Retiring at 65 with a $1.5 million traditional 401(k) and choosing to draw it down before claiming Social Security – rather than waiting until 70 – can shave six figures off a lifetime tax bill. That’s a counterintuitive sequence, because most people assume you should let retirement accounts grow as long as possible and draw Social Security first. The math runs the other way.
If you delay Social Security benefits until age 70, you create a five-year window between retirement and your first Social Security check during which your taxable income drops dramatically. That window is one of the rarest tax planning opportunities most Americans will ever have – and the majority walk right past it.
The strategy has two moving parts that work together. First, you use 401(k) withdrawals to live on during those years from 65 to 70, paying income tax on those dollars at today’s low rates. Second, every year you wait to claim, your Social Security benefit grows. After that, when the benefit finally starts, you owe much less tax on it because you’ve already drawn down the account that would otherwise pile income on top.
What Delaying Social Security Actually Pays
Waiting to claim Social Security benefits until age 70 grows your monthly benefit by 8% a year. That’s not a projection or an estimate. The maximum monthly benefit is $2,969 at age 62, $4,152 at full retirement age, and $5,181 if you delay until age 70. For a couple where both partners delay, the difference in monthly household income is substantial – and it arrives indexed to inflation for life.
According to Kiplinger, delayed retirement credits accumulate at two-thirds of 1% per month, adding up to 8% for each full year you wait, and you stop accumulating those credits at age 70. Waiting past 70 adds nothing, so the deadline is real. Over a 20-year retirement, the gap between claiming at 62 versus 70 compounds into hundreds of thousands of dollars.
The 2026 COLA gives the benefit another layer of protection. According to the Social Security Administration, Social Security beneficiaries received a 2.8% cost-of-living adjustment for 2026. That automatic inflation adjustment applies to whatever monthly amount you lock in at claiming – so a higher base benefit at 70 compounds forward more aggressively than a smaller one taken at 62. One caveat: the Medicare Part B premium increase in 2026 consumes part of that gain, since the standard monthly premium rose to $202.90 – a $17.90 jump from 2025 – and according to the Center for Retirement Research at Boston College, the increase in 2026 Medicare Part B premiums will eat up over a quarter of Social Security’s 2.8% COLA. That’s a real drag on the net benefit – but it applies equally whether you claim at 62 or 70. It doesn’t change the relative advantage of waiting.
The Low-Income Window Between 65 and 70
The standard deduction is the tax engine that powers the 65-to-70 window. For 2026, the standard deduction for married couples filing jointly is $32,200. With no wages coming in and no Social Security yet, a retired couple living on 401(k) withdrawals can draw a meaningful annual income and face a surprisingly modest tax bill. The first $32,200 of taxable income is sheltered entirely, and the rates above that threshold stay low until you climb well into six figures.
Traditional 401(k) withdrawals are taxed as regular income in the year you take the money out, according to NerdWallet. That’s the same rule that makes large RMDs expensive later in retirement. During the pre-Social Security window, however, that same ordinary income treatment works in the retiree’s favor. You control the size of each annual withdrawal, which means you control your tax bracket. The withdrawals aren’t forced, and the income is predictable.
Once Social Security starts at 70, the IRS applies a combined income formula to determine how much of your benefits are taxable. For married couples filing jointly, once combined income exceeds $44,000, up to 85% of Social Security benefits may be included in taxable income. “Combined income” here means adjusted gross income plus nontaxable interest plus half of your Social Security benefit. If you’re also pulling 401(k) distributions at that point – because you never drew the account down – those withdrawals push combined income higher, dragging more of the Social Security benefit into the taxable column. Every RMD dollar you take after 73 can trigger additional taxation on your Social Security at the same time.
The strategy of drawing down the 401(k) first, before claiming, avoids that collision. You pay tax on the 401(k) money once, at manageable rates during low-income years. You take Social Security later at a higher base amount. And you arrive at 73 with a smaller 401(k) balance, which means smaller required distributions.
The RMD Problem – and How Early 401(k) Withdrawals Solve It
Required Minimum Distributions (RMDs) generally begin at age 73 under current IRS rules. At that point, withdrawals from traditional IRAs and most employer retirement plans are no longer optional. Required minimum distributions are the minimum amounts you must withdraw from your retirement accounts each year, and you generally must start taking withdrawals from your traditional IRA and retirement plan accounts when you reach age 73. The IRS formula that sets each year’s mandatory withdrawal grows as the balance grows – so the longer a large traditional 401(k) sits untouched, the bigger and more taxable those forced distributions become.
Without conversions or strategic early draws, RMDs on a $1.5 million-plus IRA at age 73 can force $60,000 or more in annual withdrawals into the 32% tax bracket, plus IRMAA surcharges. That’s the tax trap hiding inside decades of diligent saving. The account grew tax-deferred while you worked. Then it erupts as taxable income right when you can least afford a high bill.
Missing those required withdrawals is expensive. According to Fidelity, if you miss the 2026 RMD deadline, you face a penalty equal to 25% of the amount not withdrawn. The IRS reduced this penalty from 50% under the SECURE 2.0 Act, but 25% of a mandatory shortfall is still a significant tax error. The cleaner solution is to reduce the account balance before age 73 – voluntarily, at a lower rate – so the RMD formula is working off a smaller number.
