He’s 61 and Gen X, Retiring Without the Pension. The 401(k) He Built Is Setting Up an RMD Tax Torpedo at 75.
He is 61, part of the first Gen X wave born around 1965, and the retirement he is walking into looks nothing like his parents'. They had pensions. Steady monthly checks arrived whether the market cooperated or not. He has…
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He is 61, part of the first Gen X wave born around 1965, and the retirement he is walking into looks nothing like his parents’. They had pensions. Steady monthly checks arrived whether the market cooperated or not. He has a traditional 401(k) with a healthy balance built over decades, exactly as he was told to do when pensions disappeared from private employers in the 1980s and 1990s. That balance is his win. It is also the setup for a tax problem his parents never faced.
A version of his story appears frequently in early-retirement forums: someone in their low 60s with several hundred thousand dollars or more in a traditional 401(k), a Social Security estimate they have not yet claimed, and a persistent sense that the tax bill in their mid-70s will be worse than today. That instinct is correct, and it has a name.
Why the 401(k) generation faces a bill pensioners didn’t
A pension is taxable income, but it is a flat stream. It does not grow inside a tax-deferred account for another 15 years while compounding into a larger forced withdrawal. A traditional 401(k) does exactly that. Every dollar he did not pay tax on during his working years is still owed to the IRS, and the government eventually insists on collecting.
The collection mechanism is the required minimum distribution (RMD). For anyone born in 1960 or later, which covers every Gen Xer, RMDs begin at age 75, not 73. He has roughly 14 years before the first one hits. That gap is the window that matters.
Fidelity’s Q2 2026 analysis of 25.8 million plan participants puts the average Gen X 401(k) balance at $240,700, up from $215,600 at the end of Q1. Gen Xers who have saved continuously for 15 years average $668,900 across all retirement accounts, according to the same report. Left untouched and growing, a balance of that size can produce a first-year RMD large enough to push a retiree into a higher bracket the moment distributions begin, whether he needs the cash or not. The Q2 report also shows that 62% of all 401(k) accounts with balances of $1 million or more belong to Gen Xers, with a record 769,000 401(k) millionaires counted at the end of June. That millionaire count is up roughly 30% from a year earlier, and the typical 401(k) millionaire averaged 25 years of uninterrupted contributions. The cohort’s best savers face the sharpest RMD exposure.
There is a less-discussed wrinkle in the same data. Gen X also carries the highest outstanding 401(k) loan rate of any generation, at 25.7%, compared with a 19.5% average across all participants. For savers who borrowed against their plans during leaner years, those loan balances reduce the tax-deferred cushion available for Roth conversions later.
How Social Security gets pulled into the blast radius
Social Security benefits are taxed based on provisional income, a formula that adds half the benefit to other taxable income. Once that number crosses relatively modest thresholds set in the 1980s and never indexed to inflation, a larger share of the benefit becomes taxable. Up to 85% of the benefit can be pulled into taxable income. That 85% figure is the share of the check that becomes taxable, not a tax rate applied to it.
A large RMD at 75 is ordinary income. It lifts provisional income and drags Social Security into taxation. The same spike raises Modified Adjusted Gross Income (MAGI), which can trigger higher Medicare Part B and Part D premiums through the Income-Related Monthly Adjustment Amount (IRMAA). Because IRMAA uses a two-year lookback, a big income spike at 75 translates directly into a higher Medicare bill at 77. A pension is also taxable, but it does not escalate alongside an account balance the way an RMD does.
The 2026 Social Security COLA came in at 2.8%. Every increase, though, also nudges more retirees closer to those frozen taxability thresholds. For 2027, the Senior Citizens League’s most recent projection (September 2026) stands at 3.5%, while AARP’s latest estimate is 3.6%. Both figures sit well above the 2.8% 2026 adjustment. The official 2027 COLA will be announced October 14, 2026, based on July through September CPI-W readings. A higher COLA accelerates pressure on those thresholds.
The 14-year window he actually controls
His 60s and early 70s are the quiet years before Social Security, RMDs, and IRMAA converge. That gap is the planning window, and two levers tend to matter most.
- Partial Roth conversions in low-income years. Moving chunks of the traditional 401(k) into a Roth before RMDs begin means paying tax now at a known rate rather than at whatever bracket the RMD forces later. Roth balances carry no lifetime RMDs and do not count toward provisional income.
- Sequencing Social Security and withdrawals deliberately. Delaying Social Security while spending down the traditional balance in his late 60s can shrink the future RMD and increase the eventual benefit. Claiming early and letting the 401(k) grow does the opposite.
Because he turns 61 this year, he qualifies for the SECURE 2.0 “super catch-up” contribution. That provision allows savers aged 60 to 63 to contribute an additional $11,250 on top of the standard $24,500 limit, for a total deferral of up to $35,750 in 2026. The window runs through age 63, giving him a few years to build the Roth side of his balance faster or to accelerate the spending down of the traditional account before RMDs begin. High earners should note that a separate SECURE 2.0 rule, fully in effect for 2026, requires those catch-up contributions to go into a Roth account if prior-year wages from a single employer exceeded $150,000.
Neither move is one-size-fits-all. A conversion done in a high-income year can cost more than the RMD it prevents, and delayed claiming only pays off if longevity cooperates. This is where personalized planning earns its keep.
What to hold onto
A large traditional 401(k) is a good problem to have. It exists because he did what the system asked after pensions faded. The task now is awareness: the tax structure his parents’ pensions did not carry is baked into his account, and the years between retirement and 75 are when he has the most control over how loud the torpedo gets. Small decisions made in his early 60s tend to matter more than large ones made at 74. Individual circumstances vary, and the right sequence depends on details a good tax professional or fee-only planner can see that a general article cannot.
Editor’s note: This article has been updated to reflect Fidelity’s Q2 2026 data, which puts the average Gen X 401(k) balance at $240,700 (up from $215,600 in Q1) across 25.8 million plan participants, and adds that Gen X carries a 25.7% outstanding 401(k) loan rate, the highest of any generation. The 2027 Social Security COLA projection has also been refined to reflect the Senior Citizens League’s September 2026 final estimate of 3.5% and AARP’s current estimate of 3.6%, both up sharply from the 2.8% 2026 adjustment.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
