Woman retired at 64 with $380,000 in her 401(k). Nine years later, her first RMD faced a 22% tax rate

Retiring with a sizable 401(k) can feel like the finish line. But for one retiree, the nine years between leaving work and starting Required Minimum Distributions turned out to be a major missed tax-planning opportunity.

As per a report of 24/7 Wall St, a woman retired at 64 with $380,000 in a traditional 401(k). For the next nine years, she had no wages, no pension and had not yet started collecting Social Security.

Yet she never converted any of her retirement savings to a Roth IRA.


By age 73, that decision had helped create a much larger tax bill.

The nine years that could have changed her tax bill

The period between retirement and the beginning of RMDs is sometimes referred to as the “gap years.”

For retirees who must begin RMDs at 73, these years can provide an unusually valuable opportunity to manage taxable income.

The retiree in this example had almost no taxable income during those years. That meant she had room to move portions of her traditional retirement savings into a Roth IRA through partial Roth conversions while potentially staying in relatively low tax brackets.

But she left the $380,000 untouched.

That matters because tax-bracket space doesn't accumulate.

If a retiree has room to recognize additional income in a lower bracket but doesn't use it, that opportunity generally disappears when the tax year ends. It can't simply be carried forward and used later.

Meanwhile, her retirement account continued to grow.

Her $380,000 retirement account grew to roughly $642,000

Assuming an average annual return of 6%, the original $380,000 would have grown to approximately $642,000 over nine years.

That larger balance eventually became the basis for her RMDs.

Once RMDs begin, the IRS requires money to be withdrawn from traditional retirement accounts each year. Those distributions are generally treated as ordinary taxable income.

At age 73, using a Uniform Lifetime Table divisor of 26.5, a roughly $642,000 account would produce a first-year RMD of about $24,200.

On its own, that distribution might not appear particularly large.

The bigger issue was what else was happening to her taxable income.

Social Security made the tax picture more complicated

She began collecting Social Security at 70.

With Social Security benefits now entering the picture, some of her benefits could be taxable. Combined with the mandatory RMD, her taxable income could move beyond the lower tax brackets.

Under the scenario described, the top portion of her first RMD ended up falling into the 22% federal income-tax bracket.

The important point isn't that every retiree with a $642,000 account will pay 22% on an RMD.

Rather, it's that allowing the traditional account to grow untouched can leave retirees with fewer options once RMDs and Social Security arrive at the same time.

Roth conversions could have used the gap years

A Roth conversion allows someone to move money from a traditional 401(k) or IRA into a Roth IRA.

The converted amount is generally included in taxable income for that year. In return, the money can potentially grow inside the Roth and qualified withdrawals can later be tax-free.

For someone with little or no taxable income during retirement's early years, converting a portion of a traditional account each year can provide a way to deliberately fill lower tax brackets.

In this example, the retiree could have considered annual conversions during the nine-year period rather than waiting until RMDs began.

That would not necessarily have eliminated taxes. She would have paid tax on the converted amounts.

But she potentially could have paid those taxes while occupying lower tax brackets and reduced the size of the traditional account that would later be subject to RMDs.

Why timing matters so much

The biggest lesson from the example is not simply “do Roth conversions.”

It's when those conversions happen.

Once RMDs begin, retirees may have less control over how much taxable income they must recognize. Social Security can add another layer to the calculation, and investment growth can make the traditional retirement balance larger.

The years immediately after retirement can look very different.

A retiree may have little or no earned income, substantial retirement savings and several years before RMDs are required.

That combination can create valuable tax-planning flexibility.

For someone born between 1951 and 1959, RMDs generally begin at 73. For people born in 1960 or later, the applicable age is generally 75, potentially creating an even longer window between retirement and mandatory distributions.

The tax window doesn't wait

There is no guarantee that a Roth conversion will be the right strategy for every retiree.

Future tax rates, investment returns, Social Security benefits, Medicare-related considerations, filing status and other sources of income can all change the calculation.

And conversions themselves can increase taxable income in the year they occur.

But the scenario highlights a retirement-planning mistake that can be easy to overlook: waiting for RMDs to begin before thinking about taxes.

For this retiree, the nine years after retirement represented a period when she had unusually low taxable income and significant control over how much income she recognized.

She used none of that room.

