A 64-Year-Old Couple With $1.7 Million in a 401(k) Just Realized They’ve Been Drawing It Down in the Wrong Order

A couple recently posted a familiar dilemma on a retirement forum: both 64, roughly $1.7 million in a 401(k), a small Roth, and a taxable brokerage account they had been draining first because that is what every book told them to do. The math they ran last month made them stop cold. Drawing accounts in the conventional order (taxable, then tax-deferred, then Roth) is quietly setting up a seven-figure tax bill they can still avoid, but only if they act in the next few years.

The sequence is what drives the outcome.

Why the Standard Playbook Backfires at $1.7 Million

The textbook order was designed for portfolios where the tax-deferred account would not balloon into an RMD problem. At $1.7 million with another nine years of compounding before required minimum distributions begin at 73, that assumption collapses. If the 401(k) grows at 7%, the balance roughly doubles by the time RMDs start. The first mandatory withdrawal alone lands well into six figures, stacks on top of Social Security, and drags a chunk of that benefit into taxation.

Then Medicare joins the problem. IRMAA uses a two-year lookback on modified adjusted gross income, so the RMD that hits at 73 sets the Medicare premium surcharge at 75. A couple in the 22% bracket who trips both Social Security taxation and the first IRMAA tier faces an effective marginal rate closer to 40% on every additional dollar. The conventional withdrawal order feeds this tax cascade every single year.

Bracket Space You Are Wasting Right Now

The 2026 tax code gives a married couple filing jointly meaningful room to work with. The standard deduction is $32,200, and the brackets step up from there: 12%, 22%, and 24% before the 32% cliff arrives at the top of the 24% band.

A 64-year-old couple with no earned income and no Social Security yet has nearly all of that bracket space sitting empty. Every dollar of 401(k) withdrawal or Roth conversion between now and age 72 that fills the 12% and 22% brackets is a dollar that will not be forced out at 24% or higher once RMDs and Social Security stack together. Roughly $133,000 of 401(k) money can come out each year at a blended rate near 10% after the standard deduction, filling the 12% bracket that runs to $100,800 of taxable income. Push to the top of the 22% bracket at $211,400 of taxable income, and the couple can move about $243,000 annually at a blended rate closer to 17%. The 24% bracket extends to $403,550 before the 32% cliff.

Compare that to the 32% or 35% they will pay later on the same dollars, plus IRMAA surcharges, plus taxable Social Security. Withdrawing from the 401(k) in your mid-60s is attractive precisely because the bracket space itself is a wasting asset: once RMDs arrive, you lose control of the timing.

Bridge Years Are the Whole Game

The window between retirement and RMDs, roughly ages 64 through 72 for this couple, is when withdrawal sequencing gets decided for good. Wes Moss made the point plainly on a recent podcast when a listener with a similar profile described converting only enough to stay under the 24% bracket: “if you’re already almost at those levels, then your Roth conversion is going to be more like 24, 32” once you factor in living expenses on top of the conversion. The lesson is to model the conversion inside your full income picture, not in isolation.

Delaying Social Security to 70 helps on two fronts. It keeps provisional income low during the conversion years, and the delayed benefit grows about 8% annually. Current forecasts put the 2027 COLA in a range of 3.5% to 3.6%, up from the 2.8% increase paid in 2026, which means the future delayed benefit grows larger in real terms while the couple draws down 401(k) dollars at today’s lower brackets.

Cash needs during the conversion years can be parked in short Treasuries. With the 10-year yield near 5%, the taxable account and any bond ladder can carry living expenses without forcing a sale of equities into a down market. That is the mechanical advantage of having the taxable account available as a reservoir during the conversion years.

Three Moves to Make Before Year-End

1. Project the RMD, not the balance. Run the 401(k) forward at a realistic growth rate to age 73 and calculate the first RMD using the IRS Uniform Lifetime Table. If that number plus expected Social Security lands you in the 24% bracket or above, you have a sequencing problem that compounds every year you wait.
2. Fill the 22% bracket every year through 72. Withdraw from the 401(k) or convert to Roth up to $211,400 of taxable income (roughly $243,600 gross with the standard deduction). Pay the tax from the taxable account so 100% of the conversion lands in the Roth.
3. Watch the first IRMAA threshold once one spouse enrolls in Medicare. The two-year lookback means a conversion at 64 affects Medicare premiums at 66. If a large conversion year pushes MAGI over the first tier, budget for the surcharge in advance rather than discovering it in a billing notice.

The conventional order is fine for a $400,000 401(k). At $1.7 million, the account is large enough that the government becomes a silent partner unless you draw it down on your own terms first.

Editor’s note: This article has been updated to reflect current 10-year Treasury yields, which have risen to near 5% from the earlier figure of 4.7%, and to reflect the latest 2027 Social Security COLA projections of 3.5% to 3.6%, up from the 3.1% figure used when the article was first published.

Contact [email protected] for any questions or corrections.