Updated

Updated · Yahoo Finance · Sep 9

Fidelity Counts Record 769,000 401(k) Millionaires as RMD Rules Expose Future Tax Bills

Updated

Updated · Yahoo Finance · Sep 9

Fidelity Counts Record 769,000 401(k) Millionaires as RMD Rules Expose Future Tax Bills

Q: Could your million-dollar retirement account secretly be a tax trap waiting to trigger massive Medicare surcharges?

Yes. A large traditional 401(k) can become a tax trap in retirement because required minimum distributions count as ordinary income and can push Medicare premiums higher through IRMAA. The risk is not the $1 million headline balance itself, but that most of it is often in pretax accounts. That means the money has an embedded tax bill. At age 73 for people born from 1951 to 1959, or 75 for those born in 1960 or later, the IRS requires annual withdrawals. At 73, the IRS factor is 26.5, so a $1 million account produces an RMD of about $37,700; a $1.5 million account produces roughly $56,600. Those withdrawals can have ripple effects. They raise adjusted gross income, can make up to 85% of Social Security taxable, and may trigger Medicare Part B and Part D surcharges. For 2026, IRMAA begins above $109,000 of 2024 MAGI for single filers and $218,000 for married couples filing jointly. Because IRMAA is a cliff system, even one extra dollar over a threshold can raise premiums for the full year, and Medicare uses a two-year lookback. That does not mean every retirement millionaire is in trouble. It means account size must be viewed after tax and with income planning in mind. Financial planners often point to the years after retirement but before RMDs begin as the best window for Roth conversions, which can shrink future RMDs. Qualified charitable distributions can also help, but generally only from IRAs, not directly from a 401(k), so a rollover may be needed.

2 articles · Updated · Yahoo Finance · Sep 9

769,000 Fidelity 401(k) accounts topped $1 million at the end of June, up from 654,000 in the prior quarter and marking a record on the platform.
Most of those balances are pretax, leaving a nominal $1 million account effectively worth about $700,000 to $780,000 after future IRS claims.
Age 58 is the average for Fidelity's 401(k) millionaires, giving many roughly 15 years before required minimum distributions begin and narrowing the window to reduce taxable balances.
At 73 for people born 1951-1959 and 75 for those born in 1960 or later, RMDs can push retirees into higher federal taxes, make up to 85% of Social Security taxable and raise Medicare premiums.
Missing an RMD carries a 25% penalty, cut to 10% if corrected quickly, underscoring why the pre-RMD years are often used for Roth conversions.