Your First RMD Could Trigger a Tax Chain Reaction. Here's How to Avoid It

You might think that the money in your traditional IRA or 401(k) is yours to manage during retirement as you see fit. But one thing you should know is that the IRS gets to dictate how you treat your traditional retirement accounts.
Once you turn 73 (or 75, depending on your year of birth), the IRS mandates that traditional IRA or 401(k) holders start taking required minimum distributions, or RMDs, each year. And those can be a problem for two reasons.
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First, RMDs force you to remove funds that, until that point, have been growing in a tax-advantaged fashion. RMDs can also lead to a big tax bill, depending on how large they are.
But those aren't the only problems with RMDs. Your first one, in fact, could cause a chain reaction that leads to a host of unwanted consequences.
What your first RMD might do to your finances
You may be aware that RMDs count as income and are therefore subject to taxes. But paying the IRS more isn't the only consequences that might ensue.
Your first RMD could drive your income up to the point where you have to pay federal taxes on your Social Security benefits. It could also, if it's a substantial amount, propel you into IRMAA territory for Medicare.
If you're not familiar with IRMAAs, or income-related monthly adjustment amounts, they're surcharges Medicare enrollees are assessed on their premiums. And while a small RMD may not leave you with IRMAAs to worry about, a larger one could.
How to avoid the ripple effect
If you want to avoid a host of negative financial consequences that can come with having to take RMDs, it's a good idea to convert at least some, if not all, of your traditional retirement savings to a Roth account before you turn 73 (or 75, if that's your RMD age).
If you're able to move all of your money out of a traditional retirement account and into a Roth, you won't have to take RMDs at all. If you're able to move, say, half of your balance, you may be looking at smaller RMDs that don't leave you on the hook for Medicare surcharges or Social Security taxes.
But Roth conversions need to be planned for carefully. When you do a conversion, the money you move into a Roth counts as taxable income that year. If you're already getting Social Security or are on Medicare, a large conversion could do the same thing as an RMD -- leave you paying taxes on benefits or subject you to surcharges on premiums.