You saved for 30 years. You maxed your 401(k), reinvested every bonus, and watched the balance grow. Now it’s sitting at $2 million and you’re thinking: I’ve made it.
Here’s what nobody told you. That $2 million isn’t really $2 million. A meaningful chunk of it belongs to the IRS, and the bill is going to arrive whether you’re ready for it or not. Worse, it’s likely to arrive all at once, in the form of required minimum distributions that push you into higher tax brackets, trigger Medicare surcharges, and make up to 85% of your Social Security taxable.
Most people find out at 73.
The Problem Starts With the Tax Deferral Deal
When you contributed to a traditional 401(k) or IRA, you made a deal with the IRS: pay no taxes now, pay them later. For most people in their working years, that was a smart trade. You avoided tax at your highest earning rates, the money compounded without a drag, and “later” felt far away.
Later is here.
Every dollar sitting in a traditional retirement account is pre-tax money. When it comes out, it’s taxed as ordinary income, not at the lower capital gains rates that apply to a brokerage account. For a couple with $2 million in IRAs, that’s $2 million of deferred income waiting to be recognized.
The IRS doesn’t let it sit there forever.
Required Minimum Distributions: The Tax You Can’t Avoid
Starting at age 73, the IRS requires you to withdraw a minimum amount from your traditional IRAs and 401(k)s each year. The amount is calculated by dividing your account balance by a life expectancy factor from the IRS Uniform Lifetime Table.
At age 73, that factor is roughly 26.5. On a $2 million balance, that’s a required distribution of about $75,500 in year one. By age 80, the factor drops to around 20, pushing the RMD on the same balance toward $100,000 or more.
Here’s what that looks like in practice for a couple filing jointly:
- Social Security income: $50,000 (combined)
- RMD: $75,500
- Total gross income: ~$125,500
Before a single spending decision, that couple has over $125,000 coming in. At those income levels, 85% of their Social Security becomes taxable, adding another $42,500 to their taxable income. Their federal tax bill on this income, after the standard deduction for a couple over 65, puts them squarely in the 22% bracket.
That’s before state income tax. Colorado, for reference, taxes most retirement income above a certain threshold.
Now imagine the account keeps growing. A $2 million IRA invested at a modest 5% annual return grows to roughly $2.8 million by the time RMDs are in full swing in your mid-70s, even after distributions. The RMDs get larger. The tax bill gets larger. The brackets don’t move up to meet you.
The IRMAA Problem: Your Medicare Bill Just Got More Expensive
Most people don’t realize that Medicare Part B and Part D premiums aren’t flat. They’re income-based, and the thresholds are lower than most affluent retirees expect.
In 2026, the IRMAA surcharge for Medicare Part B kicks in at $106,000 of modified adjusted gross income (MAGI) for a single filer and $212,000 for a married couple filing jointly. Once you cross those thresholds, your monthly Medicare premium jumps immediately to the next tier.
The surcharge tiers in 2026 look like this for married filers:
| MAGI (Married Filing Jointly) | Additional Annual Medicare Cost |
|---|---|
| $212,000 to $266,000 | ~$1,782 per person |
| $266,000 to $334,000 | ~$4,488 per person |
| $334,000 to $400,000 | ~$7,194 per person |
| Above $400,000 | ~$8,658 per person |
A couple with a $2 million IRA taking their first RMD, drawing Social Security, and possibly earning some interest income can easily land in the first or second IRMAA tier without realizing it. That’s an extra $3,500 to $9,000 per year in Medicare premiums, on top of their standard premium, that they weren’t budgeting for.
IRMAA also has a two-year lookback. Your 2026 Medicare premium is based on your 2024 income. This matters enormously for Roth conversion planning, which we’ll get to in a moment.
The Social Security Taxation Trap
Here’s a tax most people genuinely don’t understand until they see the return.
Social Security benefits aren’t automatically taxable, but once your “combined income” crosses a threshold, up to 85% of your benefits become taxable income. Combined income is your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.
For a married couple:
- Below $32,000 in combined income: 0% of Social Security is taxable
- $32,000 to $44,000: up to 50% is taxable
- Above $44,000: up to 85% is taxable
A couple with a $2 million IRA taking RMDs will almost certainly be well above $44,000 in combined income. That means 85 cents of every Social Security dollar they receive gets added back to their taxable income.
The thresholds haven’t been updated for inflation since 1984. What was designed as a tax on upper-income retirees now hits the middle class and above with near certainty.
The Widow’s Penalty: When One Spouse Dies, the Tax Bill Gets Worse
This is the piece that surprises people the most.
When one spouse dies, the surviving spouse inherits the IRA. The money doesn’t shrink. The RMDs don’t shrink. But the tax brackets do.
Filing jointly, a couple in 2026 has a 22% bracket that runs up to about $211,400. The 24% bracket runs to $383,900.
A single filer hits 22% at just $47,151. The 24% bracket starts at $100,526.
A widow taking the same $75,500 RMD and the same Social Security income her household always had is now filing as a single taxpayer. The same dollars that were comfortably in the 22% bracket as a married couple are now spilling into 24% territory. The IRMAA thresholds are cut roughly in half, so Medicare surcharges that didn’t apply before may now apply. And the standard deduction is lower.
The income doesn’t change. The tax bill does.
For households where the husband managed the financial accounts and the wife is the likely survivor, this scenario is especially common and especially underplanned for.
Why This Surprises So Many Retirees
Most people spend their career thinking about accumulation. How do I grow this number? The tax question was simple: defer it now, deal with it later.
“Later” has a structure most people never modeled:
- RMDs that force income whether you need it or not
- Social Security that becomes largely taxable above very modest income thresholds
- Medicare premiums that scale with income
- A filing status change that can happen overnight and last decades
When you add all of these up, a retiree with $2 million in traditional retirement accounts can easily face an effective marginal rate on their RMDs that approaches 40% once you account for the 22% or 24% federal bracket, state income tax, the Social Security inclusion effect, and IRMAA surcharges.
What Can Be Done About It
The good news is that most of these problems are solvable if you address them before RMDs begin. The window is roughly between age 60 and 72, and it’s one of the highest-leverage periods in a financial plan.
Roth conversions. Converting a portion of a traditional IRA to a Roth IRA each year before age 73 reduces the balance subject to RMDs. Roth accounts have no RMDs during the owner’s lifetime, grow tax-free, and produce tax-free income in retirement. The goal isn’t to convert everything; it’s to convert enough to keep future RMDs from pushing you into higher brackets. Converting $50,000 to $100,000 a year in your 60s and early 70s, in years when your income is relatively low, can dramatically reduce your lifetime tax burden.
Strategic Social Security timing. Delaying Social Security to age 70 increases your benefit by 8% per year past full retirement age. But the timing also matters for tax planning. In years before Social Security begins, your taxable income may be low enough to support larger Roth conversions at lower rates.
Qualified Charitable Distributions (QCDs). Once you’re 70½ or older, you can send up to $108,000 per year directly from a traditional IRA to a qualified charity. That distribution satisfies your RMD but never appears in your adjusted gross income. For charitably inclined retirees, it’s one of the most tax-efficient moves available.
Roth 401(k) contributions while still working. If you’re still employed, contributing to a Roth 401(k) instead of a traditional one starts shifting the mix toward tax-free income before you retire. It won’t undo 30 years of deferred savings, but it changes the trajectory.
Account sequencing in withdrawals. Working with an advisor and a tax professional to determine which accounts to draw from in which order, and in what amounts, can meaningfully reduce your total lifetime tax bill.
The Bigger Point
The retirement tax problem isn’t complicated in theory. It’s just almost never modeled properly before it hits. A $2 million IRA feels like financial security, and it is. But it’s $2 million of pre-tax money, and the IRS is a silent partner in every dollar of it.
The decisions you make between 60 and 72 about Roth conversions, Social Security timing, and withdrawal strategy can be worth hundreds of thousands of dollars over a 20- or 30-year retirement. Those decisions get harder once RMDs begin, and nearly impossible to undo once you’re filing as a single taxpayer.
If you’re within 10 years of retirement and most of your wealth is in a traditional 401(k) or IRA, it’s worth running the numbers now rather than discovering the tax bill at 73.
Gabe Motta, CFP® is the founder of Inclinevest LLC, a fee-only, fiduciary RIA based in Greenwood Village, Colorado. Inclinevest serves pre-retirees and retirees with $1 million or more in investable assets. This article is for educational purposes only and does not constitute tax or investment advice. Please consult a qualified tax professional regarding your specific situation.
