How 401(k) Millionaires Use the Years Before Age 73 RMDs to Shrink a Deferred Tax Bill

Fidelity's count of a record 769,000 401(k) millionaires has prompted a harder look at what those balances are worth after tax. A September 9, 2026 analysis from 24/7 Wall St. noted that most seven-figure accounts hold pretax money and estimated that a $1 million balance may represent roughly $700,000 to $780,000 of spendable wealth once withdrawals are taxed. When that bill arrives is largely set by law, but the years between retirement and required distributions leave room to reshape it.

When the bill comes due

Required minimum distributions begin at 73 for people born from 1951 through 1959 and at 75 for those born in 1960 or later, the analysis noted. The IRS calculates each year's distribution by dividing the prior year-end balance by a life expectancy factor; the Uniform Lifetime Table divisor at 73 is 26.5. Missing a distribution costs 25% of the shortfall, or 10% if corrected within two years.

Example: $1,200,000 in a traditional 401(k) at 73 produces a first required distribution of about $45,300. That income arrives whether or not the retiree needs it, and it grows as a share of the account each year.

Three costs that stack

• Brackets. Distributions are ordinary income, added on top of pensions, interest, dividends and any part-time earnings.
• Social Security. The IRS taxes up to 50% of benefits for joint filers whose combined income, which counts half of benefits plus other income, falls between $32,000 and $44,000, and up to 85% above $44,000. Those thresholds are low enough that most seven-figure savers will cross them.
• Medicare premiums. The standard Part B premium for 2026 is $202.90 a month, and Medicare charges beneficiaries with higher incomes more, so larger distributions can raise health costs as well as taxes.

The conversion window

Retirees who stop working before RMD age often have several years of unusually low taxable income. Converting part of a traditional balance to a Roth IRA in those years moves income into brackets that may be lower than the ones that would apply once distributions, Social Security and other income combine. Roth IRAs have no required distributions during the owner's lifetime, the IRS says, and every dollar converted shrinks the pretax balance that future RMDs are calculated on.

Example with round numbers, using the IRS's 2026 brackets for married couples filing jointly: a retired couple aged 65 has $60,000 of taxable income from a pension and investments. The 12% bracket runs to $100,800 and the 22% bracket to $211,400.

Converting $150,000 a year for eight years, from 65 through 72, would move $1.2 million out of the pretax account before investment growth, at an average federal rate near 19%. Whether that beats leaving the money in place depends on future tax rates, returns, state taxes, heirs' brackets and whether the tax on each conversion is paid from money held outside the account. Conversions count as income, so they can trigger the same Social Security and Medicare effects described above; households typically model those before settling on an amount.

Other tools in the analysis

24/7 Wall St. also pointed to two provisions that change the mix. Workers earning more than $150,000 must make catch-up contributions to Roth accounts starting in 2026, which gradually builds a tax-free bucket. And people 70 and a half or older can send up to $108,000 a year directly to charity through qualified charitable distributions that do not count toward adjusted gross income, a way for charitably inclined retirees to satisfy distributions without adding to taxable income.

What to watch

Bracket thresholds are indexed each year, and the IRS released its 2026 figures in October 2025, so the 2027 numbers are likely later this fall. Households weighing conversions often model several years at once with a CPA or financial planner rather than deciding one year at a time.

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