Tax-Deferred Retirement Accounts: What They Mean for Couples With $2M+
Key Takeaways
- A tax-deferred account postpones income tax. It doesn't remove it. Withdrawals are generally taxed as ordinary income.
- If most of your $2 million or more sits in traditional 401(k)s and IRAs, part of that balance is a future tax bill, not spendable money.
- The tax can come due through three channels: required minimum distributions, the share of Social Security that becomes taxable, and Medicare income-related premium surcharges.
- When one spouse passes, the survivor may face the same income with lower thresholds. The rules change with it.
- Results depend on your income, your tax rates, and the order you withdraw. A plan built on your numbers is how you see the trade-offs.
Your 401(k) statement shows one number. Your tax return will show a different one.
Quick answer: A tax-deferred retirement account, such as a traditional 401(k) or traditional IRA, lets you postpone income tax on pre-tax contributions and on growth until you withdraw the money. The tax isn't removed. You generally pay ordinary income tax on withdrawals, and when that happens depends on your situation.
For a married couple within 10 years of retirement, that difference matters. A large balance in tax-deferred accounts feels like security. It may also be your largest unpaid tax bill, with a due date you don't fully control.
In this guide, you'll see:
- What a tax-deferred account is, and the purpose it serves
- How tax-deferred, Roth, and taxable accounts compare
- Where the postponed tax comes due: required withdrawals, Social Security, and Medicare
- What changes for a surviving spouse
- Questions to review before you start withdrawing
Table of Contents
What a Tax-Deferred Account Is
In a tax-deferred account, you generally don't pay income tax on the money when you put it in, and you don't pay tax on the growth each year. You pay when you take money out.
The most common examples are the traditional 401(k), the traditional IRA, the 403(b), and the 457(b). The IRS applies the same withdrawal rules to all of them, which is why they're often discussed together.
Many people call these "pre-tax" accounts. The label is accurate for contributions, but it can mislead. The tax hasn't been skipped. It has been scheduled for later.
Tax-deferred means the tax is postponed. It doesn't mean the tax is gone.
Not every traditional IRA contribution is deductible. If you or your spouse have a workplace plan and your income is above certain limits, part of a contribution may already be taxed. Your tax professional can confirm how that applies to you.
What Is the Purpose of a Tax-Deferred Account?
The purpose is to give you an incentive to save for retirement. You may lower your taxable income while you work, and your balance can grow without a tax bill each year.
That benefit comes with a trade-off. You exchange a smaller tax bill today for an unknown tax bill later. Whether that exchange works in your favor depends on your tax rates when you withdraw, compared with the rates you avoided when you contributed.
For couples who saved for 30 years and now hold $2 million or more, the question changes. Early on, the question was how much to save. Now the question is how much of the balance you keep after tax.
Tax-Deferred vs. Roth vs. Taxable
The three account types differ in when tax is paid, whether withdrawals are required, and what appears on your tax return later.
| Account type | When tax is paid | Effect on required withdrawals | Effect on taxable income later |
|---|---|---|---|
| Tax-deferred (traditional 401(k), traditional IRA) | When you withdraw. Contributions are generally pre-tax. | Required withdrawals generally apply, starting at age 73 or 75 depending on your birth year. | Withdrawals are generally included in taxable income, including any required amount. |
| Roth (Roth IRA, Roth 401(k)) | Up front, when you contribute or convert. | No required withdrawals for the original owner during life. | Qualified withdrawals are not included in taxable income. Rules apply to what counts as qualified. |
| Taxable (brokerage) | Along the way, on interest, dividends, and gains. | No required withdrawals. | Only the gain or income portion of a sale adds to taxable income, not the original amount you invested. |
Source: Internal Revenue Service, Retirement topics: Required minimum distributions (RMDs). The IRS lists the account types subject to required withdrawals and states that Roth IRAs and designated Roth accounts have none while the owner is alive. Reviewed October 19, 2026.
No account type is best for everyone. Each one trades tax now against tax later, and each has limits and conditions. The mix that fits you depends on your income, your spending, and your plan for both spouses.
Most couples in this position hold the large majority of their savings in the first row. That concentration is what limits your options later. See the three tax buckets in retirement for how each type behaves when you start spending.
Where the Postponed Tax Comes Due
The tax on a tax-deferred balance doesn't arrive as one bill. It shows up in three places, and each one is tied to a rule you don't set.
1. Required minimum distributions
A required minimum distribution, or RMD, is the least you must withdraw each year from tax-deferred accounts once you reach a set age. The IRS includes those withdrawals in your taxable income.
The starting age depends on when you were born. The IRS retirement topics page states age 73. Under the SECURE 2.0 Act, the IRS final regulations set the applicable age at 75 for anyone born on or after January 1, 1960. If you were born from 1951 through 1959, age 73 applies. If you were born in 1960 or later, age 75 applies.
If you miss a required withdrawal, the IRS says you may owe a 25% excise tax on the amount not withdrawn, or 10% if you correct it within two years.
Workplace plans have one difference. If you're still working and don't own 5% or more of the company, your plan may let you delay required withdrawals from that employer's plan until you retire. IRAs generally don't have that option.
Sources: IRS, Retirement topics: Required minimum distributions (RMDs), reviewed October 19, 2026; IRS, Internal Revenue Bulletin 2024-33, which sets the applicable age at 75 for employees born on or after January 1, 1960. RMD ages change with legislation, so confirm the current rule for your birth year.
