A Couple Who Retires at 61 With $620,000 Between Two 401(k)s and Lives on Her Pension for 12 Years Will Meet About $42,000 of RMDs at 73, and Neither Plan Lets Them Take It All From One Account
A pension that covers every bill sounds like a retiree's dream, but letting two 401(k)s compound untouched for over a decade quietly builds a tax obligation the IRS will collect on its own schedule, from accounts it treats as completely…
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Retiring at 61 with $620,000 split between two 401(k)s, plus a pension that covers the bills, looks ideal: the pension pays the household, the 401(k)s stay untouched, and the balances compound for 12 years. That quiet growth is also what produces a large required minimum distribution (RMD) later. Below is how the RMD math works for a couple in this position, and why IRS rules for 401(k)s require them to take from each spouse’s plan separately.
Who Actually Faces RMDs at 73 Under Current Law
The first thing to know is that someone’s birth year determines when RMDs begin. Under federal law, a couple born in 1959 has an applicable age of 73, while younger savers, including anyone born in 1965, start at 75, so the same strategy gets two more years of compounding.
How $620,000 Grows Into a $42,000 Withdrawal
Say the couple’s money is split unevenly, which is common when one spouse spent a career in a pension job: $400,000 in his 401(k) and $220,000 in hers. If both accounts earn 5% a year with no withdrawals, the combined balance reaches about $1.11 million at 73. By staying invested, the balance nearly doubled with no new contributions.
The IRS Uniform Lifetime Table sets a distribution period of 26.5 at age 73. Dividing the balance by that figure gives a first-year RMD of about $42,016, or roughly $3,501 a month.
By comparison, the average monthly Social Security benefit for an aged couple who both collect is $3,355 after the 2027 cost-of-living adjustment. For a household already living on a pension and, by then, Social Security, RMDs become taxable income on top of those checks, whether the couple needs them or not.
Why One Account Cannot Cover Both Spouses
The plan type determines how you take withdrawals. For 401(k)s and other employer plans outside the 403(b) system, RMDs must be taken separately from each plan. That means his RMD of about $27,107 must come from his 401(k), and her roughly $14,909 must come from hers. Taking the full amount from the larger account so her balance keeps growing leaves her requirement unmet.
The tax code spells out the cost of that mistake. The excise tax is 25% of the shortfall, about $3,727 on her missed withdrawal. If the missed amount is paid out from the same plan and reported within the correction window, the rate drops to 10%, or about $1,491.
IRAs follow a different set of withdrawal rules. Treasury regulations let an owner calculate the RMD for each IRA separately and then take the total from any one or more of the IRAs. That flexibility applies to one person at a time, though: only IRAs that an individual holds as the IRA owner are aggregated. A husband cannot cover his wife’s RMD from his own IRA, even when they file a joint return.
Three Moves That Shrink the Age-73 Bill Before It Arrives
- Each spouse has their own accounts. Combine them. Rolling a 401(k) into an IRA doesn’t change the total RMD, but it lets each spouse take withdrawals from whichever IRA they choose and reduces the number of separate plan deadlines to track. Old 401(k)s left at former employers each need their own withdrawal.
- Use the pension years. Take partial Roth conversions during this time. Between 61 and 73, a household living only on a pension may sit in a lower tax bracket than it will once Social Security and RMDs combine together. Converting some pre-tax money to a Roth IRA during that window reduces the balance the 26.5 factor is applied to, because the original owner of a Roth IRA owes no lifetime RMDs.
- Avoid doubling up in the first year. You can delay the first RMD, but that creates two required distribution dates the following year, with the first due April 1. For a couple facing about $42,000, taking the first withdrawal by December 31 of the year they turn 73 spreads that income over two tax years.
What a Decade of Lead Time Buys
Living on the pension first works as intended: it gives the savings time to compound. The trade-off is a set withdrawal at 73, sized by the account balances and the IRS factor and owed separately from each spouse’s account. Running these numbers in their early 60s gives a couple about 12 years to decide how much of that $1.11 million stays pre-tax, which accounts hold it, and how the withdrawals will fit alongside the pension and Social Security.
Contact [email protected] for any questions or corrections.
David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