For retirees willing to convert portions of their traditional 401(k) into a Roth IRA during the 65-to-70 window, the benefit extends further. Using this low-income window to execute Roth conversions – moving money from a traditional IRA to a Roth IRA at today’s low rates – shrinks the size of future forced RMDs and builds two distinct pools of capital: one taxable and one tax-free. Roth accounts carry no RMDs, so converted money grows without any mandatory withdrawal schedule. Qualified distributions from Roth IRAs are not included in the combined income calculation for Social Security taxation purposes, making Roth accounts particularly valuable for retirees seeking to minimize taxation on their Social Security benefits.
You can read more about how these 401(k) rule changes affect retirement planning in our piece on SECURE 2.0 Act changes.
The IRMAA Cliff – Medicare’s Hidden Tax on Retirement Income
High income in retirement doesn’t just raise your income tax. It triggers Medicare surcharges that most people don’t see coming until they’ve already crossed the line. The Income-Related Monthly Adjustment Amount – IRMAA – can quietly cut your Social Security check by thousands of dollars.
In 2026, according to NerdWallet, you may have to pay the Medicare IRMAA if your income exceeds $109,000 as a single filer or $218,000 as a joint filer. Medicare uses your modified adjusted gross income from two years prior to determine whether you owe the surcharge – a lookback rule that catches many retirees off guard. A large RMD or a poorly timed Roth conversion in 2026 shows up in your 2028 Medicare premiums – long after you’ve spent the money and forgotten the decision.
A conversion that pushes you even $3,000 over the IRMAA line doesn’t just cost marginal income tax on that $3,000. It triggers an $81-per-month Part B surcharge, or $974 annually, plus a Part D surcharge. For a couple, each person faces IRMAA separately, so the annual cost of crossing the threshold doubles. Annual conversion amounts should therefore be planned against both the tax bracket ceiling and the IRMAA threshold, whichever comes first.
The $218,000 IRMAA boundary for joint filers creates a practical ceiling for Roth conversions during the pre-Social Security years. A couple converting portions of a traditional 401(k) into a Roth IRA should keep total income below that line each year to avoid triggering surcharges that arrive two years later. Couples retiring at 63 with traditional 401(k)s can convert up to $129,000 annually into a Roth IRA at lower tax rates by staying below the $218,000 MAGI threshold that triggers Medicare surcharges.
Sequencing the Strategy in Practice
The practical version of this approach looks like this: retire at 65, delay social security benefits until 70, and live primarily on 401(k) withdrawals during those five years. Use the low-income window to convert portions of the 401(k) into a Roth IRA each year – staying within the 22% tax bracket, below the IRMAA threshold, and below the combined income level that would make future Social Security benefits fully taxable.
Under 2026 brackets, a married couple filing jointly stays in the 22% band on taxable income up to $211,400. That’s a wide corridor. A couple with no other income can convert substantial sums from a traditional 401(k) into a Roth IRA while still paying a relatively modest federal tax rate. The tax due on those conversions should ideally come from a taxable brokerage account, not from the retirement account itself – withdrawing from the converted amount to pay the tax reduces the dollars that land in the Roth and the tax-free growth that follows.
According to T. Rowe Price’s retirement research, “well-timed Roth conversions turn today’s manageable tax bill into tomorrow’s tax-free income stream.” The window between retirement and the start of RMDs at age 73 is what Morningstar calls “the golden age of tax planning” – a period during which income often drops significantly, putting retirees in an artificially low tax bracket.
The strategy also reshapes the tax picture once Social Security begins. A smaller 401(k) balance at 70 means smaller RMDs at 73. Smaller RMDs means lower combined income. Lower combined income means less of the Social Security benefit is subject to tax. The IRS’s combined income formula is essentially a machine that taxes multiple income streams simultaneously – and the way to slow it down is to reduce the balance that feeds mandatory distributions before it starts running.
Read More: The Top 10 Best Places to Retire in the U.S. in 2026, Ranked
What to Do Now
The window for this strategy is time-limited by design. Claiming Social Security early collapses the bracket-filling room and erases most of the tax savings – once you’ve claimed, those years of low taxable income are gone, along with the chance to convert at favorable rates. Deciding on Social Security timing before age 63 is essential: delay benefits to 70 to keep the conversion window clean and to lock in the roughly 8% annual growth in your benefit for every year of deferral.
If you’re between 60 and 65 right now, the planning starts today, not at retirement. Project your anticipated taxable income in each year between retirement and age 70. Calculate how much of your 401(k) balance you can convert annually while staying in the 22% bracket and below the $218,000 IRMAA joint-filer threshold. Financial planning professionals look strategically for years when clients have lower income where they can convert to a Roth without moving into too high a marginal tax bracket – and early retirement years are among the most common opportunities.
Two numbers anchor the annual conversion decision: the top of the 22% bracket and the $218,000 IRMAA joint-filer floor. Stay below both and you’re converting at the lowest rates available in the current tax code. Cross either one and you’re paying more than you needed to. The math requires a spreadsheet or a fee-only financial planner – but the core principle is simple: use the quiet years between 65 and 70 to pay tax on your retirement savings at the lowest rate you’ll ever see, so that after 70, the dollars that remain do less damage when they’re forced out.
Disclaimer: This information is not intended to be a substitute for professional financial advice, investment advice, tax advice, or legal advice, and is provided for informational purposes only. Always seek the guidance of a qualified financial advisor, accountant, or other licensed professional regarding your personal financial situation or investment decisions. Do not make financial, investment, or tax decisions based solely on information presented here. Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.
AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.
Read More: The Hidden 401(k) Tax Trap Millions of Retirees Walk Into at 73