Retired Ironworker’s $5,400 Monthly Union Pension and $800,000 401(k) Face Three Hidden Tax Hits

A long career in an ironworkers local can produce a pension that many workers would welcome, but that dependable monthly income can also create a tax problem that does not fully appear until age 73, when three separate tax rules begin to pile on.

A retired ironworker, age 65, with a $5,400-a-month union pension and $800,000 in a 401(k) is in a situation familiar to many construction and building-trades retirees. During their working years, taxes were withheld from every paycheck automatically. In retirement, however, three forces can hit at once: ordinary income tax on pension payments and 401(k) withdrawals, federal tax on Social Security benefits, and Medicare premium surcharges based on income.

This is not unusual. A recent retirement planning podcast described the same three pressure points: required minimum distributions at 73, taxation of Social Security, and income-related Medicare surcharges. Among households headed by people ages 55 to 69, 48% of U.S. defined benefit pension entitlements and 50% of defined contribution balances are held, meaning millions of Americans enter retirement with both kinds of savings.

The Pension Alone Already Pushes Into Higher Brackets

In this case, the pension provides $64,800 a year, and pensions are counted as gross income under 26 U.S.C. § 61(a)(10). After subtracting the 2026 single standard deduction of $16,100 and the temporary senior deduction of $2,000, taxable income is about $46,700 before any 401(k) money is withdrawn. The 22% bracket starts at $50,400, while the 24% bracket begins at $105,700.

That means the pension by itself uses up the lower tax brackets for life, so nearly every dollar taken from the 401(k) is taxed at 22% or more.

At 73, Three Tax Rules Hit at Once

Another key issue is that required minimum distributions begin at age 73 under 26 U.S.C. § 401(a)(9)(C)(v). If the 401(k) is left untouched and grows at 6% a year, it could reach roughly $1.28 million by that age, making the first RMD about $48,000 under the IRS Uniform Lifetime Table, using a divisor of 26.5. Add a Social Security benefit near the average retired-worker amount of $2,095 a month, and the tax picture changes quickly.

1. Income tax: Adjusted gross income rises to about $134,000. The senior deduction applies only to tax years beginning before January 1, 2029, so taxable income falls to roughly $118,000, with part of that amount taxed in the 24% bracket.
2. Social Security tax: Benefits become taxable once income exceeds a single filer’s base amount of $25,000 and adjusted base amount of $34,000. Those thresholds are fixed in statute and have never been indexed for inflation. At this income level, as much as 85% of benefits become taxable, or about $21,000 a year.
3. Medicare surcharges: A single filer with income above $109,000 pays an income-related monthly adjustment amount, or IRMAA. Under current thresholds, Part B rises from $202.90 to $284.10 a month, plus $14.50 for Part D. Because the surcharge is based on prior tax returns, a high-income year can affect premiums two years later.

Roth Conversions Before RMDs Can Reduce the Damage

One common strategy for single retirees in this position is to shift 401(k) money into a Roth IRA each year between retirement and age 73. After subtracting the pension from the $109,000 IRMAA threshold, there may be room for about $44,200 a year in conversions, most of it taxed at 22%. Waiting to claim Social Security until closer to 70 can preserve that room and also increase the eventual benefit. Qualified Roth withdrawals are not included in gross income, and every dollar converted reduces future RMDs that would otherwise add to all three tax layers.

There are tradeoffs, though. Paying the conversion tax from money outside the 401(k) leaves more funds in the Roth. Income above $75,000 also reduces the senior deduction by 6% of the excess, creating a modest but real drag through 2028.

The other option is to do nothing beyond taking required minimum distributions. That postpones taxes, but the account keeps growing into larger forced withdrawals on top of a fixed pension, which often leads to higher taxable income later for a single retiree with this kind of pension. Married couples have more flexibility, with a joint Social Security base of $32,000, an IRMAA threshold of $218,000, and a 12% bracket that extends to $100,800. Still, a surviving spouse will eventually file as single while keeping much of that income.

Two Key Numbers to Watch Before Any Withdrawal

Each year, the first step is to compare projected income with two key levels: the 24% bracket at $105,700 and the IRMAA threshold at $109,000. A pension makes the starting point predictable, which makes conversion planning much easier than it is for retirees whose income changes from year to year.

Many retirees leave the 401(k) alone until 73 because the pension already covers their expenses. Those years before RMDs are often the lowest-tax window for moving money out of the account. A survivor pension election or a spouse may also matter. A CPA can model the surviving-spouse years, since the tax brackets for a widow or widower fall to roughly half of joint levels, which can change the right conversion amount.