Retirees With Over $1.2 Million in a Traditional 401(k) Are Being Warned About This Tax Bomb at 73
24/7 Wall St. • • business
Key Points:
- A retiree with $1.2 million in a traditional 401(k) and $3,400 monthly Social Security will face significant tax consequences starting at age 73 due to required minimum distributions (RMDs) and outdated Social Security income thresholds.
- The first RMD at age 73 is approximately $52,000, which, combined with Social Security benefits, pushes taxable income into the 22-24% federal tax bracket, resulting in an additional $11,000 to $13,000 in federal taxes.
- The 1984 Social Security income threshold of $34,000, which is not inflation-adjusted, causes up to 85% of benefits to be taxable, effectively taxing retirees twice on the same income.
- Medicare’s income-related surcharge (IRMAA) begins at $109,000 MAGI, and RMD growth often triggers this surcharge between ages 75 and 77, increasing Medicare premiums by up to $6,936 annually.
- Retirees have a critical three-year window (ages 70-72) to reduce future tax burdens through Roth conversions under the $109,000 MAGI limit and qualified charitable distributions (QCDs), which can lower RMDs and avoid IRMAA surcharges.
