How Large 401(k) Balances Trigger Retirement Taxes — and How Roth Accounts Help Avoid Them

A large 401(k) triggers retirement taxes through required minimum distributions (RMDs). Starting at age 73, the IRS forces a withdrawal from every traditional 401(k) and IRA each year, and every dollar is taxed as ordinary income. On a $2,000,000 balance, the first required withdrawal is $75,472 — whether or not you need the money — and it keeps growing with age.

That withdrawal makes up to 85% of Social Security taxable and counts toward the income Medicare uses to set IRMAA surcharges. The cost compounds when one spouse dies. We modeled a $2,000,000 couple from 73 to 95 in RetirementAdvisorPro: if both live, they pay $533,325 in lifetime federal tax and IRMAA. If one dies at 74, the survivor pays $795,611 — 49% more, including $116,114 of IRMAA.

Roth accounts help because they have no lifetime RMDs and qualified withdrawals are tax-free. In the same model, converting $80,000 a year from 65 to 72 costs $64,058 of tax up front and cuts the survivor’s lifetime bill to $401,176, with no IRMAA at all — about $330,000 less, net of the conversion tax.

Traditional 401(k) and IRA money has never been taxed. Required minimum distributions are how the government collects. Under SECURE 2.0, RMDs begin at 73 for people born 1951 through 1958 and at 75 for people born in 1960 or later. Missing one costs a 25% excise tax on the shortfall, reduced to 10% if corrected within two years, per the IRS.

The required amount is the prior year-end balance divided by a factor from the IRS Uniform Lifetime Table in Publication 590-B: 26.5 at 73, 20.2 at 80, 16.0 at 85, and 12.2 at 90. The divisor shrinks every year, so the share you must withdraw rises — from 3.8% of the balance at 73 to 6.3% at 85 and 8.2% at 90.

That is why a large balance is a growing problem, not a fixed one. If the account earns more than the required withdrawal, the balance holds steady and the RMD climbs. On $2,000,000 earning 6%, the forced withdrawal nearly doubles by 85:

Large balances are no longer rare. Fidelity reported a record 769,000 401(k) accounts above $1 million in the second quarter of 2026, as covered by Bloomberg and Money, and an average Baby Boomer 401(k) balance of $283,200. Many retirees also hold rollover IRAs, which carry the same RMD rules and add to the same tax return.

Take a married couple, both 73 in 2026, with $63,672 of combined Social Security benefits and $15,000 of interest. Start with a single year, 2026, and change only the size of their pre-tax 401(k) and IRA balance. Every figure below comes from the RetirementAdvisorPro scenario engine using the 2026 federal brackets and standard deduction from IRS Rev. Proc. 2025-32.

With $2,000,000, their RMD is $75,472. That withdrawal pushes their provisional income far past the $44,000 joint threshold in IRS Publication 915, so $54,122 of their Social Security becomes taxable — the 85% maximum. Their adjusted gross income lands at $144,593, and their 2026 federal tax is $11,155.

Look at the shape, not just the totals. Going from $500,000 to $1,000,000 adds about $3,900 of tax. Going from $3,000,000 to $4,000,000 adds about $9,300. Bigger balances mean bigger withdrawals, which push more Social Security into the taxable column and more income into the 22% bracket. At $3,000,000, the couple also starts losing the $6,000-per-person senior deduction, which phases out above $150,000 of income for joint filers through 2028.

At $4,000,000, adjusted gross income reaches $220,065 — just over the $218,000 joint threshold where Medicare’s 2026 IRMAA brackets begin. That single year sets the couple’s premiums two years later: $2,297 of surcharges for the two of them at 2026 rates.

One year understates the problem, because the required withdrawal grows every year and Medicare premiums grow faster than the income thresholds. So we ran the $2,000,000 couple year by year from 2026 to 2048, age 73 to 95, in the RetirementAdvisorPro engine — once with both spouses living to 95, and once with one spouse dying at 74.

The surviving spouse inherits the account and its required withdrawals, but files as single starting the year after the death, per IRS Publication 501. Single brackets, the single standard deduction, and single IRMAA thresholds are roughly half the joint amounts. The smaller Social Security benefit stops, yet the RMD keeps climbing — from $84,455 in the first single year to $193,442 at 95.

