Ted and Susan are both 63, both retired last year, and their traditional 401(k) balances add up to $1.4 million. Their pension and part-time income covers the bills, so they have not touched the retirement accounts. On paper, this looks like a win. In practice, they are staring down a tax problem that gets worse every year they ignore it.
The real trouble starts when required minimum distributions kick in at 73. If that $1.4 million compounds at a modest 6% for the next ten years, it grows to roughly $2.5 million. The Uniform Lifetime Table divisor at age 73 is 26.5, which forces a first-year RMD near $95,000. Layer Social Security on top and their modified adjusted gross income clears $135,000 before a single discretionary dollar is spent.
The Cascade Waiting at Age 73
A $95,000 forced withdrawal does three things at once. It pushes ordinary income into the 24% federal bracket, which begins at $211,400 for married couples filing jointly in 2026. It makes 85% of Social Security benefits taxable. And it trips the Medicare income-related monthly adjustment amount, where the joint IRMAA threshold sits around $218,000 and each tier above adds hundreds per person per month in Part B and Part D surcharges.
The two-year lookback means the RMD they take at 73 sets their Medicare premiums at 75. Stack federal tax, Social Security taxation, and IRMAA together and the effective marginal rate on that RMD dollar can reach the high 30s. The good news is it is defusable, and the fuse is roughly ten years long.
The Conversion Window Nobody Advertises
From retirement to age 73, Ted and Susan control their taxable income. Nothing is forced. That is the window to move money from the traditional 401(k) into a Roth IRA on their terms, at brackets they choose, one year at a time.
The math is straightforward. Converting roughly $140,000 per year for ten years empties the current $1.4M balance into Roth. With the 2026 married-filing-jointly standard deduction of $32,200 and modest other income, that conversion lands taxable income near $148,000, comfortably inside the 22% bracket that runs to $211,400 for joint filers. They pay roughly $25,000 in federal tax on each converted slice. At 73, the RMD on what remains is zero, because Roth IRAs have no lifetime distribution requirement.
Doing nothing means paying tax at 24% or higher on a larger balance, while simultaneously losing part of Social Security and paying Medicare surcharges for the rest of their lives. Converting now at 22% locks in a materially lower lifetime tax bill on the same money.
Timing the IRMAA Trap
Medicare enrollment begins at 65, and premium tiers use a two-year lookback. Any conversion at 63 or 64 will show up on the 2028 and 2029 Part B bill. The workaround is to front-load conversions in the first two retirement years before Medicare enrollment, then downshift to conversions that stay under the roughly $218,000 joint IRMAA threshold once premiums are in play. A larger conversion in year one, a smaller conversion in year six, and everything in between calibrated to the tier below the next IRMAA cliff usually beats an even ten-year ladder.
The current rate environment helps. With the federal funds upper bound at 3.75% and the 10-year Treasury near 4.57%, cash set aside to pay conversion taxes earns a meaningful return while it waits.
Three Moves to Make This Quarter
- Run your projected RMD at 73. Take today’s traditional 401(k) and IRA balances, compound at your expected return through the year you turn 73, and divide by 26.5. If that number plus expected Social Security clears $218,000 joint or $109,000 single, conversions are not optional.
- Convert to the top of the 22% bracket, not a dollar more. For 2026 that ceiling is $211,400 of taxable income joint. Fill the bracket. Stop. Rerun the calculation every January because the brackets adjust and your balance moves.
- Pay the conversion tax from a taxable brokerage account, never from the converted funds. Withholding from the conversion itself shrinks the Roth and, before 59½, triggers penalties. Keeping every converted dollar inside the Roth is the entire point.
The window closes on the day the first RMD is taken. Everything done before that day is negotiated. Everything after is forced.
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