Why Retirees With $1.4 Million in a 401(k) Are Moving to Costa Rica Before Their First RMD at 73

A 72-year-old couple sitting on a $1.4 million traditional 401(k) has roughly eighteen months before the IRS forces money out of the account. The first required minimum distribution at age 73 lands about $52,830 of fully taxable income on their return, whether they need the cash or not. For a growing slice of this demographic, the answer is increasingly a one-way flight to San José.

The Costa Rica retirement migration has been quietly building for two years, and the math behind it has gotten sharper as core inflation sits in the 90th percentile of its 12-month range and US household spending climbs. The 2024 Consumer Expenditure Survey put average annual household outlays at $78,535, up from $72,973 two years earlier. The dollar buys less every quarter at home, and the RMD is about to make that worse.

The Cost-of-Living Arbitrage

A comfortable single-person retirement budget in Costa Rica runs around $2,500 a month in 2026, or roughly 1.14 million colones at the current exchange rate of roughly 457 colones per dollar. A couple living on $50,000 a year there is living comfortably. The same couple in California (cost-of-living index 111) or New Jersey (109) is rationing.

The arbitrage extends beyond housing and groceries to the entire after-tax stack the RMD has to fund.

The Medicare Exit Most Readers Miss

Dropping Medicare Part B changes the math. Once you stop enrolling in Medicare Part B, the IRMAA surcharge that piggybacks on your 401(k) withdrawals goes with it. The 2026 standard Part B premium is $202.90 per person per month. An IRMAA hit at the first single MAGI threshold of $109,000 adds another $1,148 to $6,936 per person per year on top of that. A couple drawing the RMD plus Social Security can easily cross into surcharge territory two years after the fact, because IRMAA uses a two-year lookback on income.

Expats who replace Medicare with Costa Rica’s Caja system pay roughly 7% to 11% of monthly income for the entire household, including spouse. The IRMAA cascade disappears with the Part B election.

What Does Not Change

The federal tax cascade does not vanish. A US citizen owes federal tax on the RMD regardless of address. At a 22% bracket the $52,830 distribution still produces roughly $11,623 of federal tax. What changes is the state piece, the Medicare piece, and the purchasing power of every dollar that survives. Costa Rica does not tax foreign-source pension or 401(k) income for Pensionado residents, and there is no state income tax to chase you across the border. The $41,000 of after-federal-tax RMD that funds a constrained life in Massachusetts funds a beachfront life in Tamarindo.

The fine print matters. The Pensionado visa requires proof of $1,000 per month in lifetime pension income, and 401(k) distributions alone do not satisfy that test. Most retirees qualify by claiming Social Security first and using the benefit letter for residency, then layering the RMD on top once it kicks in. Foreign account reporting still applies. And with the 10-year Treasury near 4.5% and the Fed Funds rate near 4%, the safe sleeve of your portfolio is finally earning real income worth modeling before you commit.

Stress-testing a 4% draw on $1.4 million against your own time horizon often shows the cost side is where the real leverage lives.

Three Things to Do Before Booking the Flight

1. Run your RMD against the IRS Uniform Lifetime Table divisor of 26.5 at age 73. On $1.4 million that is $52,830 in year one, climbing every year after as the divisor shrinks.
2. Pull your projected 2026 MAGI and compare it to the $109,000 single and $218,000 joint IRMAA thresholds. The two-year lookback means the year of your first RMD sets the surcharge two years later, so QCDs, partial Roth conversions before 73, or a residency change all need to happen now.
3. If you intend to drop Medicare Part B, talk to a fee-only advisor who handles expat clients before you disenroll. Re-enrolling later carries a permanent 10% premium penalty for every year missed, and the trade only pays off if the move is permanent.

The Costa Rica play works as a cost shelter with a side benefit on Medicare, and for the right retiree it can convert a stressed $1.4 million portfolio into one that comfortably outlasts them.