--- title: 4 in 5 Retirees Are Making This Mistake That Can Trigger Huge Tax Bills description: New Vanguard research finds that many retirees could be risking big tax bills later on by waiting until they're required to make withdrawals. authors: - name: Martha C. White role: Reporter url: https://money.com/author/martha-c-white/ education: BA, English, Princeton University at_money_since: 2015 articles: 363 covers: - Retirement - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Economy and Politics - Education - Federal Reserve Rate Cuts - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Professional Services - Shopping - Taxes - Technology also_seen_in: - The New York Times - The Wall Street Journal - CNN - Kiplinger Personal Finance - Time social: - https://www.linkedin.com/in/martha-c-white/ editors: - name: Kaitlin Mulhere role: Editor url: https://money.com/author/kaitlin-mulhere/ bio: Kaitlin Mulhere is an editor at Money.com. Since joining in 2015, she’s written and edited about a variety of personal finance topics, including banks, credit, student debt, saving strategies and more. education: University of Florida at_money_since: 2015 articles: 218 covers: - Retirement - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Economy and Politics - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Shopping - Taxes social: - https://twitter.com/KMulhere - https://www.linkedin.com/in/kaitlin-mulhere-64503048/ published: '2026-11-03T15:17:47.000Z' modified: '2026-11-03T15:17:47.000Z' section: Retirement word_count: 1064 canonical: https://money.com/why-retirees-should-start-401k-withdrawals-earlier/ type: Article source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![Old man and bucket leaking coins](https://img.money.com/2026/10/News-Retirement-mistakes-costly.jpg) By the time you retire, you’ve spent perhaps half a century socking away money for your so-called golden years. It’s logical to want to keep as much of that money in your own pocket as possible, but many retirees could be setting themselves up for a painful reality check, new research reveals. A [study](https://workplace.vanguard.com/insights-and-research/report/how-america-retires-2026.html) from Vanguard found that 78% of retirees with account balances over $100,000 don’t take distributions from their retirement nest egg between the ages of 60 and 72. Instead, as an earlier Vanguard [report](https://workplace.vanguard.com/content/iig-transformation/pdf/from-retirement-savings-to-a-retirement-paycheck.html) noted, “Many use their retirement accounts reactively, treating them as a financial backstop for specific, nonrecurring needs.” While some retirees don’t have any choice but to begin drawing down their nest egg once they leave the workforce, those who don’t need the money for income immediately often wait until they need to begin taking required minimum distributions (RMDs). IRS rules say that retirees must take RMDs from tax-deferred retirement accounts beginning at age 73. (That goes up to 75 for people born in 1960 or later.) If you’ve spent decades scrimping and saving, it might seem like second nature to put off dipping into that 401(k) or IRA. But waiting as long as possible could backfire, according to retirement pros, because it could lead to big tax bills in your later retirement years — eating up money you might need for medical expenses, long-term care or other spending that stems from advanced age. “There's a benefit to smoothing out those withdrawals,” says Aaron Goodman, senior investment strategist at Vanguard. Recent changes to how employers enroll workers and encourage contributions into 401(k)s have helped more people get into the habit of putting away money for the future, he tells Money. But there’s much less guidance out there for retirees about when and how to take money out. “Retirement income is a difficult problem,” Goodman says, because retirees are largely left to their own devices to figure out how to balance current income needs with future financial flexibility. ## Why to start 401(k) withdrawals earlier Zooming out a bit: The tax advantage of a traditional 401(k) or IRA is based on the assumption that your income will be lower in retirement than during your working years, putting you into a more modest tax bracket and lowering the total amount you have to pay in taxes. (Depending on your income, Social Security payments are partially or entirely untaxed.) Required distributions are taxed as ordinary income, with the annual amount of your RMD based on the size of your nest egg and your life expectancy. If you saved diligently and built up a large nest egg, check in with a personal finance pro or run some [calculations](https://www.calculator.net/rmd-calculator.html) yourself to determine how much you’ll be required to withdraw each year, and what your total income will be as a result. You might be surprised to find that your required withdrawals will put you into a higher-than-expected income tax bracket. What’s more, affluent retirees could face an additional financial burden in the form of Medicare premium surcharges for high-income enrollees. These Income-Related Monthly Adjustment Amounts (IRMAA) can add anywhere from roughly $200 to $700 per person, per month. You can avoid this by moving funds out of tax-deferred accounts early in retirement, advises Scott Cole, founder and president of Cole Financial Planning and Wealth Management. "Accelerate that income or convert that money to a Roth, and do that systematically every year, so when you get to RMDs, it’s usually not forcing you into an IRMAA," he says. “Set up a regular withdrawal schedule," Goodman advises, and have a plan to maximize those assets for your financial future. ## What to do with 401(k) withdrawals in early retirement years If you don’t need the money in your tax-deferred retirement account to pay for day-to-day expenses, financial pros have a few suggestions for what you can do with it instead. #### Delay Social Security Taking some of your nest egg and using that money to pay for everyday expenses can be smart if it lets you put off claiming Social Security until you reach full retirement age (that’s 67 for people born in 1960 or later). You can also get delayed retirement credits that can boost your payment by another 24% if you wait until 70 to begin taking benefits. #### Perform Roth conversions Moving funds out of a traditional retirement account and into a Roth account means you take a tax hit now, but it could keep you out of a higher tax bracket when you have to start taking RMDs. Roth conversions can also help you avoid Medicare IRMAA surcharges, but note that the IRS income tax brackets and the IRMAA brackets are different. (Medicare also uses a somewhat complex formula that involves a two-year look-back for income; in other words, it determines whether you'll owe surcharges for this year based on your annual income from two years ago, creating more incentive to start Roth conversions sooner than later.) If you plan to retire early, that’s even more reason to get a jump on Roth conversions: While Roth withdrawals are tax free (since you pay income tax in the year you undertake the conversion), if you’re younger than 59½, you generally need to hold that money in a Roth account for five years to avoid a 10% early-withdrawal penalty. For this reason, Cole says it's smart to be proactive, even if you’re on the fence about Roth conversions. “At the very minimum, convert $100 just to get the clock started on it,” he says. #### Establish (or add to) a taxable brokerage account If you're not sure what to do with 401(k) money after you withdraw it, "You can always reinvest it," Cole notes. While it's true that you will pay tax both when you withdraw the money as well as on investment earnings, any profits you realize from selling securities held for longer than a year are taxed at more favorable capital gains rates, which can be as low as 0%, based on your income. While your emergency fund and other retirement income streams are hopefully sufficient for you to avoid having to sell assets at a loss if the market plunges, you can use those losses to offset the tax bill from investment gains, Cole points out. 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