The 401(k) Withdrawal Strategy That Saves High Earners $80,000 in Taxes

A couple retires at 62 with a $1.5 million traditional 401(k), $400,000 in taxable accounts, and $200,000 in a Roth IRA. They feel set. Then they run the numbers at age 73 and discover their required minimum distributions will push them into a tax bracket they never planned for. Those same withdrawals will trigger Medicare surcharges they did not budget for and make up to 85% of their Social Security benefits taxable.

The Gap Years Are an Opportunity

From ages 62 to 72, this couple has no earned income and no RMDs. Their taxable account covers living expenses, and their MAGI is low. This is the window when converting $50,000 per year from a traditional 401(k) to a Roth IRA incurs the lowest tax cost and yields the greatest savings over time.

At the 2026 tax brackets for married filing jointly, a $50,000 conversion lands squarely in the 22% bracket, which runs from $100,801 to $211,400. The annual tax bill on that conversion is roughly $11,000. Over ten years, the couple converts $500,000 total and pays approximately $110,000 in taxes at today’s rates.

The real value is in what those taxes prevent over the following decade.

What the RMD Math Actually Looks Like

Under SECURE 2.0, RMDs now begin at age 73, the IRS Uniform Lifetime Table assigns a distribution factor of 26.5 at age 73. On an unconverted $1.5 million balance, that produces a first-year RMD of roughly $56,600. That forced income alone can push a retired couple into a higher bracket and trigger Medicare surcharges. On a balance reduced to $1 million after ten years of conversions, the RMD drops to roughly $37,700, nearly $19,000 less in forced ordinary income in year one.

Converting $50,000 per year over the decade reduces future RMDs by roughly 40%, saving $80,000 or more in lifetime taxes on a conservative estimate. The actual savings tend to run higher because RMDs grow each year as the account balance compounds, pushing more income into the 32% bracket or beyond.

The IRMAA Cliff: Where One Dollar Costs Thousands

Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) uses a two-year lookback. Income from your 2024 tax return determines your 2026 Medicare premiums, so a Roth conversion made today affects your Medicare costs two years from now.

For 2026, the first IRMAA tier for married filing jointly begins at $218,001 in MAGI. Below that threshold, the couple pays the standard $202.90 per month per person for Medicare Part B. One dollar above it triggers a surcharge of $81.20 per person per month, or $2,297 annually for the couple combined in Part B and Part D surcharges at Tier 1.

If the couple’s other income totals $168,000 in a given year, they have exactly $50,000 of room before crossing the IRMAA threshold. A $50,000 conversion fits. A $60,000 conversion does not, and the extra $10,000 triggers $2,297 in Medicare surcharges that persist for two years. The effective marginal rate on that last $10,000 spikes well above 40%.

Run your MAGI projection each November before year-end. If you are within $20,000 of the $218,000 IRMAA threshold, reduce the conversion accordingly. Getting this number right saves more than the additional conversion would generate.

Where the Taxable Account Fits In

Drawing from the $400,000 taxable account first funds for living expenses during the conversion years without adding to MAGI beyond capital gains. Long-term capital gains at this income level are taxed at 15%, well below the 22%-24% rate on 401(k) withdrawals. This sequencing, taxable account first and Roth last, creates the low-MAGI window that makes conversions efficient.

For income generation within the taxable account, Schwab US Dividend Equity ETF (NYSEARCA:SCHD) currently yields 3.4%, and JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) yields roughly 8.5%. Both generate income that is generally taxed more favorably than ordinary 401(k) withdrawals, keeping MAGI manageable during the conversion window.

Three Actions Before Year-End

1. Calculate your current-year MAGI, including all income sources, and subtract it from $218,000. That gap is your maximum safe Roth conversion amount for this year without triggering IRMAA two years out. Run this number every November.
2. Model the RMD impact now using the IRS Uniform Lifetime Table (available at IRS.gov). Divide your projected age-73 balance by 26.5 to see your first mandatory withdrawal. If that number plus Social Security pushes combined income above $44,000 for a married couple, up to 85% of your Social Security benefits become taxable. Conversions now prevent that.
3. If your combined income already exceeds the first IRMAA threshold at $218,000 for married filing jointly, the planning complexity alone justifies engaging a fee-only CPA or CFP who specializes in retirement income sequencing. The surcharge savings over a two-year period typically exceed the cost of professional advice by a wide margin.