Military pension RMD tax stacking

Updated: July 28, 2026

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A military retiree who separated at 20 or 30 years of service and then took post-service contractor employment typically retires from civilian work between 60 and 67.

From that point until age 73 (or 75 for participants born in 1960 or later, per the SECURE Act 2.0 amendments to IRC §401(a)(9)), the retiree draws DFAS retired pay and VA disability compensation. No distributions from the TSP or any rollover IRA are required yet.

That gap, often a six-to-twelve-year window, is the period when the RMD tax bracket from age 73 onward is actually decided. The pension is fixed; the VA disability is fixed; the variable the retiree controls is the pre-tax balance that will generate the RMD.

Element I of the planning is the income inventory. Before any Roth conversion or rollover is initiated, the retiree needs to know what each income stream looks like on the 1040, year by year, from current age through the first RMD year.

For the broader rollover mechanics that feed into this planning, see our TSP to gold IRA rollover guide for federal employees; for the contractor-side coordination, see the contractor 401(k) and TSP consolidation guide. The current article focuses on the bracket-stacking problem that arrives the year the RMD does.

The three income streams a military retiree stacks at the RMD age

By the time the first RMD year arrives, a typical military retiree is reporting three distinct income lines on the 1040, each with its own tax character. The bracket-stacking problem is the sum of those three plus any portfolio income, social security, and DFAS retired-pay cost-of-living adjustment accrual since separation.

DFAS retired pay. Computed as 2.5% of base pay per year of service under the legacy High-3 formula, or 2.0% per year under the Blended Retirement System for those who opted in after 2018. Paid monthly and reported annually on Form 1099-R by the Defense Finance and Accounting Service.

The full amount is ordinary income on Line 5b of the 1040; no portion is excluded. A retiree at 22 years of service with a High-3 of $9,500 per month draws approximately $5,225 per month in retired pay, or roughly $62,700 annually before COLA accrual since separation.

VA disability compensation. Paid monthly under 38 U.S.C. §1131 and excluded from gross income for federal tax purposes; not reported on the 1040 at all. A retiree at a 70% combined rating draws approximately $1,824 per month in 2026, or about $21,890 annually, none of which appears on the tax return.

The exclusion is statutory and unconditional; it does not interact with the RMD calculation directly. It does, however, change the practical cash-flow picture: the retiree may not need the RMD for living expenses, which opens the door to the qualified-charitable-distribution path described below.

Required minimum distribution from the consolidated TSP or rollover IRA. The required minimum starts the year the retiree turns 73 (for those born 1951 to 1959) or 75 (for those born 1960 or later). It is calculated by dividing the December 31 prior-year balance by the Uniform Lifetime Table divisor for the retiree’s age.

At age 73 the divisor is 26.5, which translates to roughly 3.77% of the balance. A retiree with $480,000 in the consolidated pre-tax IRA at age 72 takes a first-year RMD of approximately $18,113. That amount lands on Line 4b of the 1040 alongside the DFAS retired pay, fully taxable as ordinary income.

How the stacking pushes a marginal bracket and an IRMAA tier

The combined effect, for the example retiree above, is roughly $80,800 in taxable income (DFAS retired pay plus RMD) before social security or any portfolio income. Add a moderate social security benefit and the retiree’s taxable income climbs into the $95,000 to $115,000 range, depending on the social-security inclusion percentage.

The marginal bracket math under current law: at the 22% federal bracket, the first dollar of RMD is taxed at 22% on top of whatever bracket the pension alone occupied. If the pension alone left the retiree in the 12% bracket, the RMD effectively starts at the higher 22% rate on every dollar above the bracket threshold.

The Medicare implication arrives two years later. The Income-Related Monthly Adjustment Amount, or IRMAA, surcharges Medicare Part B and Part D premiums based on modified adjusted gross income from two years prior, per 42 U.S.C. §1395r. The first IRMAA tier for a single retiree currently begins at $106,000 MAGI; the first tier for a married-filing-jointly retiree begins at $212,000 MAGI.

