A 65-Year-Old With $900,000 in a 401(k) Discovers 85% of Her Social Security Will Be Taxed, and the Withdrawal Order That Fixes It

A 65-year-old single retiree has $900,000 in a traditional 401(k). Her plan was simple: claim Social Security now and pull the rest of her budget from the 401(k). Then she ran a draft tax return and found that most of her benefit was being taxed as income, even though she considers herself a middle-income retiree.

She has company. On a recent Clark Howard episode, a listener with 1.5 million in her 401(k) who expects $120,000 a year from a pension and her benefit summed it up: “If I don’t do anything, RMD is going to be very painful.”

How 401(k) Dollars Drag Social Security Into the Tax Base

The IRS decides how much of your benefit is taxable using provisional income: your adjusted gross income, plus tax-exempt interest, plus half your Social Security. For a single filer, taxation of benefits starts above $25,000, and above $34,000 up to 85% of benefits can be taxed. Those thresholds were set decades ago and have never been indexed to inflation.

Half her benefit counts toward that test before she takes a single dollar. Every traditional 401(k) withdrawal is ordinary income, so a modest withdrawal drives her past the upper threshold fast.

Inside the phase-in zone, each extra dollar she withdraws pulls up to 85 cents of her benefit into taxable income. She pays tax on the withdrawal and on the benefit it drags along. In the 22% bracket, which runs up to $105,700 of taxable income for single filers in 2026, that stacking drives her real tax rate near 40%. Her paycheck-era bracket said 22%. Her real rate on the next dollar is closer to double.

A second layer comes from Medicare. IRMAA surcharges use income from two years earlier, and they run $70 to $400+ per month per person. The withdrawal she takes at 65 sets her premiums at 67.

Flip the Order: 401(k) First, Social Security Last

The fix is sequencing. From 65 to 70, she lives on the 401(k) and leaves Social Security unclaimed. With no benefit coming in, there is no Social Security to tax, so each withdrawal is taxed at her bracket rate alone. The 40% zone goes away during these years.

Delay also pays her directly. Anyone born in 1960 or later gets full retirement age at 67, and each year of waiting past that adds 8% to the benefit through age 70. Future cost-of-living raises then apply to a larger check. The 2027 adjustment is tracking toward 3.3%.

She should use these bridge years to fill the 12% and 22% brackets on purpose, spending part of the withdrawal and converting the rest to a Roth IRA. Financial advisor Wes Moss framed the method well on Clark Howard’s show: “Typically the right way to do Roth conversions is in chunks spread out over time.” (Those quiet years between retiring and RMDs may be the lowest tax rate she ever sees again, which our free Roth Window guide covers in full.)

The return arrives at 70. She claims a larger Social Security check, holds a smaller traditional balance heading into RMDs (which begin at 75 for her birth age group), and owns Roth money she can spend without raising provisional income. Qualified Roth withdrawals are left out of the provisional income test entirely, so they become her tool for staying under $34,000 in later years.

Funding the Bridge Without Selling at the Wrong Time

Five years of living on the 401(k) concentrates withdrawals early, so market risk matters. She can carve out the bridge years into bond or stable value funds inside the plan. With the 10-year Treasury yielding about 5.1%, locking in the next five years of spending costs her very little in expected return. Any I Bonds she already owns, currently paying a 4.26% combined rate, can supplement that cash.

Three Moves Before Year-End

1. Estimate next year’s provisional income by adding your expected AGI to half your projected benefit. If the total tops $34,000 as a single filer or $44,000 filing jointly, you are in the 85% zone and should run the delay-and-convert math before claiming.
2. Map a year-by-year withdrawal and conversion schedule from now to 70, using up the 22% bracket without crossing into 24%. Review it each January as bracket limits adjust.
3. Check IRMAA two years forward before every conversion. If a planned conversion would cross the first surcharge tier, split it across two tax years. The premium savings often exceed a year of fees for a fee-only planner, so that is the point where paying for one makes sense.

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