Why a $700,000 Traditional 401(k) Could Make Most Social Security Benefits Taxable at the First RMD

A single required minimum distribution can quietly push a retiree’s Social Security tax bill far beyond what the withdrawal alone might suggest, and a pension layered on top can make the outcome much worse than many people realize.

Picture a single retiree with $700,000 in a traditional 401(k), $36,000 a year in Social Security and a $25,000 pension. When the first RMD arrives, a large share of those benefits can end up on the tax return.

Federal retirement law passed in 2022 set the RMD starting age at 75 for people born in 1960 or later. The calculations here use 2026 tax rules to show what could happen, though those rules will change before that retiree reaches 75.

The IRS taxes Social Security using “combined income,” which means adjusted gross income plus half of benefits. For a single filer, benefits begin to become taxable above $25,000. Once combined income passes $34,000, each additional dollar can make 85 cents of benefits taxable, up to a maximum of 85% of total benefits.

Those brackets are fixed in the tax code and have never been adjusted for inflation, so pension income and cost-of-living increases steadily push more retirees into them.

What Happens With a $700,000 401(k)

Before any RMD, this retiree’s combined income is $43,000, made up of the pension plus half of Social Security benefits. That already exceeds the upper threshold, so about $12,150 of Social Security is taxable.

Once the RMD begins, the $700,000 prior-year-end balance divided by the age-75 factor of 24.6 produces a required withdrawal of about $28,455.

Combined income then rises to about $71,455, and the taxable portion of benefits reaches the maximum $30,600.

Although the withdrawal itself is $28,455, it also causes another $18,450 of Social Security to become taxable. In effect, one RMD adds roughly $46,905 in new taxable income to the return.

The Hidden Tax Trap Inside the RMD

The steepest part of the problem occurs between $43,000 and roughly $64,706 of combined income, where benefits reach the 85% limit.

In that range, which covers about the first $21,706 of the RMD, every $1 withdrawn adds $1.85 of taxable income.

At a 12% tax rate, that works out to an effective marginal rate of about 22%. At 22%, it rises to around 41%. Financial planners often refer to this as the tax torpedo.

Medicare can become the next issue. With this RMD, modified adjusted gross income would be about $84,055, leaving $24,945 of space below the first single-filer Income-Related Monthly Adjustment Amount threshold of $109,000 under 2026 rules.

If that threshold is crossed, the monthly Part B premium would rise from $202.90 to $284.10, generally two years later. Those figures will likely change before the first RMD, but the risk remains. A larger balance, a one-time capital gain or an extra withdrawal for something like a new roof could still push the retiree into a higher premium bracket.

Why the Pension Matters So Much

The pension does much of the damage because it already pushed combined income above the upper threshold before the RMD began. 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 range.

That is why this warning is especially relevant to people with large traditional 401(k) balances who also have steady pension income. It is a common setup among those born in 1960 or later who are moving toward age 75.

Three Ways to Prepare Before the First RMD

1. Convert to Roth before Social Security starts. In the years between retiring and claiming benefits, partial Roth conversions are taxed at ordinary rates without making Social Security benefits taxable. Money moved to a Roth account can also reduce future RMDs, and qualified Roth withdrawals do not count toward combined income. Keep Medicare’s income limits in mind as age 65 approaches, since conversions can raise premiums two years later.
2. Consider an IRA rollover if charitable giving is part of the plan. Qualified charitable distributions are not available directly from a 401(k), but once you are 70½, eligible IRA money can go straight 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 a rollover makes sense, complete it before the first RMD is due.
3. Run your own combined-income test. Add your pension, half your expected benefits and your estimated RMD, using 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 check the numbers, the more planning room you have.