Author: Hazel Secco, CFP®, CDFA®
Estimated reading time: 10 minutes
🎧 Prefer to watch or listen? This episode of Align Your Retirement covers exactly this:
Table of contents
- Why does the last working year cost less in tax than retirement?
- When do required minimum distributions start, and how big is the first one?
- How is Social Security taxed on top of an RMD?
- Why doesn’t the $6,000 senior deduction help?
- What is IRMAA, and why does it arrive two years later?
- When is a large pre-tax balance not a problem?
- If you are married, this is your survivor’s tax return
- What actually helps, honestly sized
- What to Do This Week
- Want the full framework?
- Frequently Asked Questions
- Sources
Picture a woman with $3 million saved, every dollar of it in a 401(k) and a rollover IRA. No Roth, no brokerage account, one very large and very disciplined pile. Call her Margaret. She is a hypothetical composite, but the question she asks is the one I hear most often from women in exactly her position: “Is this enough?”
It is enough. That was never the problem. The problem is that later in retirement, in a year with no salary at all, Margaret will pay more federal income tax than she did in her final year of work. And the size of the bill is not even the main issue. By that point she no longer controls how much comes out of the account. Pre-tax 401(k) and IRA savings carry a tax bill that arrives on the IRS’s schedule, not yours, and at $3 million the schedule is the whole story.
This post walks the arithmetic from her last paycheck to her first required minimum distribution, then to Social Security, the senior deduction she will not get, and the Medicare surcharge that follows two years later. I am holding 2026 tax rules constant throughout so the mechanism is visible. It is an illustration, not a forecast, and it is not personal advice.
Why does the last working year cost less in tax than retirement?
A working year costs less because the paycheck comes with shelter. A 401(k) deferral and an HSA contribution come off the top before the IRS sees the income, and the standard deduction applies after that. In retirement the standard deduction stays, but the pre-tax shelter ends with the paycheck, and there is nothing to replace it when every dollar you own is already pre-tax.
Margaret is 62 in 2026 and earns $185,000. She defers $24,500 into her 401(k), the 2026 employee limit, and puts $5,400 into an HSA, the 2026 self-only limit plus the catch-up for age 55 and over. That is $29,900 the IRS never sees. The 2026 standard deduction for a single filer is $16,100. Her taxable income lands at about $139,000, and her federal tax is roughly $26,000.
| Margaret’s final working year (2026, single filer) | Amount |
|---|---|
| Salary | $185,000 |
| 401(k) deferral (2026 limit) | ($24,500) |
| HSA contribution (2026 self-only limit plus age 55+ catch-up) | ($5,400) |
| Standard deduction (2026, single) | ($16,100) |
| Taxable income | About $139,000 |
| Federal income tax | About $26,000 |
One update for anyone still working: starting in 2026, if your prior-year Social Security wages from the employer sponsoring your plan exceeded $150,000, your catch-up contributions (the age-50 catch-up and the larger age 60 to 63 catch-up) must go into a Roth account, and if your plan has no Roth option you cannot make catch-up contributions at all. That still builds Roth savings, which is a good thing, but those dollars no longer reduce your taxable income this year. I covered the details in whether you should still be maxing your 401(k).
Hold the $26,000. Margaret spent 30 years getting a tax discount she will not get again, and she used it to build the one asset that gets taxed the hardest on the way out.
When do required minimum distributions start, and how big is the first one?
Required minimum distributions, or RMDs, are the withdrawals the IRS requires from pre-tax retirement accounts once you reach a set age. Under SECURE 2.0, the age is 73 if you were born between 1951 and 1959, and 75 if you were born in 1960 or later. The first RMD is your prior year-end balance divided by a life-expectancy factor from the IRS Uniform Lifetime Table, which is 24.6 at age 75.
| Birth year | RMD starting age (SECURE 2.0) |
|---|---|
| 1950 or earlier | 72 (or 70½ under prior law) |
| 1951 to 1959 | 73 (1959 per Treasury’s proposed regulations; the statute is ambiguous for that year) |
| 1960 or later | 75 |
Margaret was born in 1964, so her RMDs begin at 75. A lot of coverage still says 73 for everyone; check your own birth year. (The ages above assume you have left the employer; a 401(k) at a company where you still work can generally wait until you retire.) Now follow the balance. She retires at 62, draws about $100,000 a year, and the portfolio grows at an assumed 6%. Thirteen years later it is roughly $4.5 million, because a portfolio that grows faster than you spend it keeps getting bigger. That is not a prediction about markets; it is what the arithmetic does at those inputs.
