. That comes to $58,000.

Next, see which bracket your combined income falls in to determine how much of benefit could be taxable:

To calculate how much of your Social Security benefits are taxable once your combined income exceeds $34,000, the IRS uses a two-part formula.

First, you take the portion of your combined income between $25,000 and $34,000 and tax up to 50% of it. In your case, that’s $9,000, and 50% of that equals $4,500.

Then, for the amount above $34,000, up to 85% of the excess is taxable. With a combined income of $58,000, the amount over $34,000 is $24,000, and 85% of that is $20,400. When you add the two amounts—$4,500 and $20,400—you get $24,900. This figure also happens to be 85% of your total Social Security benefit, which is the maximum percentage that can be taxed under IRS rules.

(And if you’re looking for ways to potentially reduce your tax liability in retirement, consider finding a financial advisor who specializes in retirement planning.)

Calculating Your Tax Bill

Now that we’ve calculated how much taxable income you expect to have, we can figure out your federal income tax bracket in this scenario.

Adding together the IRA withdrawals ($40,000) and the taxable portion of your Social Security ($24,900) gives you an estimated taxable income of $64,900. Assuming you take the standard deduction—$17,000 for a single filer over age 65 in 2025—that brings your taxable income to roughly $47,900. That places you near the very top of the 12% tax bracket for 2025.

Keep in mind, this estimate assumes a Social Security benefit of $36,000 per year. If your actual benefit differs, the taxable portion—and therefore your total tax liability—may be higher or lower.

(And if you need additional help calculating your tax liability in retirement, speak with a financial advisor.)

Bottom Line

With a $1 million IRA and no other income beyond Social Security, required distributions and tax exposure in retirement become a function of age, withdrawal strategy and IRS formulas. Starting at age 73, distributions from tax-deferred accounts follow a schedule based on life expectancy, and those withdrawals—combined with a portion of your Social Security benefits—make up your taxable income.

Retirement Planning Tips

• A financial advisor can help you plan for RMDs and build other streams of retirement income. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Once you turn 50, you’re eligible to make catch-up contributions to retirement accounts. In 2025, you can contribute an additional $7,500 to a 401(k) and $1,000 to an IRA. If you’re between ages 60 and 63, the 401(k) catch-up limit increases even further—to $11,250—under SECURE 2.0. Taking advantage of these increased limits can significantly boost your retirement savings in your final working years.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.

Photo credit: Courtesy of Brandon Renfro, ©iStock.com/, ©iStock.com/

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