A traditional 401(k) stuffed with pretax dollars can create a costly tax problem in retirement. Every withdrawal counts as ordinary income, and required minimum distributions (RMDs) beginning at age 73 (or 75 for those born in 1960 or later) force withdrawals whether you need the money or not.
Consider a married couple both 75 with $4 million in traditional IRAs. Their RMD totals roughly $163,000. Combined with $80,000 in Social Security benefits, up to 85% of which becomes taxable, their modified adjusted gross income reaches around $230,000. That exceeds the $218,000 threshold triggering Medicare's IRMAA surcharges in 2026, raising Part B and Part D premiums for both spouses.
The problem worsens if one spouse dies. RMDs continue, but the survivor files as single with narrower tax brackets and an IRMAA threshold of just $109,000. This "widow's penalty" hits pretax-heavy portfolios hardest.
Heirs face pressure too. Since the SECURE Act eliminated the "stretch IRA" for most non-spouse beneficiaries, heirs must empty an inherited IRA within 10 years. A child inheriting a $1.5 million IRA at 50 could add $150,000 or more to their taxable income annually during peak earning years.
The solution is tax diversification across three buckets: tax-deferred accounts like traditional 401(k)s and IRAs, taxable brokerage accounts, and tax-free accounts including Roth IRAs, Roth 401(k)s, and health savings accounts. This approach gives retirees control. Between retirement and claiming Social Security, you can withdraw from pretax accounts deliberately, filling lower brackets without triggering higher ones.
The article recommends splitting contributions between traditional and Roth 401(k)s. The 2026 employee limit is $24,500 combined. High earners ($150,000 or more in FICA wages) over 50 must make catch-up contributions on a Roth basis starting this year.
Backdoor Roth IRA contributions remain available above the $242,000 to $252,000 phase-out range for joint filers in 2026. If your 401(k) permits after-tax contributions and in-plan conversions, a mega-backdoor Roth can move larger sums.
Years after stopping work but before RMDs and Social Security begin often offer the lowest income. Converting pretax dollars to Roth during that window, up to the top of a target bracket, locks in current known rates.
Opening a taxable brokerage account provides access to funds before age 59½ and a step-up in basis for heirs. Avoid large Roth conversions without planning. They can push you into a higher bracket and raise Medicare premiums if you are 63 or older, since IRMAA looks back two years. Pay conversion taxes with outside cash rather than from the IRA itself to preserve more tax-free growth.