Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on Roth IRAs and the five-year rule, including contributions and conversions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What is the Roth IRA five-year rule?

Question: I understand that to withdraw money from a Roth IRA without paying tax or a penalty on the earnings, the account owner must have had the money in the Roth IRA for at least five years and be age 59½ or older. My question relates to when the five-year clock starts when contributions are made over several years. Also, do the rules differ for Roth IRA conversions?

Joy Taylor: The five-year rule your question refers to applies to Roth IRA contributions, rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the year the owner first put money into a Roth IRA. For this first five-year rule, the five-year clock starts on January 1 of the year you first deposited money into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t restart for later Roth contributions, conversions, or newly opened Roth IRA accounts.

Note there is another five-year rule that applies specifically to Roth IRA conversions, and whether the 10% early distribution penalty hits pre-age-59½ payouts. This rule is an anti-abuse rule to prevent people who are younger than 59½ from circumventing the early IRA withdrawal penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth IRA. This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pretax income from traditional IRAs to a Roth. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period. Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above.

For more on both of the five-year rules applicable to Roth IRAs, see our article, "What to know about the five-year rules for Roth IRAs."

2. When does the five-year rule start?

Question: I am 68 and have been doing Roth IRA conversions for the past three years. My first Roth conversion was in 2023. When does the clock start for the five-year rule? And are there separate five-year clocks for each Roth IRA conversion that I do?

Joy Taylor: In your situation, the five-year clock for withdrawing Roth IRA earnings tax-free begins on January 1 of the year that you first put money into any Roth IRA that you own, whether through contributions, rollovers or conversions. So if you first started funding a Roth IRA in 2023, and you don't have other pre-existing Roth IRAs, the five-year period begins on January 1, 2023. It doesn't restart after each conversion.

3. Another question on when the five-year rule starts

Question: I am 70 years old, and I have been doing Roth conversions over the past 10 years. My initial conversion was in 2017, and each year thereafter I converted more money. Does each conversion date have its own separate five-year period or does the five-year period start when I made my first conversion in 2017? I have no other Roth IRAs other than the one I opened in 2017.

Joy Taylor: In your situation, the applicable five-year rule begins on January 1 of the year you first put money into any Roth IRA, via contribution or conversion. And it doesn’t restart. Since your first Roth conversion was in 2017, you are in the clear, and your Roth distributions should be fully tax-free.

4. How does the five-year rule apply to transfers from a Roth 401(k) to a Roth IRA?

Question: I am 64, and I recently retired from my full-time job. While working, I contributed for many years to a Roth 401(k) account. A few months ago, I transferred the funds in that designated Roth 401(k) account to a Roth IRA. Can I start withdrawing money from my Roth IRA tax-free?

Joy Taylor: The general rule for Roth IRAs is that distributions of earnings are nontaxable, provided you are 59½ or older. There is an exception, what experts refer to as the five-year rule. Distributions of earnings taken out within five years of January 1 of the year you first contributed to a Roth IRA are taxed.

You may have had the Roth 401(k) for five or more years, but unfortunately, that time period doesn't transfer to the Roth IRA. So, if this is your first Roth IRA, and you don't have any other Roth IRAs that you had contributed to in the past, the five-year rule would apply. The five-year period begins on January 1 of the year you first put money into any Roth IRA, either through contributions, rollovers or conversions. The ordering rules that apply to distributions from Roth IRAs may mitigate some of the negative tax consequences in your situation. I would suggest speaking with a CPA or your financial planner for more information.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: More Questions on IRAs

For decades, the 401(k) was hailed as the cornerstone of the American retirement dream. However, a quiet revolution has taken place, resulting in a monumental shift in the U.S. retirement landscape: assets in traditional individual retirement accounts (IRAs) now exceed those in 401(k) plans by approximately $9.1 trillion.

