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A Kiplinger report says retirees with savings concentrated in traditional 401(k)s and IRAs can face required taxable withdrawals, higher Medicare premiums and tax pressure on surviving spouses or heirs. It recommends considering a mix of pretax, Roth and taxable accounts, while warning that conversions can raise taxes and Medicare premiums if poorly timed.
Kiplinger’s retirement tax report warns that savers who build most of their retirement wealth in traditional 401(k)s and IRAs may face large taxable withdrawals later, including required minimum distributions. It recommends considering a mix of pretax, Roth and taxable accounts to give retirees more control over when income is recognized, while noting that the right strategy depends on individual circumstances.
Traditional 401(k) and IRA contributions can reduce taxable income in the year they are made, but withdrawals are generally taxed as ordinary income, unlike some types of retirement income. The report says required minimum distributions, or RMDs, compel account owners to begin taking taxable withdrawals at specified ages: 73 for most current retirees and 75 for people born in 1960 or later. The timing and amount of an individual’s withdrawals depend on applicable rules and account balances.
To illustrate the potential scale, the report presents a hypothetical married couple, both age 75, with $4 million in traditional IRAs. It estimates their RMD at about $163,000 and says that, alongside $80,000 in Social Security benefits, their modified adjusted gross income could reach roughly $230,000. The report says that would exceed the $218,000 Medicare IRMAA threshold it cites for 2026, potentially increasing both spouses’ Part B and Part D premiums. This is an example, not a prediction for every couple; actual tax and premium calculations depend on individual income and circumstances.
The report also describes how a surviving spouse may face a different tax picture after a partner dies. The survivor may continue to take distributions but file as a single taxpayer, with narrower tax brackets and a lower IRMAA threshold. It says heirs can face taxable income as well: under rules applying to many non-spouse beneficiaries, inherited retirement accounts generally must be emptied within 10 years. The report’s example of a child inheriting a $1.5 million IRA shows how distributions could overlap with the heir’s working years.
How Account Mix Affects Retirement Income
The practical issue is control over taxable income. When most savings sit in tax-deferred accounts, withdrawals can combine with Social Security and other income, potentially affecting tax brackets and Medicare premiums. A diversified account mix may give retirees more options about which assets to draw from in a given year. That does not guarantee a lower lifetime tax bill, but it can make the timing of taxable income less dependent on mandatory distributions.
The report groups savings into three categories: traditional tax-deferred accounts, including 401(k)s and IRAs; taxable brokerage accounts, funded with after-tax money; and tax-free accounts, such as Roth IRAs and Roth 401(k)s when withdrawal requirements are met. Taxable accounts can provide access before age 59½ without retirement-account early-withdrawal penalties, while Roth accounts can offer tax-free qualified withdrawals. Roth IRAs have no RMDs for the original owner, according to the report.
Having more than one source of retirement funds can also help with irregular expenses. The report estimates that someone in the 24% federal tax bracket might need to withdraw about $132,000 from a traditional IRA to net $100,000 for a major purchase after federal tax, potentially affecting Medicare premiums. A blend of account types may change the tax outcome, but the result depends on the person’s full income, state taxes and withdrawal plan.
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The Case for Three Tax Buckets
The traditional approach described in the report prioritizes deductible contributions during high-earning years and postpones taxes until retirement. That can be useful, but it concentrates future withdrawals in accounts where distributions are usually taxable as ordinary income. The report argues that tax diversification—saving across account types—can help address uncertainty about future tax rates, investment returns and policy changes.
It points to several ways people may build that mix. Workers whose employer plans offer a Roth 401(k) can consider directing some contributions there. The report cites a $24,500 employee contribution limit for 2026 across traditional and Roth 401(k) contributions combined. It also says certain workers age 50 and older who earned more than $150,000 in prior-year FICA wages must make catch-up contributions on a Roth basis beginning in 2026. These are year-specific rules and limits; readers should check current plan and tax guidance.
The report also discusses Roth IRA contributions and conversions. It cites 2026 income phase-out ranges for direct Roth IRA contributions of $242,000 to $252,000 for joint filers and $153,000 to $168,000 for single filers, and describes backdoor Roth contributions and workplace-plan conversions as possible routes for some savers. Whether those approaches work depends on existing accounts, plan rules and tax treatment. A taxable brokerage account is another option the report identifies, offering a source of funds outside retirement accounts and, in some cases, a step-up in basis for heirs.
“The goal isn’t to minimize taxes this year. It’s to minimize them over your lifetime.”
— Kiplinger report
Tax Outcomes Depend on Individual Details
The examples and thresholds in the report do not establish what any particular saver will owe. Tax results vary with account balances, filing status, Social Security income, other earnings, state rules and future changes in tax law. Medicare IRMAA premiums also use income from an earlier tax year, so a conversion or other income increase may affect premiums later rather than immediately.
Roth conversions are not automatically beneficial. Converting pretax savings creates taxable income in the conversion year and could push a saver into a higher tax bracket or affect Medicare premiums. The report advises against making a large conversion without a plan and says paying the tax from outside funds, when possible, can preserve more money in the retirement account. The supplied material does not provide individualized projections or establish that one account mix is best for all households.
Review Contributions Before Converting
The report’s suggested next steps are to review workplace-plan choices, assess whether a taxable account could add flexibility and estimate future income before deciding on Roth contributions or conversions. It identifies the period after work ends but before RMDs and Social Security begin as a possible lower-income window for conversions, but the appropriate amount depends on a household’s projected tax bracket and other income.
Readers considering a conversion should account for the tax bill and any possible later IRMAA effect before acting. Contribution limits, eligibility rules and Medicare thresholds can change by year, so the figures cited here should be checked against current official guidance and plan documents. A tax professional or financial planner can model scenarios using a person’s actual accounts, income and filing status.
Key Questions
Why can a traditional 401(k) create a tax burden in retirement?
Traditional 401(k) contributions generally receive tax-favored treatment when made, but withdrawals are usually taxed as ordinary income. RMDs require eligible account owners to take distributions, which can add to other taxable income.
What are the three account types discussed in the report?
The report describes tax-deferred accounts such as traditional 401(k)s, taxable brokerage accounts funded with after-tax money, and Roth accounts, where qualified withdrawals can be tax-free.
Should I convert my traditional 401(k) or IRA to a Roth account?
Not automatically. A conversion generally creates taxable income in the year it occurs and may affect tax brackets or Medicare premiums. The report recommends planning conversions around a person’s projected income and circumstances.
When do required minimum distributions begin?
The report says RMDs begin at age 73 for most current retirees and age 75 for people born in 1960 or later. Rules can depend on the account and the person’s situation, so check current official guidance.
Source: kiplinger.com