Instead, the $380,000 remained invested, grew to roughly $642,000 and eventually produced mandatory taxable withdrawals.

By the time those RMDs arrived alongside Social Security, the tax-planning window was much narrower.

For retirees sitting on traditional 401(k) or IRA savings, the years between their final paycheck and their first RMD may therefore be worth examining carefully.

The question isn't simply how much money they have saved.

It's also how much of that money they can move into a more tax-efficient position before the IRS starts requiring withdrawals.

Frequently Asked Questions

What is a 401(k)?

A 401(k) is an employer-sponsored retirement savings plan that allows workers to invest money for retirement. Contributions to a traditional 401(k) are generally made before taxes, meaning the money isn't included in taxable income when contributed. However, withdrawals are generally taxed as ordinary income.

What are Required Minimum Distributions (RMDs)?

Required Minimum Distributions, or RMDs, are the minimum amounts that the IRS generally requires retirees to withdraw each year from certain tax-deferred retirement accounts, including traditional 401(k)s and traditional IRAs. The withdrawals are generally taxable as ordinary income.

At what age do RMDs start in the US?

Under current federal rules, the RMD starting age depends on a person's birth year. Generally, people born between 1951 and 1959 must begin RMDs at age 73, while those born in 1960 or later generally begin at age 75.

What are the federal tax rates for retirees in the US?

Retirees generally pay the same federal ordinary income-tax rates as other taxpayers. For 2026, the federal income-tax brackets range from 10% to 37%. The rate that applies depends on taxable income, filing status and other factors. Retirement income isn't automatically taxed at a special “retiree” rate.

What are “gap years” in retirement planning?

“Gap years” are the years between when someone stops working and when they are required to begin taking RMDs from tax-deferred retirement accounts. These years can sometimes provide an opportunity for tax planning because a retiree may have little or no earned income.

Why are gap years important for Roth conversions?

Gap years can provide an opportunity to convert some money from a traditional 401(k) or IRA into a Roth IRA while taxable income is relatively low. A Roth conversion generally creates taxable income in the year of the conversion, so some retirees use lower-income years to potentially fill lower tax brackets.

What is a Roth conversion?

A Roth conversion involves moving money from a traditional, tax-deferred retirement account into a Roth IRA. The amount converted is generally added to taxable income for that year. Once in the Roth IRA, qualified withdrawals can generally be tax-free.

Can Roth conversions reduce future RMDs?

Potentially, yes. Money converted from a traditional retirement account to a Roth IRA is no longer part of the traditional account balance used to calculate future RMDs. However, the conversion itself can create a tax bill, so the strategy needs to be evaluated based on an individual's circumstances.

Does unused tax-bracket space carry over to the next year?

Generally, no. Tax brackets apply separately to each tax year. If a retiree has room in a lower tax bracket but doesn't use it, that unused capacity generally doesn't carry forward to a future year.

How are 401(k) withdrawals taxed after retirement?

Withdrawals from a traditional 401(k) are generally treated as ordinary taxable income. The applicable tax rate depends on the retiree's total taxable income and filing status for that year.

Is Social Security taxable for retirees?

It can be. Depending on a person's combined income and filing status, up to 85% of Social Security benefits can be included in taxable income. The actual amount that is taxable varies from person to person.

Can retirees convert a 401(k) to a Roth IRA?

Often, yes, although the process depends on the retirement plan and the person's circumstances. A former employee may generally be able to roll eligible 401(k) funds into an IRA and potentially convert traditional IRA funds to a Roth IRA. Taxes may be due on the amount converted.

Should retirees pay the tax on a Roth conversion from their retirement account?

Using money outside the retirement account to pay the conversion tax can allow the entire converted amount to remain invested in the Roth. However, whether that is the best approach depends on the individual's cash position, tax situation and other factors.

Can a retiree avoid RMDs by moving money to a Roth IRA?

Roth IRAs are not subject to lifetime RMDs for the original owner under current federal rules. However, the conversion itself does not make the tax disappear—tax may be owed when traditional retirement funds are converted to a Roth IRA.

Is a Roth conversion always a good idea for retirees?

No. A Roth conversion can be useful in some circumstances, but it can also increase taxable income and potentially affect other parts of a retiree's finances. The decision depends on factors such as current and expected future tax rates, account balances, Social Security, Medicare considerations and other income.