Mandatory withdrawals from retirement accounts can elevate retirees’ taxable income, shifting them into the 22% bracket from 12%.
Retirees aged 65 hold an average $267,900 in workplace retirement plans, but IRS required minimum distributions (RMDs) at age 73 force taxable withdrawals. Combined with Social Security, this can increase a couple’s tax bracket from 12% to 22% in a single year.
Fidelity data shows the average 65-to-69-year-old has $251,400 in 401(k) savings, while Baby Boomers average $267,900 in workplace plans and $257,002 in IRAs. RMDs apply to all pre-tax accounts, triggering tax liabilities on deferred savings.
Retirees can mitigate tax impacts through Roth conversions, early withdrawals, or qualified charitable distributions up to $108,000 annually. Financial advisors emphasize fiduciary guidance to avoid conflicts of interest in managing RMD strategies.