A $1 Million 401(k) Can Make 85% of Social Security Taxable at First RMD

Retirees with large traditional 401(k) balances can run into an awkward tax interaction in the same year their required minimum distributions begin. On Sept. 18, 2026, 24/7 Wall St. reported that a retiree with a $1 million traditional 401(k) and a $40,000 annual Social Security benefit could see 85% of that benefit become taxable once the first RMD is added to income.

The mechanics are not new. They come from the federal provisional-income formula for taxing Social Security benefits, with thresholds that 24/7 Wall St. said were set in 1983 and 1993 and have not been indexed for inflation. For affluent households, the practical result is that the first mandatory withdrawal may increase taxable income by more than the RMD itself.

What Changed

Required minimum distributions generally begin at age 73 for people who reach age 73 before 2033, according to the background information in the Wikipedia entry on 401(k) plans. For a traditional 401(k) or IRA balance of $1,000,000, 24/7 Wall St. said the IRS Uniform Lifetime Table divisor at age 73 is 26.5, producing a first-year RMD of about $37,736.

That withdrawal is generally taxed as ordinary income. The twist is that it also feeds into the formula used to determine how much of Social Security is taxable. For married couples filing jointly, 24/7 Wall St. listed these provisional-income tiers:

• Under $32,000: none of the benefit is taxable
• $32,000 to $44,000: up to 50% of the benefit is taxable
• Over $44,000: up to 85% of the benefit is taxable

For single filers, the article said the comparable thresholds are $25,000 and $34,000.

Traditional 401(k) plans are employer-sponsored defined-contribution retirement accounts, and withdrawals from traditional accounts are generally included in taxable income, according to Wikipedia. That matters here because a large pre-tax balance can create a taxable-income spike once distributions become mandatory.

Who Is Affected

The issue is most relevant for retirees with substantial balances in traditional 401(k)s or IRAs who are also collecting Social Security. A household does not need an eight-figure nest egg to trip the 85% threshold. In the example cited by 24/7 Wall St., a $1 million retirement account and a $40,000 Social Security benefit are enough.

Households that delayed drawing down pre-tax retirement accounts, or that concentrated savings in traditional rather than Roth accounts, may be especially exposed. The same is true for couples whose income otherwise appears moderate. A retiree may look at a $37,736 RMD and assume the tax bill is tied only to that withdrawal. In fact, the RMD can also pull more Social Security into taxable income under the provisional-income formula.

Missing the RMD can be costly as well. Wikipedia says a failure to withdraw the full required amount may incur an excise tax equal to 25% of the shortfall, reduced to 10% if corrected within two years. 24/7 Wall St. described the same penalty structure and noted that custodians often calculate the required amount automatically.

The After-Tax Math

Here is the example described by 24/7 Wall St. for a married couple filing jointly:

Because provisional income in that example is about $57,700, it is above the $44,000 threshold for married couples filing jointly. 24/7 Wall St. said that means the maximum share of the Social Security benefit becomes taxable: 85% of $40,000, or $34,000.

That is why the combined ordinary income rises to $71,736 before any standard deduction: the $37,736 RMD plus $34,000 of taxable Social Security. 24/7 Wall St. said that, for tax year 2025, this amount would still sit within the 12% bracket for married filing jointly once the standard deduction is applied, with that bracket running from $23,851 to $96,950.

The more subtle point is the effective marginal rate inside the phase-in range. As 24/7 Wall St. explained, an additional dollar of RMD income can cause up to 85 cents of Social Security to become taxable as well. The article said that can make the real marginal rate on distributions in that zone closer to 22.2%, even when the stated bracket looks lower.

Moves to Discuss With Your Advisor

24/7 Wall St. highlighted three planning levers that can change the math, especially before the first RMD year begins.

One is Roth conversions in the years between retirement and age 73. Moving part of a traditional balance into a Roth account can reduce future required distributions from the traditional account, which may lower future provisional income. Households considering conversions may want to discuss the timing and tax cost with a CPA or financial planner.

Another is the qualified charitable distribution. According to 24/7 Wall St., after age 70 1/2, up to $108,000 per person in 2025 can go directly from an IRA to charity. The article said those distributions can satisfy the RMD without increasing adjusted gross income.

A third lever is withdrawal timing and account order. Households in this situation often consider whether drawing more heavily from traditional balances before claiming Social Security, and relying more on Roth or taxable accounts later, could reduce the number of years spent above the 85% threshold.

What to Watch

The key variable is not a new law but an old formula that has stayed in place while retirement account balances and Social Security benefits have grown. 24/7 Wall St. said the provisional-income thresholds remain unindexed, which means more retirees may cross them over time even without a dramatic jump in spending.

For affluent retirees, the first RMD year may be less about the headline withdrawal amount and more about how that withdrawal interacts with the rest of household income. The numbers in this example are straightforward, but they illustrate why a seemingly manageable RMD can make a much larger share of retirement income taxable in the same year.

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