I brought this up in another thread so figured it might be better to pull it out in case anyone was interested.
Recently I was eyeballing a retirement and I had not considered RMDs. Basically a Required Minimum Distribution is an amount you must withdraw from your taxable retirement accounts at age 72. Since retirement accounts are individual, a married couple's accounts will not be combined for RMDs. If one spouse is two years older than the other, the first will reach 72 and have a RMD and then the other will have their first RMD two years later.
Currently the first RMD at age 72 is roughly 1/27th. So if you have $270,000 in retirement at age 72 you will have to withdraw $10,000.
If you've not contributed heavily toward retirement the RMD will not be a large amount. If you have contributed heavily in a taxable retirement account then you should consider converting to Roth to avoid potentially moving into a new tax bracket during retirement.
Let's discuss Roth for a second. Any conversion prior to age 59 1/2 requires you to pay the taxes out of other funds to avoid penalty. Once you reach 59 1/2 you could withdraw funds, and pay taxes on those funds, and use those funds you withdrew to pay the taxes on the conversion. Any converted Roth starts a 5 year clock where those funds cannot be withdrawn without penalty.
So let's run an example. Someone who is 50 who started contributing in 401k at age 25. Let's say their total contribution (employee & employer) has been $10k each year. So they have contributed $250,000 in total. Now let's say they averaged the same as the historical stock market return, 10%. Today they have roughly $1,150,00 in the account with 22 years until they reach the age of RMDs. If they didn't contribute another dime and didn't withdraw any funds they would have over 9 million at age 72 with their 10% return. The RMD that year would be over $300k.
Anyone with a taxable retirement account knows they will one day owe taxed on the funds. I would wager most thought they would drop into a lower tax bracket, but it could be the opposite and they could find they are in a higher tax bracket. So if you thought you would be in say a 12% bracket (2021 individual <10k 10%, 10k-40k 12%), that $300k RMD would put you into the 35% bracket (40k-87k 22%, 87k-165k 24%, 165k-210k 32%, 210k-524k 35%).
My suggestion would be to take a look at your retirement accounts and see where you might be at the age of RMD. Then develop a strategy to convert taxable retirement funds to Roth while in a lower tax bracket to avoid a future higher tax bracket.