After decades of contributions, a 401(k) or individual retirement account can grow into a substantial nest egg.
For those aged 73, the Internal Revenue Service begins to require withdrawals from certain tax-deferred accounts, even when the money is not needed for living expenses.
That age applies to retirees born between 1951 and 1959; those born in 1960 or later can wait until 75 under SECURE 2.0.
In its 2026 required minimum distributions (RMD) guide, the Schwab Center for Financial Research publishes a distribution period of 26.5 at age 73.
This means that a $1.5 million tax-deferred balance would generate a forced withdrawal of about $56,604 in the first RMD year. Schwab’s guide clearly lays out the number, but the deeper cost lies downstream.
A single required minimum distribution can increase taxes on Social Security benefits and raise monthly Medicare premiums. These follow-on costs are ones that many retirees do not connect to an RMD until the bills arrive.
The mechanics behind the $56,604 forced withdrawal
To calculate the minimum, the IRS divides a retiree’s prior year-end deferred balance by a life expectancy factor from the Uniform Lifetime Table.
That $56,604 lands in the retiree’s return as ordinary income, and the annual required minimum distribution climbs sharply from there because the divisor shrinks each year while balances often continue compounding.
Hayden Adams, director of tax planning and wealth management research at the Schwab Center for Financial Research, wrote in the firm’s guidance that letting deferred balances compound untouched sets up a larger tax hit once mandatory withdrawals begin.
<strong>Bigger account balances mean bigger RMDs, which are taxed as ordinary income and could bump you into a higher tax bracket</strong>.
But the higher tax bracket is only the first consequence, with Social Security and Medicare effects creating additional costs afterward.
One threshold has remained unchanged since the Clinton administration, while the other operates like a cliff, magnifying the financial impact.
The Social Security threshold Congress froze in 1983 and 1993
The first downstream cost hits when that new income pushes a retiree past a combined income ceiling.
For married couples filing jointly, once combined income crosses $44,000, up to 85% of Social Security benefits become taxable, the Social Security Administration confirmed.
Congress established those thresholds in 1983 and 1993 and never indexed them for inflation, even as consumer prices have roughly tripled since the first threshold was set.
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A retiree collecting $32,000 in annual Social Security alongside a $56,604 forced withdrawal would generate a combined income of roughly $72,604, well above the $44,000 line.
That pushes about $27,200 of Social Security benefits into the retiree’s taxable income, a cost many people do not anticipate until filing.
How the income-related monthly adjustment amount adds a Medicare surcharge
The second downstream cost arrives through a Medicare pricing rule that operates on a cliff basis, unlike standard federal income tax brackets.
Crossing a threshold by even one dollar triggers the full Medicare surcharge for that entire tier, not just a charge on the amount above the line.
For 2026, the standard monthly Part B premium is $202.90, but single filers with modified adjusted gross income above $109,000 begin paying surcharges, according to the Centers for Medicare & Medicaid Services.
At the top tier, a single filer above $500,000 would pay $689.90 a month for Part B alone, more than triple the base premium.
Schwab’s case for acting before mandatory distributions begin
Adams and Rob Williams, former head of financial planning and wealth management research at the Schwab Center for Financial Research, found that withdrawing from both tax-deferred and taxable accounts simultaneously before mandatory distributions begin can keep retirees in lower tax brackets.
“This strategy can help smooth out the potential spike in income caused by RMDs, which may reduce your total taxes paid in retirement,” Adams wrote in Schwab’s guide to retirement withdrawal strategy.
Roth conversions during the low-income window between retirement and age 73 are a second option.
Moving portions of a traditional IRA or 401(k) into a Roth account triggers taxes in the year of conversion. Those dollars and their future growth are then permanently excluded from the RMD calculation.
Schwab’s retirement research points to the years before mandatory distributions as the window when partial Roth conversions carry the least tax friction. Those years allow a retiree to remain in lower tax brackets before RMD income takes up that space.
A $50,000 annual conversion in the 22% bracket, for example, keeps those dollars out of the 24% or 32% brackets and can delay when RMDs start pushing income into higher brackets by a decade or more.
A third tool available starting at age 70-and-a-half is the qualified charitable distribution, which allows retirees to send IRA funds directly to a qualifying charity.
The transfer satisfies the required minimum distribution without entering adjusted gross income, and the 2026 limit is $111,000 individually, Adams and Kathy Cashatt, director of Tax, Trust & Estate at Charles Schwab, wrote in Schwab’s RMD strategies guide.
What the RMD cascade means for the retirement tax picture
The window between retirement and the start of mandatory distributions is the only period when income remains fully within a retiree’s control, Schwab’s research shows.
Each passing year narrows the range of available options, because once the IRS starts requiring withdrawals, the income is locked in.
For retirees who built larger balances than they expected, the cascading tax costs remain the factor most likely to change a retirement paycheck without warning.
Related: Fidelity flags the RMD trap that quietly raises your taxes
