The IRS gets to decide how much comes out of your 401(k) at 75, and the tax cascade that follows can push your effective marginal rate past 40 percent. There is a narrow window before that clock runs out, and…
The Full Benefits Desk desk. Editor: Gerelyn Terzo.
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Picture a 62-year-old with $900,000 in a traditional 401(k) and a retirement date coming up soon. He doesn’t want the IRS setting his withdrawals later. If he leaves the account alone, the IRS starts making that call at 75.
Many people are working through the same problem. On Reddit, a 54-year-old with $720,000 in a 401(k) was told, “You’ll probably do a more substantial amount after 65 once you’re on Medicare.” That timing can be expensive.
Age 75 Is the Deadline for Anyone Born in 1960 or Later
Under current law, the required minimum distribution (RMD) starting age is 75 for anyone who turns 74 after December 31, 2032. Our 62-year-old was born in 1964, so that rule covers him. If he skips a required withdrawal, he can face a 25% excise tax, falling to 10% if corrected in time.
Roth IRAs get different treatment. The original owner never has to take required minimum distributions while alive. Every dollar that moves to a Roth before 75 is a dollar the IRS can’t force out later.
Annual $91,250 Withdrawal That Empties the Account
Assume 5% annual returns and 13 years until age 75. To empty the account by then, he needs to take out about $91,250 at the start of each year.
If he leaves it untouched, the same $900,000 grows to roughly $1.7 million by 75.
The IRS Uniform Lifetime Table divisor at that age is 24.6, so his first RMD comes to about $69,000.
Why $91,250 Costs About 7% in Federal Tax Today
Say he files jointly and the withdrawal is the couple’s only taxable income early in retirement. The 2026 standard deduction of $32,200 leaves $59,050 of taxable income.
All of it lands in the 10% and 12% brackets, and the 12% bracket runs up to $100,800.
The federal bill is about $6,590, an effective rate near 7%. Whatever part he doesn’t need to live on can instead move directly into a Roth IRA through a taxable rollover. Emptying the pretax account and spending the money are two separate decisions. That converted money can keep growing, with qualified withdrawals tax-free.
Tax Cascade Waiting at 75
Now picture the untouched account at 75, with RMDs stacked on top of Social Security. On a joint return, benefits start becoming taxable once combined income passes $32,000, and the second threshold is $44,000. Up to 85% of benefits can end up taxable.
In that phase-in range, each extra RMD dollar taxed at 22% draws 85 cents of benefits into taxable income along with it. That works out to an effective marginal rate of about 41%.
After the year one spouse dies, the survivor generally files single. Under 2026 rules, the first Medicare surcharge threshold falls from $218,000 to $109,000.
Medicare’s Two-Year Lookback Creates an Opening at 62
Medicare’s income-related monthly adjustment amount (IRMAA) generally uses income from two years earlier. A conversion at 62 ordinarily won’t affect his Medicare premiums at 65. From 63 on, conversions can affect future premiums. That makes 62 an attractive window, although health insurance costs before Medicare matter too.
Under 2026 rules, a $91,250 conversion alone sits below the joint threshold of $218,000. Add a large capital gain on top and the couple could cross it.
The first level adds $81.20 a month per person to the standard $202.90 Part B premium, plus $14.50 for Part D.
Three Moves to Make Before Your Next Birthday
- Figure out your own drain number. Use your balance, a conservative return and the years left until your RMD age. That gives you the annual amount that has to leave the pretax account, and you’ll see right away whether it fits inside the 12% or 22% bracket.
- Fill your bracket on purpose, and track Medicare income from 63 forward. Size each year’s conversion around your tax bracket and that year’s Medicare thresholds (2026: $218,000 joint or $109,000 single), including other income.
- Pay the conversion tax from a taxable brokerage or savings account. That is where your other assets decide whether this works. Covering the tax out of the 401(k) itself means less money reaches the Roth, and the advantage gets much smaller.
For a married couple who can convert at around 7% now instead of facing a possible 41% marginal rate later, emptying the 401(k) on their own schedule comes out ahead.
Contact [email protected] for any questions or corrections.
Gerelyn Terzo is the author of dividend investing handbook “Dividend Investing Strategies: How to Have Your Cake & Eat It Too.” A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
