Two Retirees, One Nest Egg: A $36,600 RMD for One and None for the Other

Quick Read

• Two retirees each with about $422,000 reach age 75 with nearly $900,000, but only the traditional 401(k) owner is hit with a required $36,600 IRS withdrawal.

• Moving the money into a Roth at 62 creates roughly $79,000 in taxes, but it can also sidestep Medicare's IRMAA surcharge because the income falls outside the two-year lookback period used to set premiums at 65.

• Every extra $1,000 of RMD can make $850 of Social Security benefits taxable, which can push effective marginal rates to 22% even while the couple is still in the 12% bracket.

• The biggest 401(k) choices are often made once and never revisited: when to roll over money, what to hold inside the account and when to begin withdrawals. That is what the report 401k & IRA Tips and Answers is designed to explain, and it is free today. (Sponsor)

Two married retirees, both age 62, each have about $422,000 in a traditional 401(k). They are taking very different approaches. One intends to leave the account alone. The other plans to shift every dollar into a Roth before the IRS begins mandatory withdrawals.

Assuming both accounts grow at 6% a year, each could be worth around $900,000 by age 75. But only one retiree would then face a mandatory withdrawal of roughly $36,600. The other would already have paid the tax and removed the money from the IRS withdrawal schedule.

The reason age 75 matters is simple: under current law, people born in 1960 or later begin required minimum distributions, or RMDs, at that age. Both retirees in this example are in that group.

Same $900,000, Two Very Different Letters From the IRS

The first RMD for the traditional account is calculated by dividing the prior year-end balance by 24.6, the Uniform Lifetime Table factor for age 75. On $900,000, that works out to $36,585. That amount applies only to the first year. As the factor declines each year, the withdrawal amount rises.

The Roth couple, by contrast, would owe no required withdrawals at all. Under current IRS rules, neither Roth 401(k)s nor Roth IRAs require minimum distributions while the original owner is alive.

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Why Converting at 62 Changes the Tax Bill

Suppose the Roth retiree and spouse have no other income in 2026. Converting the full $422,000 traditional balance would generate about $78,748 in federal income tax for the couple.

After the $32,200 standard deduction, the top portion of the conversion falls into the 24% bracket.

Age matters because Medicare's IRMAA surcharge, or income-related monthly adjustment amount, is based on income from two years earlier. Income at 63 affects premiums at 65, so a conversion at 62 does not trigger a Medicare increase.

If instead a large conversion happens at 70, that income could push both spouses into one of Medicare's highest premium tiers two years later. Under 2026 rates, that could mean paying as much as $649 a month each for Part B, compared with the standard $203.

The Roth retiree paid the tax from a brokerage account, allowing the entire $422,000 to compound inside the Roth. The traditional retiree kept that $78,748 invested instead. At 6%, it could grow to about $168,000 by age 75, before tax on the gains. In that sense, the traditional retiree may actually have more total money at 75, though taxes would still be owed on the 401(k).

A $78,748 Check Today Versus RMD Taxes Later

At 75, assume each couple receives the current average Social Security benefit for an aged couple: $3,208 a month, or $38,496 a year.

For the traditional couple, the RMD plus half of their Social Security benefits pushes them above the $44,000 adjusted base amount for joint filers. That means $16,058 of their Social Security income becomes taxable.

Using 2026 tax brackets and the standard deduction for a married couple over 65, the traditional retiree's household would owe about $1,714 in federal income tax. Under the same assumptions, the Roth retiree's household would owe nothing. Half of their Social Security benefits stays below the $32,000 base amount, so none of those benefits are taxable.

The impact builds one dollar at a time. While they are in the 85% Social Security taxation zone, every additional $1,000 of RMD makes another $850 of benefits taxable. That creates an effective marginal rate of 18.5% in the 10% bracket and 22.2% in the 12% bracket.

Converting everything in one year has a high upfront cost. The Roth retiree pays $78,748 now to avoid future mandatory withdrawals. But comparing that payment with just one year's tax bill ignores the growth of both accounts and the taxes the traditional 401(k) owner would pay over time.

Spreading conversions over several years can keep more money in lower brackets. The years between the final paycheck and the first RMD often offer some of retirement's best opportunities to do that, and a more detailed look is available in a free Roth guide.

What the Roth Really Buys at 75: Control

The Roth couple gets to decide how much to withdraw each year. They can take nothing after a market decline, or withdraw $60,000 for a new roof without getting close to the $218,000 joint IRMAA threshold or making Social Security taxable.

The advantage can matter even more when one spouse dies. The survivor usually files as single, with Social Security tax thresholds of $25,000 and $34,000 and a lower Medicare surcharge threshold. A large traditional balance can become more expensive to draw down, while a Roth offers more flexibility without adding taxable income.

Three Moves to Make Before Your Window Closes

1. Confirm your RMD age. If you turn 74 after 2032, your RMDs begin at 75. At 62, that leaves 13 tax years to convert before the IRS sets the withdrawal amount for you.

2. Think about converting more before Medicare's two-year income lookback starts affecting premiums at 65. Under 2026 rules, the first surcharge begins above $218,000 for joint filers or $109,000 for singles. Keep those levels in mind when deciding how much to convert.

3. Run the numbers for the surviving spouse. Divide the projected traditional 401(k) balance at 75 by 24.6 and estimate how those withdrawals would affect a single filer's taxes and Medicare premiums. Then compare that future cost with the tax on conversions now.

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