Retired at 64 With $380K in a 401(k)? The RMD Tax Trap Is Real
Skipping Roth conversions during a low-income window cost one retiree dearly when required minimum distributions arrived.
Here's a mistake you can learn from without paying for it yourself. A woman retired at 64 with $380,000 sitting in a 401(k) and went nine full years without meaningful income. That's nine years of a prime Roth conversion window — and she never touched it. Not one dollar moved.
When her required minimum distributions kicked in at 73, the IRS was waiting. Her first RMD landed in the 22% tax bracket. That's real money leaving the table on funds that could have been converted at a much lower rate during those quiet, income-free years between 64 and 72. The opportunity cost is brutal when you do the math.
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The core lesson here is timing. Roth conversions aren't just for people with huge balances. They're most powerful when your taxable income is low — exactly the scenario this retiree lived for nearly a decade. Converting even modest chunks annually during that window can flatten your future RMD curve and keep you out of higher brackets later.
RMDs are not optional. Once you hit the required age, the IRS forces distributions whether you need the cash or not. That income stacks on top of Social Security, investment income, or anything else you've got coming in — and bracket creep becomes a real threat. The longer your pre-RMD window, the bigger the conversion opportunity you're sitting on.
If you're in your 60s and drawing down slowly, run the numbers now. A tax advisor or financial planner can model out what strategic Roth conversions would cost today versus what a growing 401(k) balance will cost you in mandatory distributions later. Don't wait until the IRS hands you the bill. Continue reading at Yahoo Finance.
