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) just hit the year required minimum distributions start. The first check from the IRS comes out to a number most people in this situation underestimate by half once Medicare and Social Security taxation enter the picture.

Using the IRS Uniform Lifetime Table, the divisor at age 73 is 26.5. That produces an annual RMD of $94,340 on a $2.5 million balance, 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.

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 and the surcharge jumps to $202.90 per person, pushing the premium to $405.80 each. Part D adds another $14.50 on top in the first tier.

For a couple with $94,340 in RMDs plus $60,000 in Social Security plus $80,000 in pension or brokerage income, MAGI clears the second tier. That is an extra $4,870 a year in Medicare premiums for the household, on top of regular income tax. And 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 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 $108,000 per person in 2025 and an inflation-adjusted figure near $111,000 in 2026 directly from the IRA to charity. It counts toward the RMD, but it never appears in AGI, which means it does not feed Social Security taxation and does not push MAGI into the next IRMAA tier. For charitably inclined retirees, this is the single highest-leverage move available after 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 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 the RMD plus Social Security alone would clear a tier.

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 at about 4.6% means safe income is finally available again, but it also means every dollar of forced distribution gets taxed at the household’s highest marginal rate.