A retiree whose RMD pushes MAGI across one of those thresholds adds approximately $74 per month to Part B in IRMAA surcharges. Part D adds roughly $13 per month more. That totals about $1,044 in additional premiums per year. The next tier doubles the surcharge.

The corrective window sits in the years before age 73. Each pre-RMD year is an opportunity to reduce the pre-tax IRA balance, which reduces the RMD denominator, which reduces both the marginal-bracket exposure and the IRMAA exposure for every year after age 73.

The Roth conversion window between separation and RMD age

A Roth conversion under IRC §408A(d)(3) moves a chosen dollar amount from a traditional IRA into a Roth IRA, with the converted amount taxed as ordinary income in the conversion year. The conversion permanently reduces the traditional balance, and the converted amount grows tax-free in the Roth thereafter.

For a military retiree in the gap years between separation and RMD age, the conversion window has a clear upper bound: the marginal bracket the retiree is willing to pay now. Each year of conversion reduces the future RMD by approximately the converted amount divided by the lifetime-table divisor, compounded forward.

Consider a retiree with $480,000 in a pre-tax IRA, $62,700 in DFAS retired pay, and no social security yet claimed. The gap between the pension alone and the top of the 22% bracket (currently around $103,350 taxable income for a single filer) is approximately $40,650 per year.

That headroom is the maximum the retiree can convert each year without pushing into the 24% bracket. Over eight gap years, $325,200 can be converted at the 22% marginal rate. The remaining $155,000 stays in the traditional IRA and generates RMDs from age 73 forward, with the first-year RMD reduced to roughly $5,849 instead of $18,113.

Combat-zone tax-exempt basis and the Roth conversion math

For a retiree whose TSP balance includes combat-zone tax-exempt contributions under IRC §112, the conversion math is more favorable. The CZTE basis component represents principal that was never taxed at contribution because the underlying pay was excluded from gross income. When that basis rolls from TSP to a traditional IRA, the receiving custodian tracks it on the participant’s Form 8606.

When a Roth conversion is executed against that traditional IRA, the basis portion of the converted amount is not taxed again; only the earnings portion is. For a retiree with substantial CZTE contributions during deployments, the effective conversion cost is materially lower than the headline conversion amount.

The pro-rata rule from IRC §408(d)(2) applies: if the traditional IRA holds both basis and pre-tax dollars, every conversion draws a pro-rata fraction of each. For a retiree with $480,000 traditional IRA balance containing $50,000 of CZTE basis, a $40,000 conversion includes approximately $4,167 of basis (10.4% of the balance) and $35,833 of taxable pre-tax dollars.

The retiree pays tax on the $35,833 only. The basis tracking carries forward on Form 8606 year by year; the basis percentage rises in the IRA as the pre-tax portion is converted out.

The qualified charitable distribution alternative once RMDs begin

A retiree who reaches age 73 with a residual pre-tax IRA balance can satisfy the RMD requirement through a qualified charitable distribution under IRC §408(d)(8). The QCD directs up to $108,000 per year (indexed annually per SECURE Act 2.0) from the IRA directly to a qualifying 501(c)(3).

The distributed amount counts toward the RMD but is not reported as taxable income and is excluded from MAGI for IRMAA purposes.

For a retiree whose VA disability and DFAS retired pay already cover the budget, the QCD is a strict improvement over taking the RMD as cash and donating separately. The cash route triggers IRMAA exposure; the QCD does not.

The QCD is available only from a traditional IRA, not from a 401(k), TSP, or active SEP/SIMPLE; the rollover from TSP to traditional IRA is the enabling step.

Tax treatment of the income stack at age 73 and 75

Side-by-side treatment of the income streams at the first RMD year shows where the marginal-bracket and IRMAA pressure originates. The retiree controls only the rightmost column; the first three are statutory or contractually fixed.

