A 75 Year Old With $3 Million in a 401(k) Discovers Three Years of RMDs Will Cost Her $42,000 in Medicare Surcharges Alone
Margaret turned 75 last fall, sits on a $3 million traditional 401(k), and is two years into required minimum distributions. She did everything the textbooks said. What arrived this spring was not a thank-you note. It was a Part B…
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Margaret turned 75 last fall, sits on a $3 million traditional 401(k), and is two years into required minimum distributions. She did everything the textbooks said. What arrived this spring was not a thank-you note. It was a Part B and Part D bill priced for the upper rungs of Medicare’s income ladder. Over three RMD years, the surcharges alone are on track to total roughly $42,000 for her household.
The warning is one many retirees have voiced on finance forums: maximize a 401(k) pretax, and you will pay elevated taxes on every dollar taken out, plus extra on Medicare. The arithmetic Margaret is now living through makes the point in real numbers.
How a $3 Million Balance Forces a $200,000 Income Year
The IRS Uniform Lifetime Table assigns a divisor of 24.6 at age 75. On a $3 million traditional balance, that produces a required withdrawal of $121,951 for the year. Add $48,000 in Social Security and $30,000 in dividends from a taxable brokerage account, and Margaret’s modified adjusted gross income lands near $200,000. Her lifestyle did not change. The IRS changed the math for her.
That MAGI places her inside IRMAA Tier 3 for single filers in 2026, which covers MAGI between $171,001 and $205,000. The Part B surcharge at that tier is $324.60 per month and the Part D surcharge is $60.40 per month. Combined, that is $385 a month, or $4,620 a year, layered on top of the standard $202.90 Part B base premium. For a married couple where both spouses are enrolled in Medicare, every surcharge tier applies to each person separately, so the annual household cost doubles immediately.
Why the Surcharge Compounds Toward $42,000
The headline number reflects what happens as the RMD grows across a household. Each year the divisor shrinks (23.7 at age 76, 22.9 at 77), and a portfolio earning anything close to its long-run average refills the balance faster than withdrawals can empty it. The RMD percentage climbs, and MAGI drifts toward the next bracket. Tier 4 for single filers covers MAGI between $205,001 and $499,999 and carries a $446.30 monthly Part B surcharge plus an $83.30 Part D surcharge, for a combined $529.60 per month, or $6,355 per year per person. Two Medicare-enrolled spouses at that tier face nearly $12,710 in annual surcharges alone. Two years at Tier 3 plus a third year edging into Tier 4, applied to both household members, is how the cumulative bill reaches toward $42,000.
One nuance most retirees miss: IRMAA uses a two-year lookback. The premium Margaret pays in 2026 is set by her 2024 return. Choices made today will set the surcharge for 2028. That is why pre-73 Roth conversion windows carry so much weight, and why scrambling to fix this in the year RMDs begin is already two years too late.
The Four Levers That Actually Work at 75
Form SSA-44 allows an appeal for “life-changing events” such as job loss, divorce, or the death of a spouse. A predictable and recurring RMD does not qualify, so that door is closed before she even reaches for it.
- Roll a slice to an IRA, then use QCDs. Qualified charitable distributions flow directly from an IRA to a 501(c)(3), satisfy the RMD requirement, and never enter MAGI. The 2026 QCD limit is $111,000 per person. Because QCDs cannot originate from a 401(k), a partial rollover into a traditional IRA is the necessary first step for charitably inclined retirees still holding assets in a workplace plan. The One Big Beautiful Bill Act restricts itemized charitable deductions for high earners beginning in 2026, which makes the QCD route more valuable than ever for managing MAGI.
- Harvest losses in the taxable account. The $30,000 dividend stream can be partially offset by realized losses, trimming MAGI by up to $3,000 against ordinary income plus an unlimited offset against realized capital gains. In a year that threatens the next IRMAA cliff, even $5,000 of MAGI reduction can eliminate the full annual surcharge step-up.
- Bunch charitable giving into one high-RMD year. Pairing a large donor-advised fund contribution with the RMD year can push itemized deductions above the standard deduction threshold, cutting taxable income while QCDs simultaneously handle the MAGI side.
- Map the next two years of MAGI against the brackets today. Because of the lookback, the planning window for 2028 premiums is the current tax year. The CMS 2026 IRMAA tables at cms.gov and IRS Publication 590-B are the primary source documents worth keeping at hand.
For Margaret, the lesson is that a $3 million 401(k) does not arrive on its own. It comes bundled with a tax structure and a Medicare invoice. With the CPI running at 3.4% year-over-year as of July 2026, still well above the Fed’s 2% target, that $42,000 is not being inflated away. It is real money, and the planning to avoid the next round of it starts in the tax year currently underway.
Editor’s note: This pass updates the year-over-year CPI inflation figure from 4.2% (as of May 2026) to 3.4%, reflecting the Bureau of Labor Statistics July 2026 report released on August 12, 2026, and removes the specific CPI-U index level cited in the prior version.
Contact [email protected] for any questions or corrections.
Marc Guberti is a personal finance writer who has written for US News & World Report, Business Insider, Newsweek and other publications. He also hosts the Breakthrough Success Podcast which teaches listeners how to use content marketing to grow their businesses.