2. Social Security that becomes taxable
Withdrawals from tax-deferred accounts count as income when the IRS decides how much of your Social Security is taxable. The test adds half of your benefits to your other income, including tax-exempt interest.
For a married couple filing jointly, the IRS base amount is $32,000. Above that, part of your benefits may be taxable. Above $44,000, up to 85% of your benefits can be included in taxable income. That does not mean an 85% tax rate. It means up to 85% of the benefit amount is added to the income you pay tax on.
With a seven-figure tax-deferred balance, your withdrawals alone may put you above both lines. Read more in the guide to provisional income and Social Security taxes.
Source: IRS Publication 915 (2025), Social Security and Equivalent Railroad Retirement Benefits. Reviewed October 19, 2026. These amounts are from the 2025 publication and may change.
3. Medicare premium surcharges
Medicare charges higher Part B and Part D premiums to people with higher income. The surcharge is called IRMAA, short for income-related monthly adjustment amount.
For 2026, Medicare generally uses the income on your 2024 tax return. For married couples filing jointly, the first surcharge applies when 2024 modified adjusted gross income is above $218,000. The standard 2026 Part B premium is $202.90 per month, and the surcharge is added on top for each enrolled person.
A large withdrawal or required distribution raises that income. Because Medicare looks back two years, a decision you make at 63 can show up in your premium at 65. The full bracket table is in the 2026 IRMAA guide.
Source: Centers for Medicare & Medicaid Services, 2026 Medicare Parts A & B Premiums and Deductibles, released November 14, 2025. Reviewed October 19, 2026.
These three rules stack. One withdrawal can raise your income tax, increase the taxable share of your Social Security, and move you into a higher Medicare premium tier. Looking at each rule alone hides the combined effect.
What Changes for a Surviving Spouse
Most tax-deferred balances are planned around two people. After one spouse passes, the survivor may file as a single taxpayer in later years. The account balance may stay the same while the thresholds drop.
- Social Security taxation: the IRS base amounts for 2025 are $25,000 and $34,000 for a single filer, compared with $32,000 and $44,000 for a married couple filing jointly (IRS Publication 915, 2025).
- Medicare surcharges: the first 2026 surcharge applies above $109,000 of income for an individual return, compared with $218,000 for a joint return (CMS, 2026).
The survivor may also inherit the other spouse's accounts and the required withdrawals that come with them. The result may be more tax on less income. The rules change with it.
That is one reason to look at the tax-deferred balance before you retire. Options such as Roth conversions generally work best when you have time to use them, and they generally can't be reversed once done.
Questions to Review Before You Withdraw
You can't remove the tax from a tax-deferred balance. You can decide when and how much of it you pay. These are the questions to put in front of your tax professional and your planner.
Should some of the balance move to Roth?
A Roth conversion moves money from a tax-deferred account to a Roth account. You pay income tax on the converted amount in the year of the conversion, and it generally can't be undone. It may lower future required withdrawals and the income Medicare and the IRS see later. It also raises your income now. See Roth conversion strategy for how that decision is framed.
Which account should you draw from first?
The order you withdraw from tax-deferred, Roth, and taxable accounts changes your taxable income each year. A written order can help you compare options across years, though it can't guarantee a result. Read more about retirement withdrawal strategy.
What does your income look like across all three rules?
Income tax, Social Security taxation, and Medicare premiums respond to the same income. Your retirement tax plan is where those three views are combined.
Frequently Asked Questions
What are the benefits of a tax-deferred account?
Contributions may lower your taxable income while you work, and your balance can grow without a tax bill each year. Those benefits come with a cost: withdrawals are generally taxed as ordinary income, and the amount of tax depends on your rates later.
What are the disadvantages of tax deferral?
You give up control over timing. Required withdrawals eventually start, and they can raise your income tax, the taxable share of your Social Security, and your Medicare premiums. A large balance may also leave a survivor or heirs with a larger tax bill. How much this matters depends on your situation.
Which accounts are tax-deferred?
Traditional 401(k)s, traditional IRAs, 403(b)s, and 457(b)s are the common ones. Roth accounts are different. You pay tax up front, and qualified withdrawals are not included in taxable income.
Do you have to withdraw from a tax-deferred account?
Generally, yes, once you reach your required starting age. The IRS lists age 73, and the final regulations set age 75 for anyone born on or after January 1, 1960. You can withdraw earlier or take more than the minimum, and the withdrawals are generally taxable.
Where This Fits in a Tax-First Retirement Plan
A tax-deferred balance is one input to your retirement income. The tax on it comes due through required withdrawals, Social Security, and Medicare, and the timing is partly in your hands today.
A tax-first plan puts those rules on one timeline for both spouses. It shows how your withdrawals, Roth decisions, and benefit timing may interact before you commit to any of them.
If you're married, within 10 years of retirement, and hold $2 million or more mostly in 401(k)s and IRAs, a Retire Ready Roadmap™ is built to show where your postponed tax may come due. The next step is a Retirement Fit Meeting, a conversation to see if the Roadmap fits your situation, with no pressure to decide. You can see if you're a fit here.
This content is for educational purposes only and is not investment, tax, or legal advice.
