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A Kiplinger report warns that relying almost entirely on traditional 401(k) savings can leave retirees with large taxable withdrawals, required minimum distributions and potential Medicare premium surcharges. It recommends diversifying among pretax, Roth and taxable accounts, while noting that Roth conversions and contribution choices require careful tax planning.
A Kiplinger report says retirees with most of their savings in traditional 401(k)s and IRAs may face large taxable withdrawals, required minimum distributions and higher Medicare premiums, and recommends building savings across pretax, Roth and taxable accounts. The report argues that spreading money among these account types can give retirees more control over when income is taxed, though the best mix depends on each saver’s circumstances.
Withdrawals from traditional 401(k)s and IRAs are generally taxed as ordinary income. Required minimum distributions (RMDs) compel account holders to take taxable withdrawals after reaching the applicable starting age: generally 73 for current retirees and 75 for people born in 1960 or later, according to the report. A large pretax balance can therefore generate income even when a retiree would prefer to limit withdrawals.
Kiplinger illustrates the potential effects with a hypothetical married couple, both age 75, holding $4 million in traditional IRAs. The report estimates their annual RMD at roughly $163,000. Adding $80,000 in Social Security benefits could bring modified adjusted gross income to about $230,000, above the report’s stated $218,000 threshold for 2026 Medicare IRMAA surcharges. The amounts are an example, not a forecast for every couple.
The report also describes how a surviving spouse may face higher tax pressure after a partner dies: RMDs continue while the survivor may file as a single taxpayer, with narrower tax brackets and a lower IRMAA threshold. For heirs, most non-spouse beneficiaries generally must withdraw inherited IRA assets within 10 years under rules established by the SECURE Act, potentially adding taxable income during their working years.
How Account Mix Shapes Retirement Income
The account mix matters because it affects more than the annual income-tax bill. Required withdrawals can raise taxable income and, depending on a person’s circumstances, contribute to Medicare IRMAA surcharges. A large one-time expense paid from a traditional account may also require a bigger withdrawal than the amount needed after tax.
Kiplinger’s example: a person in the 24% federal tax bracket who needs $100,000 for a major expense might have to withdraw about $132,000 from a traditional IRA to cover the cost after federal tax, before considering other effects. Drawing from multiple account types may offer more flexibility, but it does not guarantee a lower tax bill or avoid a surcharge; the result depends on income, account balances and applicable rules.
The report’s broader point is that tax diversification can help retirees choose which accounts to draw from in a given year. That flexibility may be especially useful between leaving work and beginning Social Security or RMDs, when some retirees have room to take taxable income at lower rates. It may also affect what heirs receive and the taxes they face.
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Three Ways Retirement Savings Are Taxed
The report groups retirement savings into three tax categories. Traditional 401(k)s and IRAs generally provide a tax deduction or tax deferral upfront, with withdrawals taxed later. Roth accounts are funded with after-tax money; qualified withdrawals are tax-free, and the report says original Roth IRA owners do not have RMDs. Taxable brokerage accounts are funded with after-tax dollars and can provide access before age 59½ without the early-withdrawal penalties that may apply to retirement accounts. Investment gains and distributions can still be taxable.
Kiplinger suggests directing some workplace-plan contributions to a Roth 401(k), where offered, and building taxable savings alongside retirement accounts. It also discusses Roth IRA contributions and conversions. The report gives 2026 direct Roth IRA contribution phase-out ranges of $242,000 to $252,000 for joint filers and $153,000 to $168,000 for single filers, based on modified adjusted gross income. It says some higher-income savers may use backdoor Roth strategies, subject to the rules and their existing account holdings.
The report states that the 2026 employee contribution limit across traditional and Roth 401(k) contributions is $24,500. It also says workers age 50 and older with more than $150,000 in prior-year FICA wages must make catch-up contributions on a Roth basis. These figures and requirements are time-specific; readers should check current tax and plan rules before acting.
“The goal isn’t to minimize taxes this year. It’s to minimize them over your lifetime.”
— Kiplinger report
Individual Tax Effects Vary
The examples in the report do not establish what a particular household will owe. Taxable Social Security benefits, RMD amounts, filing status, deductions, state taxes, Medicare premiums and future tax rules all affect the outcome. The report’s dollar thresholds are tied to 2026 and could change in later years.
Roth conversions also have trade-offs. Converting pretax funds generally creates taxable income in the conversion year. Kiplinger cautions that a large conversion may push a saver into a higher tax bracket and may increase Medicare premiums for people age 63 or older because IRMAA generally uses income from two years earlier. Whether converting makes sense depends on a personal tax projection, cash available to pay the tax and other financial factors.
The report does not provide household-specific calculations or establish that any one account mix will lower lifetime taxes for every saver. Plan fees, employer-plan options, investment returns, tax law changes and the timing of withdrawals can all change the result.
Review Contributions and Conversion Timing
Kiplinger recommends reviewing workplace-plan options, directing a portion of contributions to a Roth account when appropriate, and building taxable savings if that fits a household’s plan. Retirees or people nearing retirement can examine whether the years after work ends but before Social Security and RMDs begin offer a suitable period for measured Roth conversions.
Before converting, savers should estimate the tax due and potential Medicare effects across multiple years. The report advises paying conversion taxes with outside cash when possible, rather than withholding them from the retirement account, to leave more money invested. A tax or financial professional can help model the consequences using current rules and the household’s full income picture.
Key Questions
Why can a traditional 401(k) create a tax burden in retirement?
Traditional 401(k) withdrawals are generally taxed as ordinary income. Required minimum distributions can force withdrawals, even when a retiree does not need the cash, and those amounts may affect total taxable income and Medicare premiums.
What are the three savings buckets discussed in the report?
The report describes tax-deferred accounts such as traditional 401(k)s and IRAs, tax-free accounts such as Roth accounts, and taxable brokerage accounts. Each has different tax treatment and withdrawal rules.
Should everyone convert a traditional 401(k) or IRA to a Roth account?
No. A Roth conversion generally creates taxable income in the year it is made and could affect a person’s tax bracket or Medicare premiums. The report says conversions should be planned around an individual’s income, tax outlook and ability to pay the tax.
When do required minimum distributions generally begin?
The report says RMDs generally begin at age 73 for current retirees and age 75 for people born in 1960 or later. The applicable age depends on the rules and the account holder’s circumstances, so readers should check current guidance.
Source: kiplinger.com
