Retire With $500,000 and No Withdrawal Plan, and the Default Plan Is the IRS’s: Nothing Required Until 73, Then Whatever the Divisor Says, Taxed at Whatever Rate It Lands In. Here’s What a Plan Looks Like Instead

Even a retiree with no withdrawal plan ends up on a schedule because the tax code sets one. Say someone reaches their mid-60s with $500,000 in a traditional IRA or 401(k) and never maps out how to draw it down. Federal rules don’t require a dime until age 73. From then on, they require a minimum withdrawal each year based on a life-expectancy divisor, and every dollar comes out as ordinary income. This article covers where $500,000 ranks among American savers, how that default schedule works, and what a careful plan looks like.

Where a $500,000 Balance Ranks Among American Savers

The thing to remember is that retirement averages can mislead, because a small number of very large accounts pull the mean up. In a group of ten savers with modest balances and one with millions, the median stays with the ten, while the average moves toward the one. Vanguard’s data puts the average 401(k) balance at $148,153, but the median is only $38,176. The median better reflects a typical account.

Measured against that median, $500,000 is a large sum. Even among Baby Boomers, Transamerica reports median household retirement savings of $270,000. Savers in this range have enough money that timing and taxes matter a great deal, but most of them also lack the kind of wealth that would make a poorly planned schedule cheap.

How the IRS Default Schedule Works

Under IRS Publication 590-B, owners who reach 72 after 2022 must begin required minimum distributions by April 1 of the year after they turn 73. Each RMD after that is due by December 31, so a retiree who uses the April grace period therefore takes two distributions in the same calendar year. Federal law includes each withdrawal in gross income.

The divisor is the piece most retirees never see, and the share that must come out grows with age. The required amount equals the prior year-end balance divided by a life-expectancy factor that shrinks each year. An extra year earns no credit toward future RMDs. Missing an RMD triggers a 25% excise tax on the shortfall. That drops to 10% if you correct the shortfall within the correction window.

Why Waiting Until 73 Can Raise the Tax Bill

For many retirees, the years between their last paycheck and age 73 bring their lowest taxable income of adult life. Under 2025 brackets, a married couple filing jointly pays 12% on taxable income up to $96,950. TIAA calls this stretch one of the best opportunities to convert to a Roth IRA.

A retiree who withdraws nothing in those years leaves that low-bracket room unused. Meanwhile, the account keeps growing and later RMDs land on top of Social Security. After a 3.6% COLA, the estimated average 2027 benefit is $2,170 a month for a retired worker and $3,355 for a couple where both spouses collect. That income takes up bracket space before a single IRA dollar is counted.

What a Withdrawal Plan Looks Like Instead

The first step is choosing a spending draw. A 4% withdrawal from $500,000 comes to $20,000 a year, or about $1,667 a month.

Add in the average couple’s Social Security of $40,260 a year, and household income reaches $60,260. The Bureau of Labor Statistics puts average annual spending for all U.S. households at $78,535 in 2024. Retiree budgets are often lower, but the gap leaves a $500,000 saver with limited flexibility.

The second step is to fill the low brackets intentionally before 73. Retirees can take planned withdrawals or do Roth conversions up to the top of the 12% bracket. That reduces the traditional balance the divisor will later work on (the quiet years between the final paycheck and the initial RMD are the whole subject of our free Roth Window guide). Qualified distributions from a Roth IRA are not includible in gross income, so the converted dollars stop adding to future taxable income. Taking money out early also avoids the extra 10% tax as long as withdrawals start after age 59½.

The third step is funding the gap years with something predictable. With the 10-year Treasury yielding 5.1% as of October 15, 2026, high-quality bonds can cover several years of planned withdrawals. That leaves the rest of the portfolio invested. Taking the first RMD in the year the owner turns 73 also avoids combining two distributions into one tax year.

What a $500,000 Retiree Should Take From the Data

The default schedule is easy to follow because it ignores the retiree’s tax brackets, spending needs, and timeline. A $500,000 saver who does nothing until 73 lets a shrinking divisor set the income each year, at whatever rate it falls into. A saver with a plan will take a different approach.

They use the low-income years to move money out on their own terms, keep the traditional balance smaller, and arrive at 73 owing smaller, easier-to-predict RMDs. The account balance is the same in both cases, but the difference is who sets the withdrawal schedule and how much tax it costs over time.

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