Retirees Face Tax Risks From Required Minimum Distributions
Retirees with significant 401(k) balances and pensions face higher tax brackets when Required Minimum Distributions begin under SECURE 2.0 rules.
Retirees entering their 60s face potential tax liabilities, often termed a tax bomb, when Required Minimum Distributions (RMDs) begin. For a couple retiring at 63 with $480,000 in 401(k) accounts and a military pension, a 5% annual return could grow their balance to $781,900 by age 73, triggering an initial RMD of approximately $29,500.
Because the Internal Revenue Service taxes military retired pay as ordinary income, these mandatory withdrawals stack on top of existing pensions. This combination can push households into higher tax brackets; for 2026, the 12% tax rate applies to taxable income up to $100,800, with a 22% rate applying to income above that threshold.
To mitigate these costs, some households use the decade preceding RMDs for voluntary withdrawals or partial Roth conversions to lower their pre-tax balances. Under the SECURE 2.0 Act, the RMD start age is 73 for individuals born between 1951 and 1959, and 75 for those born in 1960 or later.
