Little-known 401(k) rule is about to change how retirees pay taxes

Most retirees assume their tax bills shrink once the paychecks stop. Many find the opposite. A rule buried inside a 2022 law is reshaping when Americans must start pulling money from their 401(k)s and traditional IRAs – and the timing of those withdrawals can quietly determine which tax bracket they land in, how much they pay for Medicare, and how much of their Social Security benefits the IRS takes a cut of.

The 401k tax rules in question involve required minimum distributions, or RMDs. These are mandatory annual withdrawals the government forces from tax-deferred retirement accounts, because that money has never been taxed and the IRS wants its share eventually. For decades, the starting age for RMDs sat at 70½. Then Congress pushed it to 72. Now it’s 73. And by 2033, it’s going to 75.

That sounds like a gift. More time for your money to grow tax-free. But the same math that makes your balance grow also makes your future mandatory withdrawals larger. Bigger withdrawals mean more ordinary income, and more ordinary income in retirement can trigger a cascade of financial consequences most people never see coming.

How the 401(k) Tax Rules Changed – and Who’s Affected

The SECURE Act 2.0, which took effect at the start of 2023, raised the required beginning date for RMDs from age 72 to age 73 – with a further increase to age 75 effective January 1, 2033. Your birth year determines which rule applies to you. Individuals born between 1951 and 1959 must begin taking RMDs in the year they turn 73, while those born in 1960 or later will not face mandatory withdrawals until they turn 75.

The calculation itself hasn’t changed. Your RMD is determined by looking up your age in the IRS Uniform Lifetime Table, which assigns a distribution period. At age 73, that period is 26.5. Divide your account balance by that number to find your required withdrawal – so a $500,000 IRA at age 73 produces a mandatory distribution of roughly $18,868. As you age, the distribution period shrinks, meaning the percentage you’re required to withdraw increases year by year even if your account balance stays flat.

The delayed start date means accounts have more years to compound before withdrawals begin. For people born in 1960 or later, the RMD age of 75 doesn’t kick in until 2033. That’s two extra years of tax-deferred growth compared to someone subject to today’s age-73 rule. But as researchers at T. Rowe Price have noted, larger balances from delayed withdrawals eventually produce larger mandatory distributions – which is where the 401(k) tax rules start working against you.

The Tax Bracket Problem You Don’t See Coming

The SECURE 2.0 Act increased the RMD age to 73 for those born after 1951, building on the original SECURE Act of 2019, which had already raised the age from 70½ to 72 for those born after June 30, 1949. Each delay added years of compounding – and years of compounding mean larger account balances waiting to be distributed. That’s fine in theory. In practice, according to Kiplinger, RMDs can increase taxable income and potentially push retirees into a higher federal income tax bracket.

The issue compounds when Social Security is in the picture. RMDs generally count toward adjusted gross income, and that figure plays a direct role in determining how much of a retiree’s Social Security benefits are subject to federal income tax. In some cases, every additional dollar withdrawn from a traditional retirement account can cause up to $0.85 of Social Security benefits to become taxable as well. For retirees already in the 12% federal tax bracket, this interaction can create an effective marginal tax rate that behaves more like 22% or higher.

Financial planners call this the “tax torpedo” – a moment when rising RMD income simultaneously triggers Social Security taxes and pushes a retiree into a higher bracket than their actual income level would suggest. A $20,000 increase in RMD income doesn’t simply add $20,000 in taxable income. It adds the RMD amount to ordinary income, plus potentially $17,000 or more in now-taxable Social Security benefits – pushing total taxable income up by as much as $37,000 from a single distribution. That stacking effect can push retirees into a substantially higher bracket than their RMD alone would suggest.

The Medicare Surcharge Most People Miss

Higher taxable income from RMDs doesn’t just raise your income tax bill. It can also increase your Medicare premiums – and the timing makes the impact especially hard to avoid. IRMAA surcharges – income-related monthly adjustment amounts added to Medicare Part B and Part D premiums – are based on your modified adjusted gross income from two years prior. That two-year lookback means a large RMD taken in 2026 could raise your Medicare costs in 2028, long after the money has been spent.

In 2026, IRMAA surcharges apply to single filers whose 2024 MAGI exceeded $109,000, or $218,000 for married couples. The standard Medicare Part B premium in 2026 is $202.90 per month, with IRMAA surcharges adding $81.20 to $487.00 per month on top of that, depending on income tier, according to Kiplinger’s 2026 Medicare premium guidance. For a couple who crosses the income threshold in one bad year – perhaps because they delayed their first RMD and ended up taking two in the same calendar year – that premium spike can cost thousands of dollars annually.