Divide $4.5 million by 24.6 and the first required distribution is about $183,000. She does not ask for it. The IRS mandates it, whether or not she needs the money that year.
How is Social Security taxed on top of an RMD?
Up to 85% of Social Security benefits become taxable income once your combined income crosses thresholds that were set in 1983 and 1993 and have never been indexed for inflation: $25,000 and $34,000 for a single filer, $32,000 and $44,000 for a married couple. A $183,000 RMD is so far past those lines that, for practical purposes, they do not exist.
| Filing status | Combined income where up to 50% is taxable | Combined income where up to 85% is taxable |
|---|---|---|
| Single | $25,000 to $34,000 | Above $34,000 |
| Married filing jointly | $32,000 to $44,000 | Above $44,000 |
Margaret claims at 70 and receives about $48,000 a year in this illustration. With the RMD underneath it, 85% of that benefit, roughly $40,800, is added to her taxable income. When the taxation rules were written, fewer than 10% of beneficiaries paid any tax on benefits. Because the thresholds never move, the Social Security Administration’s own analysis puts the share at more than half of beneficiary families today and still climbing. Margaret is squarely in that majority.
Why doesn’t the $6,000 senior deduction help?
The deduction is real, and it is aimed at someone else
The 2025 tax law added a $6,000 deduction per person age 65 and older, on top of the standard deduction, for tax years 2025 through 2028. It phases out at 6% of modified adjusted gross income above $75,000 for a single filer ($150,000 for a joint return), which means it is gone entirely at $175,000 of income for a single filer. It is genuine relief for a retiree with modest income. Margaret misses it twice.
First, her required distribution alone is $183,000, past the point where the deduction reaches zero. Second, under current law the deduction expires after 2028, and she does not turn 65 until 2029. The one provision written for retirees does not reach the retiree with the largest pre-tax balance.
Where Margaret lands at 75
| Margaret at 75 (2026 rules held constant, single filer) | Amount |
|---|---|
| Required minimum distribution ($4.5M ÷ 24.6) | About $183,000 |
| Taxable Social Security (85% of about $48,000) | About $40,800 |
| Standard deduction, including the age 65+ addition | About ($18,150) |
| Taxable income | About $206,000 |
| Federal income tax | About $42,400 |
| Compared with her final working year | About $16,400 more |
She pays a higher federal tax bill at 75, with no salary, than she paid at 62 with a $185,000 salary. It repeats every year for the rest of her life, and the RMD factor shrinks each year, so the required percentage rises.
What is IRMAA, and why does it arrive two years later?
IRMAA stands for income-related monthly adjustment amount. It is a surcharge added to Medicare Part B and Part D premiums when your modified adjusted gross income crosses a threshold, and it is set by your tax return from two years earlier. For 2026, the first threshold is $109,000 for a single filer and $218,000 for a married couple filing jointly, and it works as a cliff: $1 over the line moves you into the entire next tier.
The two-year look-back is what makes this hard to see coming. The required distribution Margaret takes at 75 shows up on her Medicare premium at 77. The letter explains the surcharge. It does not explain the decision that caused it. If you want the full tier table and how to appeal a surcharge after a life-changing event, I covered it in how IRMAA works in 2026.
When is a large pre-tax balance not a problem?
A large pre-tax balance is not a problem in three cases: when your withdrawals stay close to the size of your deductions, when your heirs will be in a lower tax bracket than you, and when you have a genuine stretch of gap years between your last paycheck and your first RMD that you plan to use. Fairness requires saying so, because for some readers none of the above applies.
If your balance is small relative to your spending, you will not trigger a required distribution that matters. If the people inheriting the account will pay less tax on it than you would, leaving it pre-tax can be the correct answer. And gap years are the asset most people in Margaret’s position do not realize they hold. She has 13 of them, and that is the window she can still use.
