A $2.25 Million Portfolio, Two Withdrawal Plans: One Triggers IRMAA and RMD Taxes, One Never Does

A $2.25 Million Portfolio, Two Withdrawal Plans: One Triggers IRMAA and RMD Taxes, One Never Does

David Beren

Sat, September 19, 2026 at 11:20 PM GMT+3 6 min read

Quick Read

• Account location, not yield, determines tax outcomes: the same $2.25M portfolio generating $130,500 annually triggers IRMAA surcharges in a traditional IRA but avoids them entirely in a taxable or Roth account.

• Traditional IRA holders face forced RMDs at 73 that stack with Social Security, potentially pushing Medicare Part B surcharges as high as $325 per month.

• Munis and Treasuries belong in taxable accounts, while REITs like STAG and BDCs like OBDC belong in a Roth or IRA to shield their ordinary-income distributions from MAGI.

• 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.

Two retirees hold identical $2.25 million portfolios. Both own the same seven positions in the same weights, and both draw roughly $10,800 a month in income. One will pay Medicare IRMAA surcharges and take forced RMDs for life. The other will not. The only difference is which account holds the money.

The portfolio blends a broad high-dividend equity sleeve, a dividend-growth sleeve, and a municipal bond sleeve with four income specialists: NEOS Nasdaq-100® High Income ETF (NASDAQ:QQQI), Blue Owl Capital (NYSE:OBDC), iShares 0-3 Month Treasury Bond ETF (NYSEARCA:SGOV), and STAG Industrial (NYSE:STAG). Blended yield: 5.8%, producing roughly $130,500 a year on $2.25 million.

Same Portfolio, Two Very Different Tax Bills

Plan A holds everything inside a traditional IRA. Every dollar you withdraw is ordinary income. Once the owner turns 73, the IRS requires annual minimum distributions, regardless of what the portfolio pays in dividends. That withdrawal lands on the same 1040 as Social Security, and it counts toward modified adjusted gross income. MAGI drives Medicare's income-related surcharges.

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.

For 2026, a single filer with MAGI above $109,000 owes at least $81.20 a month in Part B IRMAA plus $14.50 a month in Part D IRMAA. Joint filers hit that first tier at $218,000. A single retiree pulling $130,500 out of an IRA is inside the surcharge zone, and layering Social Security on top can push them into higher brackets where the Part B surcharge climbs to $202.90 or $324.60 a month.

Plan B holds the same seven positions in a taxable brokerage account (or a Roth). No RMDs. Municipal bond interest is exempt from federal tax. Treasury interest from SGOV is exempt from state tax. Qualified dividends are taxed at long-term capital gains rates, which sit at 0% below $100,800 of taxable income for joint filers in 2026. Same $130,500 in cash flow. Different taxable MAGI. IRMAA never triggers.

Where the Yield Actually Comes From

1. Conservative sleeve (roughly 3% to 4%). SGOV tracks short T-bills; the 13-week yield averaged 4%, and SGOV's trailing 12-month distribution total was 3.71 dollars per share. That interest is federally taxable but state-tax exempt. A municipal bond sleeve and a dividend-growth equity sleeve round out this tier.

2. Moderate sleeve (roughly 5% to 7%). STAG pays a $0.3875 quarterly dividend, or $1.55 per share annualized, against a recent price near $37.61. REIT distributions are non-qualified and taxed as ordinary income, which matters far more in a taxable account than most investors realize.

3. Aggressive sleeve (roughly 10% to 14%). QQQI's trailing 12-month distributions totaled 8.28 dollars per share against a recent price of $54.39. A meaningful slice posts as return of capital: QQQI's Form 8937 shows 94% of fiscal 2024 distributions classified that way. That lowers current-year tax but reduces cost basis. OBDC yields near 12.5%, though the fund cut its regular quarterly base dividend from $0.37 to $0.31 earlier this year as spreads compressed.

Account Location Beats Yield Chasing

The blended 5.8% is the same number in either account. What differs is what the IRS sees. Inside a traditional IRA, everything eventually exits as ordinary income at your top marginal rate. Outside one, muni interest and qualified dividends can pass through your return at 0% federal tax, and no RMD forces withdrawals you don't need.

The 2026 standard deduction for married couples filing jointly is $32,200. The 12% bracket ends at $100,800 for that filer, where 22% takes over. A properly located version of this portfolio can deliver the same monthly income while a fully IRA-held version pays IRMAA every year plus ordinary rates on every dollar.

Three Moves Worth Making Before Year-End

1. Map each holding to the account type that fits its tax character. Munis and Treasuries belong in taxable; REITs like STAG and BDCs like OBDC belong in a Roth or IRA, where their ordinary-income distributions never hit your MAGI.

2. Project MAGI two years forward. IRMAA uses a two-year lookback, so 2026 income drives 2028 Medicare premiums. A Roth conversion this year that lifts MAGI above $109,000 single or $218,000 joint will show up on a premium notice.

3. Model the RMD wave before it starts. Every dollar you convert or withdraw from a traditional IRA in your 60s is a dollar the IRS cannot force out at 73, when Social Security and portfolio growth may already be stacking your MAGI into the highest IRMAA brackets.

That last point is the whole ballgame for anyone with a large pre-tax balance. We walked through how to defuse the first-year RMD tax bomb, years before it lands, in a free guide to the Roth conversion window between your last paycheck and age 73.

Before Your Next Withdrawal, Run One Number ( It's Not The 4% Rule Everyone Knows)

Take your essential monthly expenses and subtract your guaranteed income — Social Security, plus any pension. What's left is your income gap, and how you close it determines whether retirement runs on share sales or on a paycheck your portfolio writes you every month. Our free reader guide, The 4% Rule Is Broken, shows exactly how to close that gap with portfolio income: a worked example (one retiree needed about $480,000 in income-producing assets to cover his essentials for good), an eight-point conversion checklist, and the 20-year numbers comparing dividends to withdrawals. It's free and takes about 15 minutes to read. Get the guide here before you take your next withdrawal.

Contact editorial@247wallst.com for any questions or corrections.