Why a 62-Year-Old Couple With $1.4 Million Is Paying the IRS Early on Purpose

Both 62, this couple has just retired with $1.4 million, nearly all of it in traditional 401(k)s. They plan to delay Social Security, hold enough cash to cover a few years of spending, and are about to do something that looks backward: pull extra money out this year and write the IRS a check they are not yet required to write.

Their balance already puts them well ahead of most peers. Fidelity data shows the average 401(k) for savers aged 60 to 64 at $246,500, and their nest egg falls between Northwestern Mutual’s $1.26 million retirement “magic number” and Schwab’s $1.6 million.

A caller named Zoe from Washington described almost the same setup on a Clark Howard advisor episode: $1.5 million in a 401(k), plans to convert $90,000 while staying under the 24% bracket, and a frank worry: “If I don’t do anything, RMD is going to be very painful.”

Why Low Brackets at 62 Are a Rental

In 2026, joint filers get a $32,200 standard deduction. The 12% bracket ends at $100,800 of taxable income, and the 22% bracket runs until income passes $211,400.

With no paycheck and no Social Security yet, this couple’s taxable income is close to zero. That empty space is their most valuable tax asset, running out when benefits and required withdrawals start. They aim to convert enough each year to fill the 22% bracket and stop short of 24%. Every dollar taxed now at 10%, 12%, or 22% won’t land later on top of everything else (we sized up this quiet window between the last paycheck and the first RMD here: The Roth Window).

Medicare’s Two-Year Memory Makes This Year Special

IRMAA, the Medicare premium surcharge, is based on the tax return filed two years before. Income earned at 62 determines premiums at 64, before either spouse is on Medicare. Income at 63 determines premiums at 65. That makes 62 the one year this couple can convert aggressively with zero Medicare consequences.

Starting at 63, they should size conversions to stay below the initial IRMAA threshold, published each fall. If they buy marketplace health coverage before 65, conversion income can reduce premium subsidies, so run that number before converting.

A Tax Bomb Parked at 75

For anyone born in 1960 or later, required minimum distributions begin at 75. Left untouched for more than a decade, the 401(k) keeps compounding, and RMDs divide that larger balance by a shrinking life-expectancy factor. The forced withdrawals grow faster than most people expect.

Those RMDs stack on Social Security benefits that rise with inflation; the 2027 COLA is tracking toward 3.3%. Pile them together and up to 85% of benefits becomes taxable while IRMAA surcharges kick in. A couple officially in the 22% bracket can face an effective marginal rate near 40%.

Wes Moss, answering on Clark Howard’s show, gave the right pacing: “Typically the right way to do Roth conversions is in chunks spread out over time.”

Moss takes listener questions at wesmoss.com/ask, and lays out his retirement framework in his new best-selling book, The Retire Sooner Method.

Paying the Bill From Outside the 401(k)

Where the tax money comes from matters. Zoe planned to take an extra 30k to cover the tax, which means that money gets taxed too and leaves the shelter for good. Paying from cash or taxable holdings keeps the full converted amount growing tax-free.

Cash does carry an opportunity cost, with the 10-year Treasury yield at 5.2%. Even so, spending some of it to buy decades of tax-free growth is the better trade for this couple.

Suze Orman says that converting makes “absolutely no sense” for workers still earning a paycheck and within eight years of retirement. She’s right about peak earners. A retired 62-year-old with no wages is in the opposite position: the lowest bracket they’ll see for the rest of their lives.

Three Moves Before December 31

1. Size your 2026 conversion. Total your year-to-date income, account for the $32,200 standard deduction, and choose a conversion that keeps taxable income below $211,400. Conversions must be completed by year-end to count for 2026.
2. Build an IRMAA calendar. Mark the year each spouse turns 63. From that point, look up the current first IRMAA tier every fall and cap conversions below it, since that income sets Medicare premiums two years later.
3. Start the Roth clock now. Orman notes that the five-year clock on a Roth 401(k) “does not transfer” to a new Roth IRA. Open and fund a Roth IRA this year so future conversions and rollovers land in an account whose clock is already running.

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