The IRS Sets the Withdrawal Amount at 75 — and the Biggest Savers Are Converting It Away

The calculation itself leaves no room for preference. The IRS requires each account to be worked out separately, dividing the prior December 31 balance by a life-expectancy factor the agency publishes in Publication 590-B. Miss the December 31 deadline and the penalty is a 25% excise tax on the shortfall, cut to 10% if the distribution is corrected within two years. The November explainer's worked case is a 62-year-old with a $900,000 traditional 401(k) who wants the account empty by 75.

What makes the third path rational is the tax arithmetic on the dollar that does get withdrawn. In the explainer's example the conversion year costs roughly $6,590 of federal tax on $91,250 of taxable income, about 7%. A required distribution at 75 is taxed at 22% at the federal level, and once Social Security benefits are in the income mix, each extra dollar pulls 85 cents of benefits into taxable income. The combined effective marginal rate on a required distribution lands near 41%, and the required share of the balance keeps climbing with age on the same factor, from about 4% at 75 to over 6% by 85.

Read together, these numbers describe a market where the withdrawal decision is mostly being made for retirees by a tax table rather than by a financial planner. That is what makes the age-75 mechanic a flow story rather than a tax footnote: the amount is set externally, it arrives on a fixed date, it is taxable, and it grows as a share of the balance every year the saver survives.

The relocation is measurable. IRAs held $19.2 trillion at the end of 2025, 39% of all US retirement assets against 24% two decades ago, and rollovers into IRAs are projected to reach roughly $941 billion in 2026, about 4.9% of the entire IRA market in a single year. Fidelity's second-quarter 2026 data shows IRA contributions up 36% year over year while average 401(k) balances grew 10.5% in one quarter, their strongest growth since the fourth quarter of 2020. The money is not leaving retirement; it is leaving plans, and it is moving fastest among the savers least likely to need the cash.

Two upstream consequences follow, and they point in opposite directions. Custodians do the collecting: Charles Schwab reported third-quarter 2026 revenue up 16% to $8.17 billion, net interest income up 14% to $3.48 billion and net income up 24% to $2.81 billion, in a year when roughly $941 billion of plan assets moved into IRAs. Recordkeepers, by contrast, are not the losers this flow narrative implies: Paychex, a leading small-employer recordkeeper, reported first-quarter fiscal 2027 revenue up 5.9% to $1.63 billion and diluted EPS up 14% to $1.21, because participant counts and plan formation, not asset relocation, drive that fee base.

Downstream, the retirement-income industry is being paid to solve a withdrawal problem the tax code created, but the payments are unevenly distributed. US individual annuity sales reached $121.2 billion in the second quarter of 2026 and $228.7 billion in the first half, an eleventh consecutive quarter above $100 billion. Corebridge's Individual Retirement premiums and deposits, by contrast, fell 41% to $3.82 billion from $6.49 billion a year earlier, and that segment's adjusted pre-tax operating income slipped to $467 million from $523 million.

The obvious explanation for a record annuity quarter is that retirees need income. The data points to a more specific mechanism: the buyer arriving with an IRS-set distribution or a converted Roth balance wants growth-linked upside rather than a capped crediting rate, because the alternative use of that dollar, a brokerage account, has delivered the market's return without surrender risk. Corebridge's premiums-and-deposits line is narrower than LIMRA's sales measure and can carry large negotiated transactions, so the 41% decline is not a clean share loss, but the direction is the point: rate-based annuity demand is being squeezed while index-linked demand compounds.

Those five numbers are usually read as a warning that retirees are leaving the stock market. The flow data says something narrower. Equity mutual funds lost $32 billion in September, the first outflow since May and the largest since January, while ETFs took in a record $1.54 trillion over 2026: the same money arriving through a different wrapper. And the withdrawals themselves are too small and too concentrated to move the market. At the roughly 4% of the balance the life-expectancy factor implies at 75, every $1 trillion held by retirees over 73 produces about $41 billion of mandatory annual withdrawals, spread across a cohort whose balances are mostly under $1 million. The people the rule binds are not the people holding the big money.