A $2.5 Million 401(k) at 73 Can Still Cost You Six Figures Without These 3 Moves

A 73-year-old retiree sitting on a $2.5 million traditional 401(k) has just reached the age when required minimum distributions begin. The number the IRS effectively forces out of that account each year is far larger than most people expect once Medicare surcharges and Social Security taxation enter the picture. What looks like a single withdrawal quickly becomes a tax event with three or four separate consequences, most of them invisible until the damage is already done.

Using the IRS Uniform Lifetime Table, the distribution period at age 73 is 26.5. Applied to a $2.5 million balance, that works out to an annual RMD of $94,340 — roughly $7,862 a month in forced taxable income. The cascade that dollar amount triggers is the real problem, and most retirees do not see it coming until the Medicare bill arrives two years later.

Where the RMD Lands in the 2026 Tax Code

For a married couple filing jointly in 2026, the standard deduction is $32,200. The 22% bracket starts at $100,800 of taxable income, and the 24% bracket kicks in at $211,400. A $94,340 RMD alone sits squarely inside the 22% bracket. Add a typical Social Security benefit of $45,000 to $60,000 for the couple and the household is already brushing the 24% line before any pension, dividend, or part-time income shows up on the return.

One significant wrinkle comes from recent legislation. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently locked in the current seven-bracket structure and introduced a $6,000 senior deduction for taxpayers 65 and older. That deduction phases out above $150,000 of modified AGI for joint filers, which means a heavy RMD year can erase it entirely. Planning around that phase-out range adds another layer to the income-sequencing puzzle every retiree in this situation needs to solve.

The real tax bomb, though, sits on top of ordinary income tax.

The IRMAA Surcharge No One Mentions at 72

Medicare Part B premiums in 2026 start at $202.90 a month per person. Once a couple’s modified adjusted gross income clears $218,000, the Income-Related Monthly Adjustment Amount kicks in. The first tier adds $81.20 per person per month, lifting the Part B premium to $284.10. Cross $274,000 in MAGI and the surcharge jumps to $202.90 per person on top of the base, pushing the total Part B premium to $405.80 each. Part D adds another $14.50 in the first tier and $37.50 in the second.

Consider a couple with $94,340 in RMDs, $60,000 in Social Security, and $80,000 in combined pension and brokerage income. Their MAGI lands around $234,000, squarely inside Tier 1. That alone costs the household roughly $2,300 a year in IRMAA surcharges above the base premium. Add another $40,000 to $50,000 in income from a part-time job, rental property, or a Roth conversion, and MAGI clears $274,000 into Tier 2. At that point, the additional Medicare bill for the couple jumps by approximately $3,475 per year on top of regular income tax. IRMAA is a cliff, not a ramp: one dollar over a threshold triggers the full surcharge for the entire year.

Because IRMAA uses a two-year lookback, the bill you pay in 2026 was set by your 2024 return. A one-time Roth conversion done two years ago can still be costing you a surcharge today, even if your current income has since dropped significantly.

Layer in Social Security taxation, which makes up to 85% of benefits taxable once provisional income clears $44,000 for a couple, and the effective marginal rate on the next dollar of RMD income runs close to 40%.

The 401(k) at $2.5 Million Is the Problem

RMDs scale with the balance. A larger pre-tax 401(k) at age 73 is a locked-in tax schedule the IRS writes for you, year after year, with the divisor shrinking and the forced withdrawal growing as a percentage of the account. As Suze Orman has noted about large pre-tax retirement accounts: “That money has been growing and growing tax deferred all these years.” The deferral was always a postponed bill. At 73, it comes due on the IRS’s timetable, not yours.

Three Moves That Change the Math

1. Use Qualified Charitable Distributions to satisfy the RMD. A QCD sends up to $111,000 per person in 2026 directly from an IRA to a qualifying charity. It counts toward the RMD but never appears in AGI, which means it does not feed Social Security taxation and does not push MAGI into the next IRMAA tier. The One Big Beautiful Bill Act also created a new non-itemized charitable deduction of up to $1,000 per person ($2,000 for joint filers) starting in 2026, but that option is far less powerful for large-balance IRA owners: a QCD removes the income from AGI entirely, while the non-itemized deduction only offsets income already counted. Beyond that, the OBBBA restricts itemized charitable deductions in two ways for high-income filers: the first 0.5% of AGI in charitable gifts is no longer deductible, and the top-bracket taxpayers in the 37% bracket see a 2% reduction in the deduction’s tax benefit. Neither restriction applies to QCDs. One critical note: QCDs must flow directly from an IRA, not from a 401(k). A retiree who holds the full balance in a workplace plan needs to roll assets into a traditional IRA before executing this strategy. For charitably inclined retirees who do so, this is the single highest-leverage move available after age 70 and a half.
2. Run partial Roth conversions in the gap years between retirement and 73. Filling the 12% and 22% brackets with conversions before RMDs start shrinks the balance the IRS will eventually force you to distribute. Two planning considerations apply simultaneously: mind the two-year IRMAA lookback, since a conversion done at 71 sets the Medicare premium at 73, and check whether the conversion income would erode the new $6,000 senior deduction before pulling the trigger. Both factors affect the true after-tax cost of any conversion.
3. Sequence withdrawals to keep MAGI under the IRMAA cliffs. The jumps at $218,000, $274,000, and $342,000 in MAGI for joint filers are hard cliffs. One dollar over a threshold costs the full surcharge for the year. In years when the RMD plus Social Security alone would push MAGI close to a tier boundary, drawing from a taxable brokerage account or a Roth balance instead of other pre-tax sources can keep the household below the line.

If household income from RMDs and Social Security looks likely to land above the first IRMAA threshold, a fee-only advisor who can run a multi-year conversion and withdrawal model will typically pay for themselves several times over. The 10-year Treasury currently yields approximately 4.8%, having climbed toward its highest level since late 2023, which means genuinely competitive safe income is available to retirees who need it. The trade-off is that every dollar of forced distribution gets taxed at the household’s highest marginal rate, so the spread between before-tax and after-tax returns on that income matters more than at any point in recent memory.

Editor’s note: The 10-year Treasury yield was updated to approximately 4.8%, reflecting the rate as of early September 2026 near a multi-year high. The QCD annual limit of $111,000 per person for 2026 was confirmed per IRS Notice 2025-67. The article also adds context on the One Big Beautiful Bill Act’s new non-itemized charitable deduction of up to $1,000 per person ($2,000 for joint filers) beginning in 2026, and explains why a QCD remains the stronger tool for large-balance IRA owners despite that new option.

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