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 first check the IRS effectively writes for you comes out to a number most people in this situation underestimate by half once Medicare surcharges and Social Security taxation enter the picture.

Using the IRS Uniform Lifetime Table, the distribution period at age 73 is 26.5. Applied to a $2.5 million balance, that produces an annual RMD of $94,340, or roughly $7,862 a month in forced taxable income. The cascade that dollar amount triggers is the real problem.

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 by itself 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 enters the return.

One new wrinkle worth noting: the One Big Beautiful Bill Act, signed into law in July 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 erode it entirely. Planning around that phase-out adds another layer to the income-sequencing puzzle.

The real tax bomb sits on top of that.

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 premium to $284.10. Cross $274,000 in MAGI and the Part B surcharge jumps to $202.90 per person on top of the base, pushing the total 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 annual Medicare bill for the couple jumps by an additional $3,500 or more, on top of regular income tax.

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.

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. As Suze Orman has said: “If you have a lot of money in your pre-taxed 401k plan, it all depends how much money you have in there. And that money has been growing and growing tax deferred all these years.” The deferral was always a postponed bill that comes due at 73.

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. Starting in 2026, the One Big Beautiful Bill Act also imposed a 0.5% AGI floor on itemized charitable deductions and a 35% deduction cap for top-bracket taxpayers, so a QCD now beats a regular charitable gift by an even wider margin. One important note: QCDs must come directly from an IRA, not from a 401(k). A retiree holding the full balance in a workplace plan would first need 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 70½.
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. Mind the two-year IRMAA lookback: a conversion done at 71 sets the Medicare premium at 73. Model the surcharge, and also check whether the conversion would erode the new $6,000 senior deduction, before pulling the trigger.
3. Sequence withdrawals to keep MAGI under the IRMAA cliffs. The jumps from $218,000 to $274,000 to $342,000 in MAGI for joint filers are hard cliffs. One dollar over a threshold costs the full surcharge for the year. Pull from the taxable brokerage account and Roth balances strategically in years when the RMD plus Social Security alone would push MAGI close to a tier boundary.

If household income from RMDs and Social Security looks likely to land above the first IRMAA threshold, the tax planning alone justifies a fee-only advisor who can run a multi-year conversion and withdrawal model. The 10-year Treasury currently yields around 4.5%, meaning safe income is finally available again, but it also means every dollar of forced distribution gets taxed at the household’s highest marginal rate.

Editor’s note: This article was updated to correct the IRMAA tier classification for the illustrative example household (the described income of approximately $234,000 falls in Tier 1, not Tier 2), to reflect the 2026 QCD limit of $111,000 per person (up from $108,000 in 2025), to add context on the One Big Beautiful Bill Act’s new $6,000 senior deduction and its stricter charitable deduction rules, and to note that QCDs require an IRA rather than a direct 401(k) distribution. The 10-year Treasury yield was also updated to reflect the current rate of approximately 4.5%.

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