Retiring at 65 with $1.6 million in a 401(k) could set you up for a much larger tax bill 10 years later. As the account continues to grow, RMDs may eventually force sizable taxable withdrawals, potentially pushing more of your retirement income into higher tax brackets.
Why Your $1.6 Million 401(k) Could Create a Larger Tax Bill at 75
For someone retiring at 65 today, RMDs generally begin at age 75 under current law. 1 Until then, you have more control over how much you withdraw from a traditional 401(k). Once RMDs start, federal rules determine the minimum amount that must come out each year.
A $1.6 million balance could also become much larger during those 10 years. At a hypothetical 6% annual return with no withdrawals, it could grow to roughly $2.87 million by age 75. Since RMDs are based partly on the account balance, continued growth could lead to larger mandatory distributions.
Traditional 401(k) withdrawals generally count as ordinary income. Adding a large RMD to Social Security benefits, pension payments and other taxable income could push more of your money into higher tax brackets and potentially increase other income-based costs.
The decade between 65 and 75 may provide an opportunity to reduce future RMDs. Planned withdrawals or Roth conversions during lower-income years could reduce the traditional 401(k) balance before mandatory distributions begin and spread taxable income across more years.
A financial advisor can help you build a withdrawal and conversion strategy to manage taxes.
Why You Could Pay More Taxes at Age 75
A $1.6 million 401(k) could grow considerably during the 10 years before RMDs begin. At a hypothetical 6% annual return with no withdrawals, the calculation is:
- $1,600,000 × (1.06)¹⁰ = approximately $2.87 million
The first RMD at age 75 would generally use the previous year-end balance. At age 74, the account would be worth about $2.70 million ($1,600,000 × (1.06)⁹ = approximately $2.70 million). The IRS Uniform Lifetime Table assigns a 24.6 distribution period at age 75, which is used to calculate the required withdrawal ($2.70 million ÷ 24.6 = approximately $110,000). 2 The IRS generally calculates an RMD by dividing the prior year-end balance by the applicable distribution period.
Now, let’s use the example of a retiree who files single with $100,000 of taxable income from other sources. Adding the $110,000 RMD would increase taxable income to approximately $210,000. Using the 2026 federal brackets, the tax would break down as follows: 3
| 2026 Tax Bracket | Income Taxed at This Rate | Federal Tax Calculation |
|---|---|---|
| 10% | $12,400 | $12,400 × 10% = $1,240 |
| 12% | $38,000 | $38,000 × 12% = $4,560 |
| 22% | $55,300 | $55,300 × 22% = $12,166 |
| 24% | $96,075 | $96,075 × 24% = $23,058 |
| 32% | $8,225 | $8,225 × 32% = $2,632 |
| Total | $210,000 | $43,656 |
Without the RMD, $100,000 of taxable income would generate $16,712 in federal income tax. The roughly $110,000 distribution would therefore add approximately $24,000 to the federal tax bill.
This is the tax challenge that could emerge 10 years into retirement. Continued growth in a traditional 401(k) could eventually produce an RMD large enough to push part of your income into higher tax brackets, even when you do not need the full withdrawal for spending.
Use the 10-Year Window to Reduce Future RMDs and Taxes
Between age 65 and 75, you have a decade to shrink future RMDs before they push you into a higher tax bracket. Strategic 401(k) withdrawals and Roth conversions now can pull money out of your traditional account before it grows into a mandatory, oversized distribution later. Just remember: Roth conversions create taxable income the year you make them, so the timing and the amount matter just as much as the strategy itself.
A financial advisor can help you compare withdrawal and conversion amounts, project future RMDs and plan for the tax bill that comes with them.
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