The retiree-control row is where planning has effect. DFAS retired pay is a fixed annuity computed at separation; VA disability is rated by the VA; social security has timing flexibility (claim from 62 to 70) but limited amount control. The IRA RMD is the only element that responds materially to advance planning, and the planning instrument is the Roth conversion executed in the gap years.

Common tax-stacking mistakes military retirees make

Five recurring planning errors show up in CPA case files for military retirees who reached age 73 with a substantial pre-tax IRA balance. Each has a documented correction path, and each connects back to a decision the retiree made (or did not make) in the gap years before the RMD age.

Mistake 1: skipping the gap-year Roth conversion entirely. A retiree who reaches age 73 with the full pre-tax balance intact pays the marginal bracket rate on the RMD every year for the rest of life expectancy.

Conversion at 22% in a gap year is cheaper than distribution at 24% or 32% in an RMD year for most retirees with combined pension and RMD income above the first IRMAA tier. Correction: model the conversion-versus-distribution tax cost in a multi-year projection before age 73, ideally beginning the year of separation from civilian work.

Mistake 2: oversizing the conversion past the marginal-bracket threshold. A retiree who converts $80,000 in a year when the headroom is only $40,000 pushes $40,000 into the next bracket. That means paying 24 percent federal instead of 22 percent on those dollars. It may also push two-year-out MAGI past the next IRMAA tier.

The conversion still saves future tax, but at a higher cost than necessary.

Correction: size each conversion to the top of the current marginal bracket, monitor projected MAGI against the IRMAA tier thresholds, and execute the conversion in late December once the year’s other income is known.

Mistake 3: paying conversion tax from inside the IRA. A retiree who satisfies the conversion-year tax bill from the IRA itself, by withholding from the conversion or by taking a separate distribution, shrinks the post-conversion Roth balance by the amount paid in tax. That defeats part of the purpose.

The 10% additional tax under IRC §72(t) does not apply at age 59½ or older, but the opportunity cost on the withheld dollars compounds for decades. Correction: pay the conversion tax from non-IRA cash whenever possible, so the entire converted amount enters the Roth and grows tax-free.

Mistake 4: missing the combat-zone basis recovery on conversion. A retiree with CZTE basis in the IRA who runs the conversion math as if the entire traditional balance were pre-tax overstates the conversion-year tax bill. Form 8606 tracks the basis fraction and the pro-rata rule applies to every conversion and every distribution.

Correction: pull the prior years’ Form 8606 records when planning the conversion, confirm the current basis balance with the custodian, and apply the pro-rata fraction to each conversion projection.

Mistake 5: ignoring the IRMAA two-year lookback when timing the conversion. A retiree who converts $60,000 the year before Medicare enrollment may push MAGI across an IRMAA tier that surfaces two years later. Correction: build the IRMAA tier table into the projection and prefer multiple smaller conversion years over one oversized year, particularly near first Medicare enrollment.

Edge cases: CRDP, CRSC, and the PSO age-50 carve-out

Three additional fact patterns appear often enough in military-retiree planning to deserve named procedural notes.

Concurrent Retirement and Disability Pay (CRDP). Under 10 U.S.C. §1414, retirees rated 50% or higher receive full DFAS retired pay alongside full VA disability, without the prior offset. The CRDP portion remains taxable on the 1099-R; it is part of DFAS retired pay, not VA disability.

Combat-Related Special Compensation (CRSC). Under 10 U.S.C. §1413a, retirees with a combat-related disability rating receive CRSC as a non-taxable substitute for the offset portion of retired pay. CRSC is excluded from gross income similarly to VA disability and is not reported on the 1040.

A retiree who elects CRSC instead of CRDP shifts a portion of the income stack from taxable retired pay to non-taxable special compensation. For any retiree whose marginal bracket sits near a tier threshold, this materially reduces both MAGI and IRMAA exposure.