What she is missing is a second kind of account. For 30 years she did exactly what she was told, using one account type, and nobody pointed out that the account would one day force withdrawals on its own schedule. The comparison between account types is in Roth vs traditional 401(k) at $1M and up.
If you are married, this is your survivor’s tax return
Every number above uses single-filer thresholds because Margaret is single. If you are married, you just read your survivor’s tax return, because when one spouse dies the survivor generally files as single from the following year on (a survivor with a dependent child can use joint rates for two more years), and most of these thresholds narrow sharply at that point. The IRMAA line drops from $218,000 to $109,000. The base standard deduction is cut in half. The Social Security thresholds fall from $32,000 to $25,000.
Meanwhile the survivor loses the smaller of the two Social Security checks, so household income falls, but she inherits the IRA and its balance does not shrink because someone died. The income the tax code measures barely changes while every threshold gets tighter. This is the widow’s penalty, and I walk through the full arithmetic in the tax mistake married women make before they are widowed.
Rates going up is a guess about politics. One spouse outliving the other is close to a certainty. That is the strongest reason to move money before you have to: not a forecast about future tax rates, but the way the code treats a survivor.
What actually helps, honestly sized
The years between your last paycheck and your first required distribution are the years you have the most control over your taxable income: no salary to report and no mandatory withdrawals yet. That is the window for shifting money out of pre-tax accounts at rates you choose, before the IRS chooses for you. For Margaret it is 13 years long. I described how to use it in the Roth conversion window most high earners miss.
Most content on this topic overstates the payoff, so let me size it honestly. Shifting money costs tax in the year you do it. For someone in Margaret’s position, well-sequenced conversions over a full retirement tend to add up to a few percent of total wealth. That is meaningful money at $3 million, and it is not a silver bullet. Anyone promising more is leaving out the tax bill.
The real payoff is quieter than the headline version. Every dollar moved now, while the wider thresholds are in place, is a dollar your survivor will not have to withdraw under the narrower ones.
What to Do This Week
- Draw three columns: taxable, Roth, pre-tax. Write your actual balance in each. If nearly everything sits in one column, that is the finding, and it is the starting point for every decision below.
- Count your gap years. From the year you plan to stop working to the year you turn 73 or 75, depending on your birth year. If the answer is zero, you have less flexibility than you think and need to design around it now.
- Run your numbers as a single filer. Even if you are married. That is the scenario your plan has to survive, and the thresholds are roughly half as wide.
- Check your catch-up status for 2026. If your 2025 Social Security wages from your employer exceeded $150,000, your catch-up contributions are now Roth (assuming your plan offers Roth). Confirm your payroll election reflects that so your withholding does not surprise you in April.
- Pull the RMD factor for your own first RMD year. Divide a realistic projected balance by it. Seeing the number is what turns this from a concept into a plan.
Want the full framework?
The sequencing behind this episode (the gap-year window, the three buckets, and the survivor thresholds I plan around with clients) is written up in my free guide, The Executive Woman’s Tax Playbook. It’s a free PDF you can read in one sitting. Get the playbook here.
Hazel Secco, CFP®, CDFA®, is the founder of Align Financial Solutions, a fee-only fiduciary firm that works with high-net-worth women and female executives on retirement planning, equity compensation, and tax strategy. Learn how Align approaches retirement planning for women. Align is a fee-only financial advisor for women in Hoboken, New Jersey, and its financial planning for women treats retirement timing, taxes, equity compensation, and estate decisions as one plan.
Already past the research phase? If you have a large pre-tax balance and are not sure which of the exceptions applies to you, book a free 15-minute Align Call and I will tell you which of the three buckets needs your attention over the next ten years: https://alignfinancialsolutions.com/book-a-call/. Whether we work together or not, you’ll walk away with clarity on your best next step.
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Frequently Asked Questions
At what age do RMDs start if I was born in 1960 or later?
Age 75. Under SECURE 2.0, required minimum distributions from pre-tax IRAs and 401(k)s begin at 73 for people born from 1951 through 1959 and at 75 for people born in 1960 or later. The first distribution is the prior year-end balance divided by the IRS Uniform Lifetime Table factor for your age, which is 24.6 at 75.
Is it bad to have all of my retirement savings in a pre-tax 401(k)?
