What Happens to a $900,000 401(k) When the Owner Turns 73 and the IRS Starts Setting the Withdrawal Amount
The IRS sets your withdrawal amount starting at 73, but the real cost shows up somewhere most retirees never expect: a tax return where a single extra dollar can trigger a cascade through Social Security, Medicare premiums, and bracket thresholds…
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Picture a single retiree who turns 73 this year with $900,000 in a traditional 401(k), a Social Security check, and no urgent need to touch the account. Starting now, the IRS sets the minimum withdrawal every year. The account itself holds up well under that schedule. The tax return is where the surprise shows up.
How the IRS Picks Your First Number
The IRS takes your December 31 balance from the prior year and divides it by a life expectancy factor from the Uniform Lifetime Table. At 73, that factor is 26.5. On a $900,000 balance, the first required withdrawal comes to roughly $34,000, which is under 4% of the account.
That percentage rises every year because the divisor decreases, falling to 25.5 at 74. Still, the early withdrawals are modest. With the 10-year Treasury yielding about 5.2%, even a conservative bond allocation can earn more than the IRS forces out. A growing balance feels like a win, but it also means larger RMDs, and larger tax bills, in your late 70s and 80s (we walked through how to avoid that first-year tax bomb, years before the withdrawals begin, in a free guide here).
A Year-One Deadline That Can Double Your Income
Your first RMD is due by April 1 of the year after you turn 73. Every RMD after that is due by December 31. Putting off the first one to April stacks two full withdrawals into the same tax year, which can push you a bracket higher.
If you are still working and own less than 5% of the company, your current employer’s 401(k) can defer RMDs until you retire. Missing a withdrawal causes a 25% excise tax on the shortfall, reduced to 10% if you correct it within two years under SECURE 2.0.
Where the Withdrawal Lands on Your Return
For 2026, a single taxpayer gets a $16,100 standard deduction. The 12% bracket runs up to $50,400 of taxable income, and the 22% rate applies above that ($100,800 for married couples filing jointly).
Social Security taxation is the hidden amplifier. The IRS adds your RMD, other income, and half your benefit to get “provisional income.” Once that passes $34,000 for a single taxpayer, up to 85% of your benefit can be taxed. In that zone, each extra RMD dollar drags up to 85 cents in Social Security income onto the return with it. That is how a retiree in the 22% bracket ends up with a marginal rate close to 40%.
Your income also rises without any decision on your part. The 2027 cost-of-living adjustment from Social Security is tracking toward 3.3%, and interest on parked RMD cash counts too. A 12-month CD pays a national average of just 1.7%, while I Bonds carry a composite rate of 4.3% with federal tax deferred until redemption.
Medicare Reads Your Return Two Years Later
Medicare sets Part B and Part D premiums using income from two years earlier. Your 2026 RMD shapes your 2028 premiums. Cross an IRMAA threshold and surcharges run from $70 to more than $400 per month per person. Both partners in a married couple pay it.
The thresholds are cliffs. One dollar over the line causes the full surcharge for that tier, so a slightly larger withdrawal can cost far more in premiums than it adds in spending money.
Three Moves to Make Before December 31
- Roll the 401(k) to an IRA if you give to charity. Qualified charitable distributions count toward your RMD and never hit your adjusted gross income, which keeps provisional income and IRMAA exposure lower. The limit is $111,000 per person in 2026, but QCDs are only allowed from IRAs. A 401(k) owner has to complete the rollover first.
- Take your initial RMD in 2026 instead of waiting until April. Unless you qualify for the still-working exception, putting off stacks two withdrawals into 2027 and can push you across both a bracket line and an IRMAA tier for 2029 premiums.
- Run your provisional income before choosing withholding. Ask the plan to withhold federal tax directly from the RMD so you avoid quarterly estimated payments. If your projected income lands within a few thousand dollars of an IRMAA threshold, a one-time session with a fee-only planner to fine-tune withdrawal timing can pay for itself in a single year of avoided surcharges.
With a $900,000 401(k) at 73, the planning work is keeping each IRS-set withdrawal from causes your benefit and Medicare costs that follow behind it.
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Jake has been been working in financial media for almost 15 years. He focuses on all things personal finance for 24/7 Wall St. with high hopes to educate and entertain. Most recently, Jake spent 12 years working various roles at The Motley Fool. He started copy editing fool.com content, worked on premium and marketing campaigns, and helped launch The Ascent, a personal finance brand.
His work has been featured on platforms like MSN, Yahoo Finance, USA Today, and more. He's written about credit cards, social security, ETFs, savings accounts, and just about anything else you can imagine when thinking about money. Jake love to cook, play golf, and tell people he's never had a cavity. (It's true!)
