Goldman Says AI Is Driving a 22% Earnings Surge. For a 68-Year-Old, the Rally Swelling His 401(k) Is Inflating the RMD Tax Hit Waiting at 73.

The post Goldman Says AI Is Driving a 22% Earnings Surge. For a 68-Year-Old, the Rally Swelling His 401(k) Is Inflating the RMD Tax Hit Waiting at 73. appeared first on 24/7 Wall St..

• A 68-year-old's 401(k) rally increases required minimum distributions at 73, raising Social Security taxation to 85% and Medicare IRMAA surcharges from $202.90 to $689.90 monthly.
• The five years before age 73 offer a critical planning window for strategic withdrawals or Roth conversions to reduce RMD impact on taxes.
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A 68-year-old who retired recently with most of his savings in a traditional 401(k) or IRA is watching his account statements with mixed feelings. Goldman Sachs strategists led by Ben Snider project S&P 500 Q2 earnings will jump roughly 22% year over year, powered by the AI investment boom and energy-sector gains. The S&P 500 is up about 9% year to date and 21% over the past year, meaning the balance he doesn’t plan to touch soon is larger than months ago.

That is good news. The catch: every dollar of growth inside a pretax account is a future tax bill that compounds with the gains. Someone in this spot, posting in a retirement forum recently, summed it up: his 401(k) had crossed a milestone, but the same rally was making his eventual required minimum distribution (RMD) larger, and he wasn’t sure what to do about it before withdrawals are forced.

Why the rally today shapes the tax bill at 73

RMDs are the IRS’s way of finally taxing money that has grown untaxed for decades. For someone born between 1951 and 1959, RMDs begin at age 73; people born in 1960 or later wait until 75. A 68-year-old today has roughly five years before that first forced withdrawal.

Here is what matters: each year’s RMD is calculated from the account balance on the prior December 31, divided by an IRS life-expectancy factor. A larger balance going into the year you turn 73 produces a bigger mandatory withdrawal, every year, for life. If the market keeps climbing the way Goldman and other strategists expect, that growth compounds inside the account year after year, and the dollar amount the IRS eventually pulls out grows right along with it.

The Social Security tax torpedo

This is where Social Security enters the picture. Once a retiree’s combined income (roughly adjusted gross income (AGI) plus half their Social Security benefit) crosses certain thresholds, up to 85% of the Social Security benefit becomes taxable. That percentage represents the share of the benefit added to ordinary income at the retiree’s regular tax bracket, rather than a tax rate itself. A big RMD can push someone from having most of their Social Security tax-free to having nearly all of it taxed at their regular bracket.

The effect is amplified by Medicare. Higher-income retirees pay IRMAA surcharges on top of standard Part B and Part D premiums, and the surcharges scale up sharply from there. At the highest tier, the total monthly Part B premium hits $689.90, compared with the standard $202.90. Because IRMAA looks at income from two years prior, the RMD at 73 helps set the Medicare premium at 75.

The window between now and the first RMD

The years from late 60s through 72 are the planning window. The 2026 Social Security COLA came in at 2.8%, which helps benefits keep pace with prices but does nothing to soften the tax treatment of a swelling pretax balance. With inflation still running above the Fed’s comfort zone, the dollar thresholds that trigger Social Security taxation have not budged in decades, so more retirees get pulled into the torpedo every year.

Options exist for thinning the eventual RMD: pulling modest amounts from the IRA in lower-income years before 73, converting portions to a Roth while in a lower bracket, or planning qualified charitable distributions once eligible at 70½. None is a silver bullet, and the right mix depends on bracket, state taxes, and how long the money needs to last.

What to actually do with this

Two things matter. First, a bigger balance is genuinely good news. The goal is simple awareness. The mistake hardest to undo is reaching age 73 having never modeled what the first RMD will do to the tax line on Social Security and the Medicare premium two years later.

Second, the lever most retirees underestimate is the handful of pre-RMD years in front of them. A rally that fattens the 401(k) at 68 is also fattening every RMD from 73 onward. Running the numbers once, with current balances and a realistic growth assumption, usually changes how someone thinks about withdrawals between now and then. Every situation has its own wrinkles, and a small detail (a pension, a working spouse, a state tax quirk) can shift the answer more than people expect.

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The post Goldman Says AI Is Driving a 22% Earnings Surge. For a 68-Year-Old, the Rally Swelling His 401(k) Is Inflating the RMD Tax Hit Waiting at 73. appeared first on 24/7 Wall St..