RMDs Begin at 73, and Taxes Follow
As markets shift through 2026, retirees reaching age 73 must begin taking required minimum distributions from most 401(k) and IRA accounts. The initial RMD is a tax event, not a choice, and the amount is determined by year end balances divided by a life expectancy factor set by the IRS. The cash comes out whether the retiree needs it or not, and it counts as ordinary income for the year.
For many households, the timing is critical. The combination of an RMD and Social Security can nudge total income into a higher tax bracket, triggering higher marginal rates and potentially tapping into more of the Social Security benefits than expected.
The Numbers Behind the Focus
Industry analyses show a striking split in how much a typical 401(k) holds in late life. A recent review finds the average 401(k) balance for Americans in their 70s sits at about 431,834, a figure driven up by a small group with very large balances. By contrast, the median balance for the same cohort sits near 95,931, illustrating how a minority’s big accounts pull the average higher.
- average 73-year-old’s $431,834 401(k) balance
- first-year RMD on that level lands around 16,296, depending on the year
- median 70s 401(k) balance is about 95,931
How RMDs Are Calculated
RMDs use the uniform lifetime table published by the IRS. At age 73, the life expectancy factor is in the mid to late 20s, so the first RMD is roughly the year-end balance divided by about 26. This means the required withdrawal for a 431,834 balance hovers in the mid-teens of thousands. Markets can swing the ending balance, which in turn shifts the RMD amount for that year.
Tax Impact and Social Security Interaction
RMDs are treated as taxable income. When added to other income, including Social Security, many retirees see a larger portion of their benefits taxed than they anticipated. In some cases, up to 85 percent of Social Security benefits can be taxable once RMDs push overall income past certain thresholds. The end result is a higher effective tax rate on retirement income than some expect when planning for withdrawals.
Practical Moves to Lighten the Tax Bite
- Rollover planning before the RMD start date can shift the tax impact. Converting some 401(k) funds to a Roth IRA in years before turning 73 can reduce future RMDs, since Roth IRAs have no RMDs for the original owner. The conversion itself is taxable in the year of the move, so it should be weighed against current tax brackets.
- Qualified charitable distributions are a proven tool, but note they come from IRAs, not 401(k) plans. Directing eligible IRA distributions to qualified charities can reduce adjusted gross income and lower tax exposure, though you’d need to be enrolled in an IRA for this option.
- Strategic timing of Social Security can matter. Delaying Social Security benefits while taking modest RMDs can sometimes keep overall income in a lower tax bracket, depending on other income sources and year-to-year market returns.
- Consult a tax pro or retirement planner to map a year-by-year withdrawal plan. The tax landscape shifts with legislative changes and evolving IRS rules, so a tailored plan matters more than ever.
Market Conditions and the Road Ahead
With markets navigating rate expectations, inflation trends, and evolving tax policies, the retirement tax picture remains fluid. The SECURE Act 2.0 framework, now fully in effect for those approaching retirement in the mid-2020s, keeps RMDs at 73 as the starting point while gradually extending some planning horizons. Investors should expect annual RMDs to reflect current balances and market performance, making proactive planning essential.
Bottom Line for the 2026 Retirement Calendar
The reality for many savers is clear: the average 73-year-old’s $431,834 401(k) balance can generate a substantial RMD, with a first withdrawal around 16,296 that becomes taxable income. When combined with Social Security and other income, that RMD can push retirees into higher tax brackets and alter the net value of retirement income. The good news is that there are strategy levers—Roth conversions before age 73, careful timing of distributions, and IRAs ready for tax-efficient moves—that can trim the bite if used thoughtfully.
As retirees and advisors plan for the second half of 2026, the focus remains on turning big numbers into a sustainable, tax-smart withdrawal plan. The takeaway is simple: understand the RMD rule, map the year-by-year implications, and use every available tool to keep more of your savings working for you in retirement. The average 73-year-old’s $431,834 401(k) balance will keep shaping conversations about taxes, not just growth, in the months ahead.
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