Not always, but at a large balance it removes your control. Once RMDs begin, the IRS sets your minimum taxable income each year, and that income also drives Social Security taxation and Medicare IRMAA surcharges. It is less of a problem if your withdrawals stay near your deductions, your heirs are in a lower bracket, or you have gap years you plan to use.
How much of my Social Security is taxable if I have a large RMD?
Up to 85% of it. For a single filer, combined income above $34,000 makes up to 85% of benefits taxable; for a joint return the line is $44,000. Those thresholds have not been adjusted since they were set in 1983 and 1993, so a six-figure RMD pushes you past them with room to spare.
Does the new $6,000 senior deduction apply to me?
Only if you are 65 or older in a tax year from 2025 through 2028 and your modified adjusted gross income is below the phase-out. The deduction is $6,000 per person and shrinks by 6% of MAGI above $75,000 for a single filer ($150,000 joint), reaching zero at $175,000 single. Married couples must file jointly to claim it, and the return must include the qualifying person’s Social Security number. Under current law it expires after 2028.
What is the IRMAA threshold for 2026?
$109,000 of modified adjusted gross income for a single filer and $218,000 for a married couple filing jointly, measured on the 2024 tax return. Crossing the line by any amount moves you into the next Part B and Part D premium tier for the full year, and each higher tier has its own threshold above that.
Sources
- IRS Revenue Procedure 2025-32, tax year 2026 inflation adjustments (standard deduction, additional deduction at 65, brackets): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
- IRS newsroom, tax year 2026 inflation adjustments: https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
- IRS, 401(k) contribution limits: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
- IRS, catch-up contributions, including the Roth requirement for higher earners: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
- IRS Notice 2025-67, 2026 retirement plan limits and the $150,000 Roth catch-up wage threshold: https://www.irs.gov/pub/irs-drop/n-25-67.pdf
- IRS Revenue Procedure 2025-19, 2026 HSA contribution limits: https://www.irs.gov/pub/irs-drop/rp-25-19.pdf
- 26 U.S.C. § 223(b)(3), HSA additional contribution at age 55: https://www.law.cornell.edu/uscode/text/26/223
- 26 U.S.C. § 401(a)(9)(C), required beginning date by birth year under SECURE 2.0: https://www.law.cornell.edu/uscode/text/26/401
- Treasury and IRS, proposed regulations on required minimum distributions (July 2024), including treatment of 1959 births: https://www.federalregister.gov/documents/2024/07/19/2024-14543/required-minimum-distributions
- 26 CFR § 1.401(a)(9)-9, Uniform Lifetime Table (factors 26.5 at 73 and 24.6 at 75): https://www.law.cornell.edu/cfr/text/26/1.401(a)(9)-9
- IRS Publication 590-B, distributions from IRAs: https://www.irs.gov/publications/p590b
- IRS Publication 915, Social Security benefits taxation ($25,000/$34,000 single and $32,000/$44,000 joint thresholds, 50% and 85% tiers): https://www.irs.gov/publications/p915
- Social Security Administration, income taxes on benefits: https://www.ssa.gov/benefits/retirement/planner/taxes.html
- Social Security Administration, Office of Retirement and Disability Policy, taxation of benefits research (share of beneficiaries paying tax, 1984 to projected): https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html
- IRS, One Big Beautiful Bill Act deductions for seniors: https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors
- 26 U.S.C. § 151(d)(5), senior deduction ($6,000, 6% phase-out above $75,000 single / $150,000 joint, tax years 2025 through 2028): https://www.law.cornell.edu/uscode/text/26/151
- Centers for Medicare & Medicaid Services, 2026 Medicare Part B premiums and IRMAA thresholds: https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles
- Social Security Administration, Medicare premiums and the two-year tax return lookback: https://www.ssa.gov/benefits/medicare/medicare-premiums.html
Disclaimer: Advisory services are offered through Align Financial Solutions LLC (“AFS”), an Investment Advisor in the State of New Jersey. This article is for educational purposes only and does not constitute personalized tax, legal, investment, or financial planning advice. Rules and figures are current for 2026 and subject to change. All client scenarios are hypothetical composites for illustration and do not represent any specific client outcome. Consult a qualified professional about your specific situation.