New on FinoLib · Volume V: Personal Finance
I have just published a new article on FinoLib, my free finance education library: 12% Tax Bracket: Filling It in Early Retirement at 62. It is part of Volume V: Personal Finance. It is part 3 of a 3-part guide. Below is a summary of the topic in plain, expert language, so you can follow the idea even before you open the full article.
A closer look
Traditional 401(k) and IRA balances can’t grow tax-deferred forever: Required Minimum Distributions (RMDs) force annual withdrawals starting at age 73 for anyone born 1951–1959, rising to age 75 for anyone born in 1960 or later. (SECURE 2.0 writes the rule as age 75 for anyone who reaches 74 after 2032, so the first age-75 RMDs fall in 2035.) They apply to traditional, SEP and SIMPLE IRAs and to 401(k), 403(b) and 457(b) plans. Roth IRAs have no RMDs during the owner’s lifetime, and since 2024 neither do designated Roth 401(k) and 403(b) accounts.
The calculation is the account balance on Dec 31 of the prior year divided by a distribution period from the IRS Uniform Lifetime Table: 26.5 at 73, 25.5 at 74, 24.6 at 75, 20.2 at 80. The required share therefore climbs with age, from 1 ÷ 26.5 = 3.8% at 73 to 1 ÷ 20.2 = 5.0% at 80. If your sole beneficiary is a spouse more than ten years younger, a joint-life table gives a longer period and a smaller RMD.
A worked example
Worked Example — The First RMD and the Double-Distribution Trap
A single retiree turns 73 in 2026 with a traditional IRA worth $500,000 on Dec 31, 2025. The 2026 RMD is $500,000 ÷ 26.5 = $18,868, taxed as ordinary income (Part 9.1: How Personal Income Tax Actually Works — Brackets and Marginal Rates). Assume the account is worth $495,000 on Dec 31, 2026; the 2027 RMD is $495,000 ÷ 25.5 = $19,412. Suppose the rest of the retiree’s modified AGI is $80,000 a year. Taking the first RMD in 2026 keeps 2027 MAGI at $80,000 + $19,412 = $99,412.
Under the hood
Under the Hood: Why RMDs Are Designed Not to Empty the Account
The divisor is a life expectancy, but not yours alone. The Uniform Lifetime Table in Treasury Regulation §1.401(a)(9)-9 applies to every owner whose sole beneficiary is not a spouse more than ten years younger, and its periods are far longer than a single life: 26.5 years at 73, while the same regulation’s Single Life Table gives a 73-year-old 16.4 years. Because the RMD is 1 ÷ the divisor, the required share starts small and accelerates: 1 ÷ 26.5 = 3.8% at 73, 1 ÷ 16.0 = 6.25% at 85, 1 ÷ 12.2 = 8.2% at 90 and 1 ÷ 6.4 = 15.6% at 100.
Decision rule
If your projected first RMD at 75 (traditional balance ÷ 24.6), added to the taxable part of your Social Security, would carry taxable income past the top of the 12% bracket, then use the years between retiring and RMDs to withdraw or convert traditional money up to the top of the 12% bracket each year (10.5: Sequencing Withdrawals in Retirement).
The costliest mistake
Claiming Social Security at 62 by default when you could afford to wait. On the household’s $2,745.80 PIA, the age-62 benefit is $1,922.06 a month and the age-70 benefit $3,404.79. A single person who lives to 90 receives $1,922.06 × 12 × 28 = $645,812 from claiming at 62 and $3,404.79 × 12 × 20 = $817,150 from claiming at 70: $171,338 less in today’s dollars, and $17,793 a year less in every year from 70 on, exactly the years when other savings are most likely to be running low.
Edge Cases: When the Standard Answer Changes
The rules in 10.1–10.6 assume a worker who retires in their sixties, single or in a first marriage, with an IRA or 401(k). These situations change the answer: Situation What changes Why Number or rule You retire before 59½ Withdrawals normally owe a 10% additional tax The early-distribution penalty, with listed exceptions No penalty from the employer plan you leave in or after the year you turn 55 (50 for public safety workers in a governmental plan); this exception does…
Recap
Turn a retirement spending estimate into a portfolio target by multiplying the annual amount the portfolio itself must supply by about 25, the inverse of the 4% rule, after subtracting Social Security and any pension: for the $75,000 household, 70% replacement means $52,500 a year and a $1,312,500 ceiling that shrinks once benefits are counted.
What the full article covers
The full article includes worked examples, a look under the hood at the mechanics, a clear decision rule, the one mistake that costs people the most, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume V: Personal Finance
Read the full article on FinoLib
The complete article, 12% Tax Bracket: Filling It in Early Retirement at 62, with every worked example, diagram, quiz and source, is free to read in Volume V, Personal Finance on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance