Key Takeaways
- A 62-year-old listener of the Your Money, Your Wealth podcast has about $2.6 million in his 401(k) and plans to retire at 64.
- He was born after 1959, so his required minimum distributions start at 75. If the 401(k) holds its value and is all pre-tax money, his first one is $105,691.
- Retiring at 64 gives him 11 years, from 64 through 74, to convert pre-tax money to a Roth at tax rates he chooses, though each year’s income sets his Medicare premiums two years later.
- When he stops working, Form SSA-44 lets him ask Social Security to set his Medicare premium from his lower retired income instead of his last salary year.
If you were born in 1960 or later, here’s some good news: the IRS won’t make you start pulling money out of your 401(k) until 75. But the longer that money sits, the bigger the first withdrawal can be, and one listener’s numbers show just how big.
A $2.6 million 401(k) and two more years of work
A 62-year-old listener wrote in to Your Money, Your Wealth with a plan plenty of people would envy. “Currently, I’m 62. Employed. Have $400,000 in a Roth, $290,000 in a brokerage account, about $2.6M in my 401K,” he wrote, in an email read out on the Nov. 10 episode. He’s single, earns $250,000 a year, puts $36,000 a year into his 401(k) “Roth style,” and holds a 70/30 mix of stock and bond funds. “I plan to retire at 64,” he added, and he’ll have health coverage through his employer until he turns 65.
That’s a lot of money in one account he’ll eventually have to start drawing down.
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His first required withdrawal comes at 75
Required minimum distributions start at 73 for people born from 1951 through 1958, but anyone born in 1960 or later starts at 75. At 62 this year, he’s in that group. Each year’s required withdrawal is the account’s balance on the prior Dec. 31 divided by a factor from the Uniform Lifetime Table, and the factor at 75 is 24.6.
So let’s say the 401(k) holds at $2.6 million until then. Divide that by 24.6, and his first required withdrawal comes to $105,691.
I’ve counted the whole balance as pre-tax money there, and it may not all be. The $36,000 he puts in each year Roth style goes into a Roth 401(k), and since 2024, Roth 401(k) money has had no required withdrawals during the owner’s lifetime. So whatever part of the $2.6 million is Roth money won’t count toward that first withdrawal.
He has 11 years to shrink it
Retiring at 64 gives him 11 years without a salary, from 64 through 74, to convert pre-tax money to a Roth at tax rates he chooses. Every dollar he converts comes out of the pre-tax balance that gets divided by 24.6. If the account otherwise holds steady, every $100,000 he moves takes about $4,000 off that first withdrawal.
Each conversion is for keeps, though. Since 2018, a conversion to a Roth can’t be switched back. So he gets one shot at each year’s amount, and that year’s tax bill comes with it.
Medicare charges by his income from two years back
Medicare sets its Part B surcharge from your income on the tax return from two years before. That means his premiums at 65 depend on the year he turns 63, which is a full year of his $250,000 salary. Under 2026’s bands, a single filer with $250,000 of income pays a $446.30 monthly surcharge on Part B, or about $5,400 a year.
Fortunately, he doesn’t have to pay that for long. When he stops working, Form SSA-44 lets him ask Social Security to set his premium from his lower retired income instead of his last salary year.
After that, every conversion shows up in his premiums two years later. What he converts at 64 sets his premiums at 66, and so on through 74. Under 2026’s bands, a single filer’s surcharge starts above $109,000 of income, at $81.20 a month, and steps up above $137,000, $171,000 and $205,000. So the sweet spot each year is a conversion that leaves his total income just under one of those lines.
He’s in great shape, with homework
The way I see it, those 11 years are the most valuable part of his plan. I’d rather see him pay Medicare’s first surcharge in a few conversion years than leave all $2.6 million waiting for 75.
Of course, $105,691 is a snapshot. His actual first withdrawal will be his pre-tax balance on Dec. 31 of the year he turns 74, divided by 24.6, and a 70/30 portfolio is unlikely to sit still for 12 years. If it grows, so does that withdrawal, and so does the case for converting before it.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
