A $2.84M 401(k) balance at age 73 triggers a $107K RMD, pushing retirees into a 22-24% tax bracket.
A 67-year-old retiree with a $2 million 401(k) faces a $400,000 federal tax bill due to required minimum distributions (RMDs) starting at age 73. Compounded growth at 6% annually could push the balance to $2.84 million by then, triggering a $107,170 withdrawal in the first year under SECURE 2.0 rules.
The IRS taxes RMDs as ordinary income, adding to existing Social Security benefits. With no Roth assets, the retiree’s $25,000 annual Social Security income compounds the tax burden, potentially pushing them into the 22-24% bracket. The Uniform Lifetime Table divisor of 26.5 at age 73 determines the withdrawal amount.
Financial advisors recommend Roth conversions between ages 67 and 73 to reduce future RMDs and mitigate tax liabilities. The strategy aims to shrink taxable balances before mandatory withdrawals begin.