Anyone Holding Over $700,000 in a Traditional 401(k) Is Being Warned: the First RMD Can Push 85 Percent of Social Security Onto the Tax Return

Picture a single retiree who will turn 75 in 2035 with $700,000 in a traditional 401(k), $36,000 a year in Social Security and a $25,000 pension. His first required minimum distribution will also drag a large piece of his Social Security onto the tax return.

SECURE 2.0, a federal retirement law passed in 2022, sets the RMD starting age at 75 for people born in 1960 or later. Today’s 66-year-olds are the first group in line. The calculations below use 2026 tax rules to illustrate what could happen, although those rules will change before 2035.

How Combined Income Decides What Gets Taxed

The IRS taxes Social Security based on “combined income”: your adjusted gross income (AGI) plus half of your benefits. For a single filer, benefits start becoming taxable above $25,000. Above $34,000, each extra dollar makes 85 cents of benefits taxable, up to a ceiling of 85% of total benefits.

Those thresholds are written into the tax code and have never been indexed for inflation, so every pension increase and every cost-of-living adjustment pushes more retirees past them.

Running the Numbers on a $700,000 Balance

Before any RMD, our retiree’s combined income is $43,000: the pension plus half of his benefits. That’s already over the upper threshold, so about $12,150 of his Social Security is taxable.

Then the RMD arrives. Dividing the $700,000 prior-year-end balance by the age-75 factor of 24.6 gives a required withdrawal of about $28,455.

Combined income jumps to roughly $71,455, and the taxable share of his benefits hits the maximum $30,600.

The withdrawal is $28,455, but it also makes another $18,450 of Social Security taxable. So the return shows about $46,905 of new taxable income from one RMD.

The Tax Torpedo Hiding Inside One RMD

The real damage happens between $43,000 and about $64,706 of combined income, where benefits reach the 85% cap.

Across that range, which covers roughly the first $21,706 of the RMD, every $1 withdrawn adds $1.85 of taxable income.

At a 12% tax rate, that’s an effective marginal rate of about 22%. At 22%, it climbs to roughly 41%. Planners call this the tax torpedo.

Medicare is the next risk. With this RMD, his modified AGI is about $84,055, leaving $24,945 of room below the first single-filer Income-Related Monthly Adjustment Amount (IRMAA) threshold of $109,000 under 2026 rules.

Crossing that threshold raises the monthly Part B premium from $202.90 to $284.10, generally two years later. Those figures will change before his first RMD, but the risk remains. A larger balance, a one-time capital gain or an extra withdrawal for a new roof could push him into a higher premium bracket.

Why Pension Income Drives the 85% Result

The pension does most of the work behind the 85% result, because it had already put him past the upper threshold before any RMD. A retiree with the same 401(k) but no pension would start with combined income of just $18,000 and would land much lower in the phase-in. The warning applies to anyone whose RMD lands on top of other guaranteed income. That’s common among the 401(k) holders born 1960 or later who are now heading toward 75.

We mapped out this exact RMD-year tax jump. We explain how to reduce it before it lands in a free guide you can download here: The First-Year Tax Bomb.

Three Moves to Make Before the First RMD

1. Convert to Roth before Social Security starts. In the years between retiring and taking benefits, partial Roth conversions are taxed at ordinary rates without making Social Security benefits taxable. Money moved into Roth can also shrink future RMDs, and qualified Roth withdrawals won’t count toward combined income. Watch Medicare’s income thresholds once you approach 65, since conversions can raise premiums two years later.
2. Consider an IRA rollover if charitable giving is part of your plan. Qualified charitable distributions (QCDs) aren’t available directly from a 401(k), but once you’re 70½, eligible money in an IRA can go directly to charity and stay out of taxable income. The 2026 limit is $111,000 per person. QCDs can satisfy IRA RMDs, but not RMDs still owed from a 401(k). If you plan to roll over the workplace account, complete the move before its first RMD comes due.
3. Run your own combined-income test. Add your pension, half your expected benefits and your estimated RMD (last year’s balance divided by 24.6 at age 75). For single filers, income above $34,000 can make more Social Security taxable, up to 85% of benefits. The sooner you run the numbers, the more time you have to plan.

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