A 75-Year-Old With $3 Million in a 401(k) Realizes Three Years of Required Minimum Distributions Will Result in $42,000 in Medicare Surcharges

quick read

• A $3 million 401(k) at the age of 75 would mean an RMD of $122,000, pushing the Modified Adjusted Gross Income (MAGI) to $200,000 and resulting in a $564 monthly Medicare surcharge.

• Consider a Roth conversion before RMDs kick in and roll those funds into an IRA to enable $111,000 in qualified charitable contributions each year.

• Are you ahead or behind in retirement? You can use some free tools to quickly connect with a financial advisor who can help assess your situation. Each advisor is vetted to ensure they act in your best interests.

Margaret, who turned 75 last fall, has a $3 million traditional 401(k) and has been taking required minimum distributions for a couple of years. She followed the textbook strategies, but recently received a letter from Medicare indicating her Part B and Part D costs are at the highest tier. She estimates that over the next three years, these surcharges could add up to around $42,000.

This isn’t theoretical; one retiree recently warned on a forum about the pitfalls of Medicare Part B and D IRMAA, emphasizing, “Beware of the pre-tax cap of $401,000. The conversion will lead to higher taxes and increased Medicare charges. ROTH, ROTH, ROTH!” Essentially, the numbers speak for themselves.

How a $3 million balance forces an annual income of $200,000

The life expectancy table for someone aged 75 indicates a divisor of 24.6. With a traditional balance of $3 million, a withdrawal of $121,951 is required annually. Adding in $48,000 from Social Security and $30,000 from taxable brokerage accounts brings Margaret’s adjusted gross income close to $200,000. It’s not that her lifestyle changed; it’s just that the IRS recalibrated her financial equation.

That MAGI places her in IRMAA Tier 4, with limits ranging from $193,000 to $500,000 for single filers in 2026. This means in addition to the usual Part B premium of about $203, she’ll face an extra $487 per month for Part B and $77 for Part D. Altogether, that’s $564 monthly, or around $6,768 annually, on top of the standard premium.

Why extra fees add up to $42,000

As RMD requirements grow, things get costly. Each year, the divisor drops (23.7 in ’76, 22.9 in ’77), and a portfolio earning its average return tends to recover its balance quicker than what gets withdrawn. With Margaret’s RMD percentage rising, her MAGI is creeping up into the next bracket. Tier 5 starts at a $500,000 MAGI and adds another $730 monthly, or $8,760 yearly. After two years in Tier 4 and one year approaching Tier 5, you tally up to that $42,000 figure.

There’s an important detail many retirees overlook: IRMAA undergoes a two-year evaluation. That means Margaret’s 2026 premiums are based on her 2024 income. Decisions made now will affect her surcharges in 2028, making the pre-Roth conversion window crucial. If anyone thinks they can rush to fix this when RMDs begin, that might already be too late.

4 levers that actually work even when you’re 75 years old

There’s an SSA-44 appeal process for “life-changing events,” like job loss or divorce, but predictable RMDs don’t qualify, closing that option.

1. Transfer some into an IRA and utilize QCD. Qualified charitable contributions can move directly from an IRA to a qualifying charity without impacting MAGI. The 2026 QCD limit is $111,000 per person, so this is particularly vital for retirees involved in workplace plans.

2. Offset losses in taxable accounts. If $30,000 is brought in through dividends, realized losses can reduce MAGI by up to $3,000 against ordinary income. Even a minor reduction can save you from hefty surcharges.

3. Consider donating more during high RMD years. Combining substantial charitable contributions with RMDs can help itemized deductions surpass the threshold, thus lowering taxable income while managing MAGI with QCD.

4. Plan your MAGI for the next couple of years. Understanding historical patterns can help you navigate the premiums coming up in 2028. The 2026 IRMAA table and IRS documents are crucial resources to have.

The takeaway for Margaret is that her $3 million 401(k) brings along a tax structure and Medicare costs. With the Consumer Price Index near 332.4, close to the Fed’s target, that $42,000 won’t increase. It’s real money, and anticipating future expenses starts with the current tax year.