The double-RMD trap is real and surprisingly common. For retirement accounts that offer the benefit of tax deferral, the government requires investors to make minimum withdrawals each year. The first RMD is required by April 1 of the year after reaching the required beginning date. Delaying that first distribution to April 1 allows an extra few months of growth – but it means taking a second RMD by December 31 of the same year. Two RMDs in one calendar year means two rounds of ordinary income counted together, which can trigger IRMAA surcharges and push Social Security into taxable territory simultaneously.

What You Can Do About It

The years between retirement and the start of mandatory withdrawals are often the best tax-planning window most retirees ever get. For many retirees, the most valuable period for strategic action falls between retirement and the start of required minimum distributions – age 73 or 75 depending on birth year. During this gap, earned income is gone, Social Security may not have started, and RMDs haven’t kicked in, leaving retirees in the lowest tax brackets they’ll see for the rest of their lives.

One of the most effective tools during this window is a Roth conversion. A Roth conversion moves money from a traditional IRA or 401(k) into a Roth account. You pay income tax on the converted amount now, in exchange for tax-free growth and tax-free withdrawals later. Crucially, Roth accounts don’t generate RMDs. Beginning in 2024, Roth 401(k) and Roth 403(b) accounts are no longer subject to lifetime RMDs, allowing retirement funds to continue growing tax-free for longer.

The strategy works best in smaller annual increments. Converting during lower-income years – especially after retirement but before RMDs begin – can reduce your overall tax burden both now and in the future. Paying taxes on the conversion today can lead to tax-free growth and withdrawals later, making it a strong consideration for those who expect their tax rate to stay the same or increase. By managing conversions to stay within the 22% or 24% bracket, retirees can avoid being pushed into the 32% bracket or higher in future years, when RMDs become mandatory.

One more option worth knowing: the Qualified Charitable Distribution, or QCD. Available to IRA owners aged 70½ and older, a QCD allows a direct transfer of up to $111,000 per person in 2026 from an IRA to a qualified charity. The distribution counts toward satisfying your RMD for the year – but it never touches your taxable income. Qualified Roth withdrawals and QCDs generally do not count toward provisional income, meaning they typically won’t increase Social Security taxation or contribute to IRMAA calculations. For retirees who give to charity anyway, routing that giving through a QCD rather than writing a personal check is one of the cleanest tax moves available.

One thing RMDs cannot do is sidestep the tax bill through reinvestment. According to IRS guidance, RMDs themselves cannot be rolled over or converted into a Roth IRA. The distribution must be taken as taxable income. Conversion strategies work only on money that hasn’t yet been designated as an RMD for the current year.

And if you do miss an RMD? Missed RMD amounts may face a 25% excise tax, reduced to 10% if corrected within two years – a significant improvement from the 50% penalty that applied before SECURE 2.0, but still an expensive mistake to make.

Read More: The 401(k) Rules That Changed in 2025 That Most People Still Don’t Know About

What This Means for You

The shift from a 401(k) tax rules standpoint is straightforward to describe but easy to underestimate in practice. A later RMD start age grows your account balance – which grows your eventual mandatory income – which raises your tax rate, potentially raises your Medicare costs, and can make more of your Social Security taxable all at once. The delay that looks like a benefit on paper can become a tax liability in your 70s and 80s if no planning happens in the years before distributions begin.

The most practical step is to model your projected RMDs now, before they begin. Knowing roughly what your required withdrawal will be at age 73 or 75 – based on current balance and expected growth – lets you calculate which tax bracket it drops you into and whether you’re approaching IRMAA thresholds. From there, partial Roth conversions, strategic charitable giving through QCDs, and careful Social Security claiming decisions can all reduce the mandatory income you’ll face later. A fee-only financial planner or tax advisor who specializes in retirement distributions can run that projection and identify how many years of conversion opportunity you have left. Don’t wait until the first withdrawal is due – by then, the window for pre-emptive planning has already closed.

Disclaimer: This information is not intended to be a substitute for professional financial advice, investment advice, tax advice, or legal advice, and is provided for informational purposes only. Always seek the guidance of a qualified financial advisor, accountant, or other licensed professional regarding your personal financial situation or investment decisions. Do not make financial, investment, or tax decisions based solely on information presented here. Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.

AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.

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