If both spouses live, the couple pays $533,325 of federal tax over those 23 years and never pays IRMAA. If one dies at 74, the survivor pays $679,497 of federal tax plus $116,114 of IRMAA surcharges — in every year from 2030 on. That is $795,611, 49% more, paid by one person on less income.

This is the widow’s penalty, and a large pre-tax balance is what powers it. Medicare surcharges are set from income two years earlier, as explained in how IRMAA is calculated, so the first surcharge lands two years after the first single return. A death qualifies as a life-changing event for an appeal on Form SSA-44, but the appeal only fixes the lookback timing. It cannot make the RMD smaller.

What is left at the second death often goes to children. Under the SECURE Act, most non-spouse beneficiaries must empty an inherited account within 10 years. IRS final regulations, enforced from 2025, add a second requirement: if the owner had already started RMDs, the heir must also take annual withdrawals in years one through nine.

In our model, the all-pre-tax household still holds $1,619,887 of pre-tax money at 95. Every dollar of it is taxed at the heirs’ rates, and heirs in their 50s are often at peak earnings — six-figure withdrawals stacked on a salary for a decade. An inherited Roth also follows the 10-year rule, but qualified withdrawals are income-tax-free, so the timing matters far less.

Roth money works on the opposite schedule: you pay the tax going in, and qualified withdrawals come out tax-free. Two rules make Roth accounts the main tool against the large-401(k) problem. Roth IRAs have no RMDs for the original owner, and since 2024 designated Roth 401(k) and 403(b) accounts have no lifetime RMDs either. Money in a Roth never forces a withdrawal, never makes Social Security taxable, and never counts toward IRMAA.

There are three ways to build that Roth balance before 73:

• Roth 401(k) contributions while working, for people who expect equal or higher tax rates in retirement. SECURE 2.0 also lets plans offer employer matching contributions as Roth.
• Roth conversions in the gap years between retirement and RMDs, when taxable income is often at its lowest. Many plans allow conversions inside the 401(k) as well as to a Roth IRA.
• Partial, repeated conversions sized to a bracket ceiling each year, instead of one large conversion that jumps several brackets at once.

Here is the same household on a different path. Suppose they converted $80,000 a year from 65 through 72, reaching 73 with the same $2,000,000 split as $1,208,203 pre-tax and $791,797 Roth. Their first RMD drops from $75,472 to $45,593, and every later RMD is about 40% smaller.

Over 2026–2048, the couple’s lifetime federal tax falls from $533,325 to $302,132. The survivor’s falls from $795,611 to $401,176 — and the survivor never pays IRMAA, because the smaller withdrawals keep income under every threshold. At 95 the household still holds $978,576 pre-tax plus $3,024,466 in Roth money that heirs can inherit income-tax-free.

The conversions have a real cost, paid up front. The engine puts it at $64,058 of federal tax across the eight conversion years: about $5,000 to $6,300 a year from 65 to 69, before Social Security starts, and about $12,100 a year from 70 to 72 once it does. Against $394,435 of lifetime tax and IRMAA avoided by the survivor, that is the trade — and it only works when the conversions are sized year by year against the brackets and thresholds.

A conversion is taxable income in the year it happens, so it runs into the same thresholds as an RMD. Converting too much in one year can cause what you were trying to avoid:

The right amount to convert depends on numbers that interact: the RMD projection, the Social Security tax formula, the brackets, the senior deduction, and the IRMAA tiers two years out. RetirementAdvisorPro is planning software built for financial advisors that puts those in one plan. It projects a client’s required minimum distributions, tests Roth conversion schedules against the federal brackets, and maps each year’s income to the IRMAA tier it triggers.

Advisors use it to compare doing nothing against several conversion schedules, and to show the survivor years explicitly instead of leaving them to a footnote. The client sees the tax paid now beside the taxes, Medicare surcharges, and survivor costs avoided later — the full trade, not just this year’s bracket.

Are you a financial advisor? See the analysis on a real household: watch the Roth conversion demo, or book a live session and we’ll model one of your clients’ RMDs, conversion schedule, and IRMAA exposure on the call.

Keep exploring the rules that decide what a retiree actually keeps from a large 401(k):