As of Q4 of 2025, employees held $10.1 trillion in employer-sponsored 401(k)s and $19.2 trillion in IRAs, according to the Investment Company Institute. This massive migration of wealth, fueled by a lifetime of job changes and rollovers, has fundamentally altered the safety net for millions. While IRAs offer unparalleled freedom, they also strip away the institutional 'guardrails' that once protected savers from high fees, legal risks and their own worst impulses.

It's an issue that impacts more than half of traditional IRA owners. By mid-2024, 59% of traditional IRA–owning households indicated that their traditional IRAs held rollovers from employer-sponsored retirement plans.

Retirement Assets by Type- billions of dollars, end-of-period, 2025: Q3 – 2025: Q4

Rollovers and retirement saving

The primary driver of this shift is rollovers. While 401(k) plans are the primary vehicle for active workers to save, many people roll their balances into traditional IRAs when they change jobs or retire. Over decades, this has moved trillions of dollars out of employer-sponsored plans and into the retail IRA market. Rollovers are projected to grow to over $1 trillion in 2030 from $907 billion in 2026.

The Investment Company Institute’s (ICI) latest research shows that as of mid-2024, 44% of US households owned IRAs. And, traditional IRAs were the most common type of IRA owned. A whopping 59% of traditional IRA-owning households indicated that their traditional IRAs contained rollovers from employer-sponsored retirement plans; 85% had rolled over the entire retirement account balance in their most recent rollover.

This movement of money from 401(k)s to IRAs leaves workers more vulnerable because IRAs lack the protections provided by the Employee Retirement Income Security Act of 1974, or ERISA.

Roth and traditional IRA balances are exempted from the bankruptcy estate up to $1,711,975 under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The $1,711,975 does not include funds rolled into the IRA. Former employer plan dollars remain 100% protected from bankruptcy within the IRA and do not reduce the cap. However, in non-bankruptcy situations, state laws apply to IRA assets, including rollover IRAs.

401(k) Plan Assets- billions of dollars, end-of-period, selected periods

Risks intrinsic to rolling over a federally-protected 401(k) into an IRA include:

• Lower fiduciary standards: 401(k) plans are strictly governed by ERISA, which requires plan sponsors to act as fiduciaries — the highest legal standard of care. In contrast, the standards for broker-dealers selling IRA investments are often less protective, potentially leading to suboptimal investment choices that benefit the provider more than the saver.
• Increased "leakage": 401(k)s are designed to keep money locked away until retirement; withdrawals are generally only permitted for specific hardships or as rollovers after a job change. IRAs allow withdrawals at any time for any reason and have more tax-favored exceptions, making it easier to deplete their accounts.
• Weakened creditor protections: Assets in 401(k) plans are robustly protected from bankruptcy and legal judgments. IRA protections are not as comprehensive and vary significantly by state, leaving these assets more exposed to creditors.
• Higher fees and less transparency: ERISA mandates clear, understandable fee disclosures for 401(k)s. IRAs often have more complex fee structures and less transparency.
• Spousal protections: With a 401(k), a spouse is the default beneficiary by law and must sign a notarized waiver for the participant to name someone else. IRAs have no such federal requirement, allowing owners to change beneficiaries without their spouse's knowledge or consent.

Job mobility and retirement savings

Gone are the days when you worked at one job the majority of your adulthood and retired with a pension and a gold watch. While late baby boomers and Gen Xers were 401(k) pioneers, millennials and Gen Z are natives of the gig economy. The average American worker changes jobs 12 times over their career. Having more than one employer before you retire is expected and a reality of the modern economy.

“Active retirement management is more important than ever," Romi Savova, founder and CEO of PensionBee, told Kiplinger. "In many cases, it can be helpful to find an IRA home. Having a trusted destination for your 401(k)s makes sense, as you may need to roll over more than once throughout your career. 401(k) rollovers are notoriously difficult, so ensure you are working with a provider that offers hands-on support."

Traditional IRA-owning households with rollovers cite three main reasons for rolling over their retirement plan assets into traditional IRAs: not wanting to leave assets behind at the former employer (23%), wanting to consolidate assets (19%), and wanting more investment options (14%), according to the ICI.

