Why the IRS Isn’t Your Friend in Retirement: The RMD Trap No One Warns You About
Most retirees are told they can safely withdraw about 4% per year from their retirement accounts to make their money last 30+ years. In fact, some advisors have revised that number even lower—to 3.5% or even 2.8%—to account for market volatility and longevity.
But here’s the catch:
The IRS doesn’t follow the safe withdrawal rule. In fact, they force you to do the opposite.
The RMD Problem Hiding in Plain Sight
Starting at age 73 (or 75 depending on your birth year), the IRS mandates you begin taking Required Minimum Distributions (RMDs) from your tax-deferred accounts like 401(k)s, Traditional IRAs, and more.
The amount you’re forced to withdraw goes up every single year.
Take a look:
- At age 73, you’re required to withdraw about 3.77%
- By age 80, that number jumps to 4.95%
- By age 85, you’re withdrawing over 6%
- By your 90s, you could be forced to take out more than 10% annually—even if your account is shrinking
And these withdrawals are 100% taxable.
Why This is Dangerous
Let’s say you retired conservatively and wanted to only take 3.5% per year to avoid running out of money. That might work… until the IRS forces your hand.
Now you’re withdrawing 5%, 6%, 7%—which can:
- Drain your account faster than planned
- Trigger higher tax brackets
- Increase your Medicare premiums
- Make more of your Social Security taxable
- And worst of all… force you to sell investments in a down market
The IRS Doesn’t Care if You Run Out of Money
RMDs are not designed to protect your retirement—they’re designed to force tax revenue out of your account. That’s it.
Is There a Way Out?
Yes. There are alternative strategies to reduce or even avoid RMDs entirely:
- Roth conversions before RMD age
- Qualified Charitable Distributions (QCDs) after age 70½
- Using Indexed Universal Life (IUL) policies to build tax-free retirement income with no forced withdrawals
- And other non-qualified strategies that give you more control over your money
Bottom Line
If you’re planning to rely on your 401(k) or IRA alone, you’re playing by rules that benefit the IRS—not you.
Want to see what a retirement plan looks like without forced withdrawals and tax surprises?
Click here to schedule a 15-minute call. I’ll show you a side-by-side comparison of what RMDs will do to your income—and how you could potentially avoid them.