A 68-Year-Old With $850,000 in a Traditional IRA Is Sitting on a Six-Figure Tax Bill. Here’s How Retirees Shrink It.

Quick Read

• A 68-year-old has a five-year window before RMDs begin at 73, which is the prime opportunity to shrink a six-figure IRA tax bill.

• Partial Roth conversions topping off the 22% bracket can move roughly $90,000 annually out of a traditional IRA at lower tax rates.

• QCDs let retirees 70½ and older send IRA funds directly to charity, cutting AGI and reducing Social Security taxes and Medicare surcharges simultaneously.

• Two retirees, same $1 million, same 4% rule, buy one finished with $1.4 million, the other hit $0 in 12 years. Our free reader guide explains the flaw that separated them, and the income-first method built to avoid it.

An $850,000 traditional IRA looks like a comfortable retirement stash. Every dollar inside it is still owed to the IRS at ordinary income rates. For a 68-year-old single filer, that pretax balance sits behind a tax bill that can easily cross into six figures depending on how and when the money comes out.

The 2026 federal brackets set the rules. A single filer pays 10% on income up to $12,400, 12% up to $50,400, 22% up to $105,700, 24% up to $201,775, 32% up to $256,225, 35% up to $640,600, and 37% above that. The standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly. Pulling the full $850,000 out in a single tax year would push the top slice into the 37% bracket even after the standard deduction.

Required minimum distributions do not begin until age 73 under current rules, which gives a 68-year-old a five-year window before the IRS forces annual withdrawals. That window is where most of the tax-shrinking work happens.

Roth Conversion Ladders in the Gap Years

The standard playbook is a partial Roth conversion each year between retirement and the RMD age. The retiree moves a slice of the traditional IRA into a Roth, pays ordinary income tax on the converted amount, and permanently removes that money from future RMD calculations. Converted balances then grow tax-free and pass to heirs without triggering income tax.

The 4% Rule is Broken, Built On A World That No Longer Exists

Every retiree knows about the 4% rule, but it frames retirement as a slow liquidation and still causes retirees with seven-figure accounts to agonize over a dinner out.

There's a different way to run the math that makes more sense today. Build an income floor — dividends, interest, and Social Security that cover your essential bills every month — and you never have to sell shares into a down market just to pay them.

Our free reader guide, The 4% Rule Is Broken, walks through it in about 15 minutes. Access the report here.