Required minimum distributions from large 401(k) balances push retirees into higher tax brackets and trigger Medicare surcharges.
A $2.5 million traditional 401(k) balance triggers $94,340 in required minimum distributions at age 73, adding significant taxable income for retirees. The IRS Uniform Lifetime Table sets the divisor at 26.5, producing the annual payout.
For married couples filing jointly, the $94,340 RMD alone sits in the 22% tax bracket, while adding Social Security benefits pushes income near the 24% threshold. Medicare premiums also rise, with IRMAA surcharges adding over $4,870 yearly once household income exceeds $218,000.
Qualified Charitable Distributions of up to $111,000 can satisfy RMDs without increasing adjusted gross income, offering a tax-efficient strategy for retirees.