$1.5 million in your 401(k)? Here’s what your RMD taxes will look like — and the very best trick to lower them

$1.5 million in your 401(k)? Here’s what your RMD taxes will look like — and the very best trick to lower them

Vishesh Raisinghani

Tue, September 8, 2026 at 6:55 PM GMT+3 5 min read

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Ever wondered what it would be like to have seven-figures in your 401(k) plan? Well, for at least 769,000 Americans, that's a reality. That's the number of people with at least $1 million in their 401(k) at the end of June 2026, according to Fidelity data cited by Yahoo Finance (1).

That's a tiny fraction of adults with retirement accounts. If you're in this club, you're extremely lucky. You're also sitting on a relatively large IOU to the tax authorities. At age 73, the Internal Revenue Service (IRS) (2) imposes required minimum distributions (RMDs), which are generally taxed as ordinary income.

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Every dollar in a traditional 401(k) is pre-tax money. The government lets you defer the bill, but not entirely avoid it. So, if you're on track to enter this exclusive club of 401(k) millionaires or already part of it, this aspect of your tax situation deserves special attention. Here's what the RMDs for a hypothetical $1.5 million account could look like.

RMDs for millionaires

The way RMDs are calculated and implemented is complex. Complicating things further is the fact that an RMD isn't a fixed amount; it changes every year based on your age and the amount of money left in the account.

The first step, according to the IRS (2), is to figure out how much all your combined tax-deferred accounts are worth as of December 31 of the previous year. Next, use the IRS Uniform Lifetime Table (3) to determine your "distribution period." A distribution period is the tax authorities' estimate of your life expectancy based on age, so the calculation is focused on helping you completely draw down these balances within that time.

For someone aged 73, the distribution period is 26.5. If this person happens to have $1.5 million in their 401(k) plan, their first RMD would be $56,603 ($1.5 million ÷ 26.5). That's a substantial amount of income for a single year. Depending on this retiree's other sources of income, from Social Security to pensions, this amount could be enough to push them into a higher tax bracket.

And the upfront tax bill is only part of the challenge. For many millionaires, the RMDs can be enough to trigger extra surcharges for Medicare IRMAA (Income-Related Monthly Adjustment Amount) or make more of their Social Security benefits taxable due to higher income. Simply put, it's a ticking time bomb of egregious expenses.

Read More: Millionaires under 43 hold only 32% of their wealth in stocks. Here's where their money is actually going

What can you do?

Perhaps the best way to mitigate this issue is to draw down your tax-deferred retirement accounts before RMD age.

But that's easier said than done. Triggering capital gains and dealing with taxes upfront to avoid them later needs to be executed carefully for optimal savings.

Software and professional assistance can make executing this strategy a little easier. A platform like Empower can help reduce the stress of filing taxes by connecting you with a licensed tax professional who can support you from start to finish.

Unlike standalone tax software, Empower lets you manage your multiple retirement accounts in one dashboard and lets you file from the same platform.

Even if you're not an Empower client, you can still file taxes through Empower by creating a free Empower Dashboard to get started.

Meanwhile, platforms like Advisor.com can help connect you with an experienced and qualified financial planner for free. Advisor.com does the heavy lifting for you, vetting advisors based on track record, client ratios and regulatory background. Plus, their network comprises fiduciaries, who are legally required to act in your best interests.

Just enter a few details about your finances and goals and Advisor.com's AI-powered matching tool will connect you with a qualified expert best suited for your needs based on your unique financial goals and preferences.

Finding the right advisor isn't always easy — there's no one-size-fits-all solution. That's why Advisor.com lets you set up a free initial consultation, with no obligation to hire, to see if they're the right fit for you.

Once you've got the right financial advisor in your corner, the next step is estimating your RMDs and drafting a plan to lower them gradually over time.

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