Pension Income and Delayed 401(k) Withdrawals Create a Tax Surprise at 73
A couple retires at 60 with $700,000 across two 401(k)s and uses a pension to cover expenses, leaving the retirement accounts untouched for 13 years. At 5% growth, the balance grows to about $1.32 million, producing a first required withdrawal near $50,000 at age 73 in the 22% tax bracket. Because the pension already uses up low tax brackets, standard Roth conversion advice has little room to work, and a surviving spouse could face tighter Medicare premium thresholds.
At 60, the couple stops working while a $100,000 pension covers spending. Their two 401(k)s hold $700,000 and remain untouched for 13 years. At 5% annual growth, the accounts reach roughly $1.32 million by 73, when the first required distribution is about $49,810.
The pension already absorbs most low-bracket space, leaving only about $33,000 at 12%. Later, $40,000 in Social Security can become partly taxable, and a surviving spouse may face a $109,000 IRMAA threshold and a 24% rate beginning at $105,700.
This story may resonate with pension-covered retirees whose traditional accounts keep growing tax-deferred. Because pensions use up lower brackets, Roth conversions may offer less benefit, and required withdrawals could push some households into higher tax and Medicare premium tiers. Surviving spouses could be especially exposed if filing status changes while distributions continue. Financial advisers may need to revisit assumptions about low-income retirement years.