401(k)
Published March 14, 2026 by Harbor Point Advisors
You've spent decades building your retirement account. Watching it grow. Telling yourself that when the time comes, you'll be ready.
Then you turn 73 and the IRS sends you a message you weren't expecting.
It's time to start withdrawing. Whether you need the money or not.
That's the reality of Required Minimum Distributions. And for millions of Americans who did everything right, saved consistently, invested wisely, and watched their balance grow, RMDs are the retirement tax bomb that nobody warned them about.
An RMD is a minimum amount the IRS requires from tax-deferred retirement accounts each year beginning at age 73. The amount is based on account balance and life expectancy, and the distribution is taxed as ordinary income. This is educational information, not tax advice or a personal distribution recommendation.
What Is an RMD?
A Required Minimum Distribution is exactly what it sounds like. Starting at age 73, the IRS requires you to withdraw a minimum amount from your tax-deferred retirement accounts every single year. Your 401(k). Your traditional IRA. Your SEP IRA. Any account you built with pre-tax dollars is subject to this rule.
The amount you're required to withdraw is calculated based on your account balance and your life expectancy according to IRS tables. The larger your account, the larger your required withdrawal. And every dollar you're forced to take out is taxed as ordinary income.
You don't get to decide if you need the money. You don't get to decide if the timing makes sense. The IRS decides for you.
And if you don't take the distribution? The penalty is 25% of the amount you were supposed to withdraw. Miss it twice and the IRS has your full attention.
The Problem Goes Deeper Than Most People Realize
A required withdrawal can increase taxable income, especially when the account balance is large. It may affect tax brackets, the taxable portion of Social Security, and income-based Medicare premiums. The actual impact depends on income and other circumstances, so this is educational information rather than personal tax advice.
On the surface an RMD sounds manageable. You have to take some money out. You pay some taxes. You move on.
But here's where it gets complicated for people who have saved well.
If you've been a disciplined saver for 30 or 40 years, your account balance at 73 could be substantial. A large balance means a large required withdrawal. A large required withdrawal means a large spike in your taxable income for the year. And a large spike in taxable income triggers a cascade of consequences most people never saw coming.
Your RMD gets added to your Social Security income. That combination can push you into a higher tax bracket, meaning more of your Social Security becomes taxable. Up to 85% of your Social Security benefit can be subject to federal income tax depending on your combined income.
Then there are Medicare premiums. Most people don't realize that Medicare Part B and Part D premiums are income-based. The more income you show, the higher your premiums. This is called IRMAA, the Income Related Monthly Adjustment Amount, and it can add hundreds of dollars per month to your Medicare costs just because your RMD pushed your income over a threshold.
You saved more. So now you pay more. In taxes, in premiums, and in ways you never planned for.
The Widow Penalty
The widow penalty describes a surviving spouse filing as a single taxpayer while facing continuing RMD obligations. Deductions decline and brackets compress, potentially making the same income more heavily taxed. It is a planning consideration, not a predicted outcome, and it should be considered with qualified tax guidance.
Here's a scenario that doesn't get talked about enough.
A married couple manages their RMDs reasonably well together. Two people, two sets of deductions, two tax situations being managed in tandem. Then one spouse passes away.
The surviving spouse, now filing as a single taxpayer, faces the same RMD obligations but with a higher tax rate on every dollar. The standard deduction drops. The tax brackets compress. The same income that was manageable as a couple becomes a significantly heavier burden alone.
This is called the widow penalty and it hits at the worst possible time, when a family is already navigating grief, loss, and a complete restructuring of their financial life. It's one of the cruelest and least discussed consequences of building a retirement entirely inside tax-deferred accounts.
What a Tax Free Strategy Changes
Money inside a properly structured IUL is not subject to required minimum distributions, which leaves more control over withdrawal timing. Tax treatment and benefits depend on policy structure, and any insurance guarantee is subject to the issuing company's claims-paying ability. This is educational information, not tax advice.
Money inside a properly structured IUL is not subject to RMDs. None of it.
There is no age at which the government forces you to start withdrawing. There is no calculation based on your balance and life expectancy. There is no mandatory income event that ripples through your tax return and inflates your Medicare premiums.
You access the money when you want it, in the amounts that make sense for your life, through policy loans that are not considered taxable income. Your withdrawals don't show up as income on your tax return. They don't affect your Social Security taxation. They don't trigger IRMAA adjustments.
You are in control of your own money in a way that a 401(k) simply does not allow.
For clients still in their accumulation phase, this is one reason to learn how an IUL can complement a plan. Money inside a properly structured IUL is not subject to RMDs, but tax treatment and any repositioning need individual professional review. That can mean more flexibility, not guaranteed tax savings.
For People Already Facing RMDs
If you are already at or nearing 73, managing RMD income and using dollars already distributed in other ways may be part of the conversation. The approach differs for people already facing withdrawals. This is educational information rather than personal tax, legal, or investment advice.
If you're already 73 or approaching it, the strategy shifts but the opportunity doesn't disappear.
There are ways to review your RMD income and the use of dollars already distributed. Moving money into other vehicles or using RMD funds differently should be evaluated with qualified tax guidance. An IUL can grow tax-deferred, and withdrawals and policy loans may be generally not taxable when handled correctly and while the policy stays in force.
It's not too late. It just requires a different conversation than the one most advisors are having.
The Bottom Line
A 401(k) can be one piece of a broader retirement plan rather than the only vehicle. RMDs reveal an important part of the account's exit process. You can use that framing to ask informed questions about retirement income, tax exposure, and the role each account plays in your plan.
The 401(k) was never designed to be your only retirement vehicle. It was designed as one piece of a broader plan. But somewhere along the way it became the default for millions of Americans, and nobody stopped to explain what the exit looked like.
RMDs are the exit. And for a lot of families, it's not the one they planned for.
The good news is you don't have to accept it as inevitable. The strategies exist. The products exist. And the families who know about them are retiring with more control, more flexibility, and a lot less of their hard-earned money going back to the IRS.
What's Next
In our final post we're going to talk directly to business owners. Why your 401(k) may be costing you more than you think, and what the strategies most business owners never get shown actually look like.
If you want to talk through your RMD situation or see how a tax-advantaged strategy may fit your retirement-income planning, reach out. The first conversation is just a conversation. No pressure, no obligation, just clarity.
This article is educational and general in nature. It is not tax, legal or investment advice and does not account for your circumstances. Indexed universal life insurance is a life insurance product, not an investment. Policy charges, cost of insurance, caps, participation rates and spreads affect results, and cash value can decline in a year when the index credit is zero. Policy loans and withdrawals reduce the death benefit and available cash value, and a lapse or surrender with a loan outstanding can create a taxable event. Any guarantee is subject to the claims-paying ability of the issuing insurance company. Tax treatment reflects current law, which can change. Talk with a qualified tax, legal or financial professional about your own situation.
Harbor Point Advisors. Bozeman, Montana. (406) 539-3423. Serving clients nationwide.
Harbor Point Advisors is an insurance agency. Adam Stevens is a licensed insurance professional, license number 3004330767, NPN 22297129. Not a registered investment adviser or broker-dealer.
This article is educational and is not individualized investment, tax, or legal advice.