Why Affluent Investors Over 60 Are Emptying a $900,000 401(k) and Paying $150,000 in Tax Now Instead of $400,000 Later
A couple with $900,000 in a 401(k) and years before RMDs start faces a narrow window where they still control their tax bracket. What they do with that window could determine whether their heirs inherit a windfall or a surprise…
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Consider a married couple, both 62, with $900,000 in a traditional 401(k). They live on savings and plan to delay Social Security until 70. They want to know whether to start moving that account into a Roth now, while they still get to pick their tax bracket.
The advantage is timing. They have years to move money into a Roth while they still control how much taxable income they take on. Wait too long, and the IRS starts requiring withdrawals, potentially leaving them with a much bigger tax bill.
A Conversion Window That Closes at 75
The example assumes $30,000 of other taxable income. At 62, the 2026 joint standard deduction of $32,200 covers all of it, so the federal tax comes from the conversion. For joint filers, the 22% bracket tops out at $211,400 of taxable income.
The first $150,000 conversion triggers $21,940 in federal tax. With the money left in the 401(k) growing at an assumed 5%, it takes seven conversions to empty the account.
Yes, $900,000 Can Convert for About $150,000
| Item | Amount |
|---|---|
| Annual conversion, ages 62 to 67 | $147,329 |
| Final conversion at 68 | $134,785 |
| Total converted | $1,034,785 |
| Total federal tax | $150,233 |
The average rate comes out near 14% because part of every conversion fills the 10% and 12% brackets. The example holds tax brackets at 2026 levels throughout.
The temporary $6,000 senior deduction expires before this couple turns 65 in 2029. They still qualify for the regular additional standard deduction, which lowers their conversion taxes slightly.
Medicare premiums are another risk. Income from conversions at 63 and later can affect Part B premiums two years later. Under 2026 rules, the couple’s $180,000 in modified adjusted gross income (MAGI) stays below the $218,000 joint Medicare surcharge threshold. Go over that line and each spouse pays $284.10 a month for Part B instead of $202.90.
Where a $400,000 Tax Bill Silently Builds
If they never convert, the account grows to about $1.7 million by 75. The IRS divisor at that age is 24.6, so that initial required withdrawal is about $69,000.
Now add an example $80,000 in combined Social Security. Without the RMD, about $28,100 of those benefits would be taxable. With it, taxable benefits hit the 85% cap of $68,000.
That first RMD adds about $16,100 in federal tax, an effective rate of roughly 23%. This is the tax cascade: the withdrawal also makes another $39,900 of their Social Security taxable.
From 75 through 89, RMDs add up to about $1.4 million. Under the same 2026 tax assumptions, those withdrawals add roughly $322,000 in federal tax, including the extra tax on Social Security.
The account still holds about $1.49 million at 90. Under the 10-year rule, heirs usually have to empty an inherited account within a decade, often during their peak earning years. Taxed at 24%, that’s another $357,000 (we counted nine IRS rules that quietly drain retirement accounts, including the RMD cascade and the 10-year inherited IRA trap, in a free report here: The Retiree’s Tax Trap Map).
Altogether, the projected tax bill approaches $679,000 in nominal dollars, including the heirs’ assumed taxes. That’s well above the $400,000 headline figure. The calculation doesn’t account for the additional tax pressure a surviving spouse could face filing alone.
What the Roth Owner Gives Up
The $147,329 in conversion taxes leaves taxable savings between ages 62 and 68. At 5%, those payments would have grown to about $504,000 by age 90. That’s the opportunity cost of paying taxes early.
Apply the same growth to the taxes on the no-conversion path, including the assumed tax on the inherited balance, and the cost reaches about $827,000 by age 90. That’s roughly $323,000 more than the future value of the conversion taxes. That lead shrinks if tax rates fall or if heirs are in lower brackets.
Three Moves to Make Before December 31
- Find your ceiling. The 22% bracket ends at $211,400 of taxable income for joint filers in 2026, while Medicare surcharges are based on MAGI. Consider both when sizing conversions. For a conversion to count for 2026, complete it by December 31.
- Pay the tax from a brokerage account. Withholding tax from the conversion itself means less money growing tax-free, and the math above stops working.
- Check how many conversion years you have. If you were born in 1960 or later, RMDs generally start at 75. Ask whether your 401(k) allows in-plan Roth conversions or an eligible rollover directly to a Roth IRA.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
