A 64-Year-Old Couple Has $1.2 Million in a 401(k), but Their Biggest Tax Decision May Come Before They Touch It

A couple retiring at 64 with $1.2 million in fully pretax 401(k) savings looks like they’re done. They also have enough cash in a taxable account to cover several years of spending, so they plan to leave the 401(k) alone and let it compound.

This couple is hypothetical but stands in for a pattern that trips up many seven-figure savers. Every dollar in that account comes with a deferred tax bill. That stretch from the last paycheck to the first required withdrawal may be the cheapest time they will ever have to pay it. If they let those years pass without acting, they are still making a decision, and it has a price.

Map Every Income Source Before Touching the Account

The first step is a calendar of income sources. Write down the year each paycheck ends, when any pension begins, when each spouse plans to claim Social Security, and when required minimum distributions (RMDs) begin.

That last date has moved. Under IRS Notice 2026-13, RMDs start at age 75 for anyone who reaches age 74 after December 31, 2032. A couple who is 64 today falls under that rule, so they have a long stretch before the IRS forces any money out.

Those gap years are the valuable part. After salaries stop and before Social Security and RMDs stack up, taxable income can drop to its lowest level in decades. Withdrawals or Roth conversions taken then can be taxed at lower rates than the same dollars would face later, when they land on top of benefits and mandatory distributions (we sized up that quiet window between the last paycheck and the first RMD, and you can read our Roth guide at no cost here: The Roth Window).

How Big the First Forced Withdrawal Could Be

Suppose both spouses are 75 and their combined prior-year-end balance is still $1.2 million. The IRS Uniform Lifetime Table lists a distribution period of 24.6 at that age. That would require about $48,780 to come out that year. Each account is figured separately, using its owner’s age.

It represents the amount that must leave the account. The tax on it depends on everything else on the return. Market growth could push the balance and the RMD higher, while spending from the account during the gap years would reduce both. Missing an RMD can trigger an excise tax of 25% of the shortfall, dropped to 10% if corrected within the required window.

The larger cost comes from a chain reaction, sometimes called the tax cascade. To decide whether Social Security is taxable, one-half of benefits is combined with all other income, including tax-exempt interest, according to Publication 915. As 401(k) withdrawals push that total higher, up to 85% of benefits can become taxable. Medicare premium surcharges are based on income from two years earlier, so a large withdrawal can also raise future Part B and Part D costs. A 401(k) withdrawal can increase both the tax on Social Security and future Medicare premiums.

Run Two Full Plans Side by Side

Plan A leaves the 401(k) untouched until RMDs begin and pays for living costs with cash and, eventually, Social Security. Plan B converts a limited piece to a Roth IRA each year during the gap. Each conversion is sized to fill the current bracket without pushing into the next one or into a Medicare surcharge tier.

Plan B’s costs come first. Count the conversion taxes paid now, plus the investment growth lost on the cash used to pay them. Conversions made in the year they turn 63 can already affect Medicare premiums at 65. Plan A can bring larger RMDs, more Social Security exposed to tax and higher premiums later. After the year of a spouse’s death, the survivor generally faces single-filer brackets on much of the same income.

Both plans need the same cash buffer. If conversion taxes are paid out of the 401(k) itself, less money ends up growing tax-free in the Roth, reducing the potential benefit. If neither spouse has ever funded a Roth IRA, the five-taxable-year clock for tax-free earnings starts with the first contribution or conversion. That is another reason to start early instead of waiting.

Decisions That Close on December 31

1. Build the year-by-year calendar. Run it from retirement through age 75 for each spouse. Include each spouse’s Social Security claiming age and the year Medicare starts so the low-income years are visible.
2. Ask for an after-tax comparison. A tax preparer or fee-only planner should model both plans paying for the same spending under the same investment assumptions. The model should include Social Security taxation, Medicare premiums and the survivor years. If Plan A pushes income at 75 into a higher bracket than Plan B uses today, the conversion plan earns a serious look.
3. Act before year-end. A Roth conversion counts in the calendar year it is completed. Once December 31 passes, that year’s low-income room cannot be used.

The $1.2 million balance overstates what this couple can actually spend, because part of it belongs to the IRS. Over the next decade, they decide how large that share gets and in which years they pay it.

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