A $1.5 Million 401(k) at 62 Becomes Two Very Different Retirements at 73, Depending on One Decision

Key Points:

• Under SECURE 2.0, required minimum distributions (RMDs) begin at age 73, creating a significant tax event for retirees with large traditional 401(k) balances, as the first RMD can be substantial and trigger higher taxes and Medicare surcharges.
• Couples aged 62 with a $1.5 million traditional 401(k) face two retirement paths: letting the balance grow and taking large RMDs at 73, resulting in high taxes and Medicare surcharges, or converting portions annually to a Roth IRA between 62 and 70 to minimize future RMDs and tax burdens.
• Roth conversions during low-income years (ages 62 to 70) can keep taxable income under the 22% federal bracket and below the IRMAA threshold, significantly reducing future Medicare premium surcharges and Social Security taxation.
• The current higher interest rate environment and upcoming Social Security cost-of-living adjustments make the Roth conversion strategy more advantageous by allowing taxable accounts to cover living expenses and enhancing the value of delayed Social Security claiming.
• Key recommended actions before turning 73 include modeling the expected first RMD, strategically converting to Roth IRAs to stay within favorable tax brackets, and coordinating conversion timing with Social Security benefits to avoid increased taxable income.