Public Safety Officer age-50 distribution carve-out. Under IRC §72(t)(10), a public safety officer who separates at or after age 50 can take distributions from a qualified government plan without the 10% additional tax. The carve-out applies to the government plan itself; once funds are rolled to an IRA, the standard 59½ rule reapplies. A retiree considering this path should distinguish carefully between the source plan (where the carve-out lives) and the rollover IRA (where it does not).

Frequently asked questions

Does my VA disability compensation count toward my RMD?

No. VA disability compensation is paid outside the qualified retirement plan system and does not appear on the 1040 at all. It does not count toward the RMD requirement. The RMD calculation is based solely on the December 31 prior-year balance of the qualified retirement account, divided by the Uniform Lifetime Table divisor for the retiree’s age. The VA disability stream is independent of the RMD calculation in every respect.

Can I delay my RMD past age 73 or 75 if I do not need the money?

No, not for a traditional IRA or a rollover IRA. The SECURE Act 2.0 RMD ages of 73 and 75 are statutory, and the penalty for failing to take an RMD is 25% of the shortfall under IRC §4974 (reduced to 10% if corrected timely). The only practical workaround for a retiree who does not need the cash is the qualified charitable distribution route described above, which satisfies the RMD without adding to taxable income or MAGI.

Should I convert all of my traditional IRA to Roth before age 73?

Usually not, for two reasons. First, a complete conversion accelerates the tax bill on the entire pre-tax balance into the conversion years, which compresses years of taxation into a shorter period and often pushes into higher brackets. Second, retaining some traditional balance preserves the QCD option after age 73 for retirees with charitable intent.

The typical recommendation is to size conversions to fill the current marginal bracket to its top each year, leaving some residual traditional balance for the QCD route post-73.

Does my combat-zone tax-exempt basis survive a Roth conversion?

The basis itself does not transfer separately to the Roth; the pro-rata rule from IRC §408(d)(2) means each conversion includes a fraction of basis equal to the basis percentage of the traditional IRA balance. The basis fraction reduces the conversion-year tax bill (the basis portion is not taxed again on conversion).

After the conversion, the converted amount sits in the Roth as ordinary post-tax dollars; the CZTE character is consumed in the conversion. Form 8606 tracks the reduced basis balance year over year.

What happens to my gold IRA RMD if my balance is largely in physical metal?

The RMD is a dollar amount, not a metal allocation. The custodian satisfies it by selling a portion of the metal at the depository and distributing cash. Less commonly, it may issue an in-kind distribution that ships metal to the participant, treated as a taxable distribution at fair market value on the distribution date.

The bid-ask spread on the partial sale is the friction cost, and a dealer who quoted a wide spread at acquisition is the dealer whose spread will surface again at every RMD distribution. The dealer choice at acquisition determines the recurring RMD cost.

The planning deliverable is a multi-year income projection through age 78. It covers, year by year: DFAS retired pay with COLA accrual, projected Social Security and the claim age, and the projected Roth conversion amount sized to the top of the current marginal bracket.

It also projects the pre-tax IRA balance at year-end and the projected RMD beginning at the SECURE Act 2.0 age.

The retiree’s CPA confirms the conversion sizing each year. The dealer-selection decision sits underneath the projection: a dealer whose pricing structure adds friction to every future RMD undoes the planning. The check on gold IRA dealers is the starting point for that decision.

Sources cited

1. IRS Publication 590-B (Distributions from Individual Retirement Arrangements, including RMD rules)
2. 26 U.S. Code §401(a)(9) (Required minimum distribution rules)
3. 26 U.S. Code §4974 (Excise tax on excess accumulations in qualified plans)
4. 38 U.S. Code §1131 (VA disability compensation, excluded from gross income)
5. 42 U.S. Code §1395r (Medicare Part B premium and IRMAA adjustments)
6. 26 U.S. Code §408A (Roth IRA: conversion rules and pro-rata treatment)
7. 26 U.S. Code §112 (Combat-zone compensation exclusion from gross income)
8. 10 U.S. Code §1414 (Concurrent Retirement and Disability Pay)
9. 10 U.S. Code §1413a (Combat-Related Special Compensation)

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