RMD, Social Security, and Rental Property Tax Planning for Virginia Retirees
For Virginia residents approaching retirement, the years between leaving the workforce and reaching Required Minimum Distribution (RMD) age present a critical window for tax planning. With traditional IRA balances, rental properties generating income, and unclaimed Social Security benefits, retirees face a complex web of tax decisions that can significantly impact their lifetime wealth and the legacy they leave to heirs.
Understanding Required Minimum Distributions (RMDs)
The SECURE 2.0 Act raised the RMD age to 73 for those who turn 73 after January 1, 2025 . For someone turning 73 on August 20, 2025, the first required minimum distribution must be taken by April 1, 2026, with a second RMD required by December 31, 2026 . After the starting year, RMDs must be taken by December 31 of each year.
The RMD calculation is straightforward: divide the prior December 31 account balance by a life expectancy factor from IRS Publication 590-B. Most retirees use the Uniform Lifetime Table (Table III) . Notably, Roth IRAs are not subject to RMDs during the owner’s lifetime , making Roth conversions a powerful strategy for reducing future RMD exposure.
For a retiree with $1.8 million in traditional IRAs, the initial RMD at age 73 would be approximately $65,000–$70,000 (depending on the exact life expectancy factor). This amount, combined with other income, can push retirees into higher tax brackets and trigger Medicare IRMAA surcharges.
Roth Conversions: The Strategic Window
The years between retirement and RMD age represent the most valuable period for Roth conversions. During this window, taxable income is often at its lowest, making conversions more tax-efficient. Converting traditional IRA funds to a Roth IRA now means paying tax at current rates rather than potentially higher rates when RMDs begin.
A multi-year conversion strategy could involve converting $23,500–$25,000 annually to fill the 12% federal bracket without crossing the Medicare IRMAA threshold . Over a 10-year window, this could convert approximately $235,000 to Roth, creating tax-free growth and tax-free distributions for the future.
The long-term benefit extends beyond the retiree’s lifetime. Roth IRAs are not subject to RMDs during the owner’s lifetime, and non-spouse heirs can inherit Roth IRAs tax-free under the 10-year distribution rule . This makes Roth conversions particularly valuable for clients concerned about the tax impact on their heirs.
Social Security Taxation
Social Security benefits are fully exempt from Virginia income tax . This means any portion of Social Security that is taxable federally is subtracted on the Virginia return, effectively eliminating state tax on Social Security benefits.
However, Social Security is partially taxable at the federal level based on combined income (AGI + nontaxable interest + half of Social Security benefits). For a single filer with combined income between $25,000 and $34,000, up to 50% of benefits may be taxable. Above $34,000, up to 85% may be taxable.
Medicare IRMAA: The Hidden Retirement Tax
Medicare IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge on Medicare Part B and Part D premiums for higher earners . For 2026, the first-tier IRMAA threshold is $109,000 for single filers and $218,000 for married couples filing jointly . Crossing even $1 over a threshold triggers the full surcharge tier, ranging from $1,148 to $6,936 per person per year .
IRMAA uses a two-year lookback, meaning 2026 premiums are based on 2024 income . This creates a significant planning opportunity: income decisions made today affect Medicare premiums two years later. For retirees considering Roth conversions, this timing allows for strategic planning to avoid IRMAA surcharges while still maximizing conversion benefits.
Virginia Retirement Tax Considerations
Virginia offers a moderate tax environment for retirees. Social Security benefits are fully exempt from Virginia income tax . However, most other retirement income—including pensions, 401(k) distributions, and IRA withdrawals—is taxable at Virginia’s graduated rates, which top out at 5.75% .
The Age Deduction
Taxpayers aged 65 and older can claim an age deduction of up to $12,000 per person . However, the deduction is reduced dollar-for-dollar when adjusted federal AGI exceeds $50,000 for single filers and $75,000 for married filers . This means many retirees get only part of the deduction—or none at all.
For a single filer with $30,000 of Social Security, $40,000 from a 401(k), and a $20,000 private pension, the Social Security is excluded, leaving $60,000 of Virginia income. This puts the filer about $10,000 over the $50,000 phase-out threshold, cutting the $12,000 age deduction to roughly $2,000 . Managing adjusted federal AGI around the $50,000 and $75,000 phase-out lines is essential for preserving the age deduction.
Rental Property Depreciation
For retirees with rental properties, depreciation is one of the most valuable tax benefits available. Residential rental property is generally depreciated over 27.5 years . However, a cost segregation study can identify components with shorter useful lives—carpet, appliances, landscaping, and specialty electrical systems—that can be depreciated over 5, 7, or 15 years instead .
100% Bonus Depreciation
The One Big Beautiful Bill Act (OBBBA) restored 100% bonus depreciation for qualified property placed in service after January 19, 2025, extending through December 31, 2029 . When a cost segregation study identifies that 20–40% of a building’s purchase price consists of 5-, 7-, or 15-year property, all of that can potentially be deducted in full in year one .
For a rental property purchased for $800,000, a cost segregation study could identify $162,500 (25%) of the building value as shorter-lived property. With 100% bonus depreciation, the owner could deduct $162,500 immediately, plus remaining building depreciation of approximately $17,727, for total year-one depreciation of over $180,000 . At a 32% tax bracket, this yields approximately $57,673 in federal tax savings .
Cost Segregation Considerations
The cost of a study typically ranges from $5,000–$15,000 depending on property size and complexity . The investment routinely generates 3–10x returns through accelerated depreciation . However, investors should model the full hold period, as accelerated depreciation reduces basis and may affect gain recognition or depreciation recapture when the property is sold .
How We Can Help
Developing a comprehensive multi-year tax strategy requires integrating federal tax brackets, state tax rules, RMD projections, Social Security taxation, and Medicare IRMAA thresholds. This is not a spreadsheet problem—the interactions between these variables produce results that are often counterintuitive.
At Nova Tax & Accounting Services , we specialize in retirement tax strategy for Virginia residents. Our tax planning services help clients evaluate Roth conversions, manage RMDs, navigate Virginia’s age deduction phase-out rules, and optimize rental property depreciation. We also provide guidance on cost segregation studies and can help you determine whether a conversion makes sense for your specific situation. Schedule your free consultation today to discuss your retirement tax planning needs.
