Retirement Retirement Planning

A Little-Known 401(k) Rule Is About to Change How Retirees Pay Taxes

Every retiree should know about this.

By Chris Lewis, CEPF , Edited by Laura Hohenstein

Updated July 8, 2026

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Many people believe their tax bills will be lower in retirement because they're living on a fixed income. However, a little-known policy change may impact 401(k) retirement plan withdrawals and could lead to higher taxes.

This change, which is that the required minimum distributions (RMD) age has increased, has benefits and drawbacks. The primary benefit is that it gives people's retirement accounts more time to grow and compound. The drawback is that retirees may end up paying more taxes and paying higher Medicare premiums, too.

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What makes retirement taxes complicated

Retirement is supposed to be a simpler time. After all, many people put their working years behind them in order to fulfill travel dreams, enjoy their hobbies, and spend time with loved ones. However, because retirees can have several income streams, retirement taxes can be more complicated.

For example, retirees may have pensions, investment accounts, rental income from real estate, 401(k)s, IRAs, and even part-time income. Knowing which accounts to draw from in what order can be challenging.

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The SECURE 2.0 Act and RMDs

RMDs are the distributions retirees must make from their 401(k) retirement accounts, according to the law. Previously, the RMD age was 72. However, the SECURE 2.0 Act, passed in 2022, raised the age to 73. In the year 2033, it will increase again to 75.

The purpose of raising the RMD age is to give retirees more time for their nest eggs to grow before they are required to make withdrawals. However, larger balances also mean larger withdrawals because RMD rules require retirees to withdraw a specific percentage of their account balance. That means that if retirees have to take out more than they expected, it can affect income and, by extension, tax bills.

How RMDs affect Medicare premiums

Medicare is a health insurance program specifically for people who are 65 and older (as well as others who meet specific eligibility requirements).

Typically, retirees pay for Medicare Part A, which is hospital insurance, ahead of time through paycheck deductions during their working years. Medicare Part B, which covers doctor visits, lab tests, etc., has a monthly premium. The higher your income, the higher your premium.

The surcharge for higher-income retirees is called the Income-Related Monthly Adjustment Amount (IRMMA). If retirees take larger RMDs because their accounts have grown, it might also trigger this Medicare Part B surcharge.

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Other recent 401(k) changes that affect taxes

If you or someone you love is nearing retirement age but hasn't retired yet, there is another 401(k) change affecting how high-earners specifically pay taxes.

As of 2026, workers over 50 who make over $150,000 per year and want to make catch-up contributions must make them as Roth contributions. This affects taxes because many high earners rely on catch-up contributions to lower their taxable income. However, this is no longer the case.

The benefit is that they can withdraw these Roth contributions tax-free in retirement, but it may affect their current tax bill.

The future of 401(k)s

In addition to understanding how 401(k) rules have changed, it's also a good idea to look at what other changes may be on the horizon. For example, President Trump recommended that the SEC investigate the possibility of adding alternative assets to 401(k)s, such as private equity and cryptocurrency.

Being able to purchase these types of investments within a 401(k) is a big change, and no decisions have been made about it yet. Some lawmakers oppose the change, saying those assets are too volatile to include in 401(k) plans.

The impact of 401(k) changes

While changing the RMD age might not seem like a big change, it does have a compound effect on other aspects of life in retirement, such as Medicare premiums and tax brackets. Delaying the RMD age also means many retirees can allow their nest eggs to enjoy a few extra years of growth, helping their retirement funds last longer.

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How to stay informed about retirement rules

Keeping up to date on changing 401(k) rules is prudent, as they can affect retirees' withdrawal strategies, income, and tax payments.

By watching the news, reading emails from 401(k) plan providers, and working with professionals such as a financial advisor and an accountant, retirees can stay up to date on any policy changes that may affect their retirement plan.

Bottom line

Part of eliminating some retirement stress is staying informed about 401(k) policy changes. While it might not be the most interesting topic to consider, it's far better to be prepared when changes come.

Tax surprises can be stressful, and staying up to date on rule changes can go a long way in making tax time easier and more predictable during retirement.

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