Approximately 14.8 million defined-contribution plan participants change jobs each year, per the Employee Benefit Research Institute. Over 6 million of these participants have less than $7,000 in their accounts when they change jobs, and are subject to a mandatory distribution from their former retirement plan into a Safe Harbor IRA. Over 75% of these accounts will cash out by year seven. This is an example of 'leakage' — the early withdrawal of retirement funds that erodes long-term growth.

Another important aspect of having multiple jobs and, by extension, multiple retirement accounts, is the loss of momentum. A hidden danger in switching jobs is the reduction in retirement plan contributions. The median job switcher saw a 10% increase in pay, but a 0.7% decline in their retirement saving rate when they switched employers, according to Vanguard.

Five ways to protect your money in an IRA

While IRAs offer more flexibility and investment choices, the loss of institutional oversight and legal protection can't be ignored or left unaddressed. "IRAs can be acquired from a variety of different institutions, including banks, wealth management companies, and financial technology companies," Savova said.

She notes that although many advisors can assist with the transition, it's important to pick one who operates under a strict fiduciary mandate.

Although IRAs lack the same fiduciary guardrails and legal shields as employer-sponsored plans, that doesn't mean you don't have options for protecting your money. However, that does mean you'll need to be more proactive and disciplined about protecting it than if you had a plan administrator and a raft of regulations that come with an employer-sponsored retirement plan.

While the Biden administration sought to extend ERISA fiduciary status to securities brokers and insurance agents, the rule was halted by court challenges and stay orders. The Trump administration ultimately declined to defend the policy, leading the Employee Benefits Security Administration (EBSA) to issue a formal vacatur notice invalidating the rule.

IRA Market Assets- billions of dollars, end-of-period, selected periods

Here are five ways to protect your money in an IRA:

1. Work with a fiduciary advisor

IRA providers (often broker-dealers) are not always held to the same high fiduciary standards as 401(k) plan sponsors. To mimic the protection of a 401(k), ensure that any financial professional you work with is a Certified Financial Planner (CFP) or a Registered Investment Advisor (RIA) who is legally obligated to act in your best interest.

2. Implement self-imposed "leakage" barriers

IRAs make it easier to withdraw money than 401(k)s do, often leading to "leakages" that deplete retirement savings. To protect your future balance:

• Automate your mindset: Treat the IRA as "untouchable" by not linking it directly to your primary checking account for easy transfers.
• Avoid the "exceptions": While IRAs allow penalty-free withdrawals for things like first-time home purchases or education, using these can severely derail your compound interest.

3. Review and update beneficiary designations

In a 401(k), the law automatically designates a spouse as the beneficiary unless they sign a waiver. IRAs do not have this federal requirement. To protect your family's inheritance, you must manually ensure your beneficiary forms are up to date. This is especially important after major life events like marriage, divorce or the birth of a child.

4. Understand your state's creditor protections

IRAs generally offer less protection than 401(k)s in the event of litigation or bankruptcy. While 401(k)s have broad federal protection under ERISA, IRA protection often varies by state.

Research your state laws regarding IRA exemptions from creditors. If you live in a state with weak protections, you may want to consider additional liability insurance (like an umbrella policy) to protect your assets from potential lawsuits.

5. Scrutinize Fees and Disclosures

Because IRAs lack the standardized fee disclosure requirements of 401(k)s, high administrative costs and investment fees can silently eat away at your savings. "Many providers hide their fees through 'zero-fee' claims, but a closer look may reveal hidden transaction costs and investment costs. The average 401(k) cost ranges from 0.3% to 1.3%, so ensure your IRA fees are within an appropriate and similar range," said Savova.

• Compare expense ratios: Look for low-cost index funds or ETFs within your IRA.
• Check for hidden costs: Be wary of 12b-1 fees or high commissions on products like annuities or actively managed funds that a broker might recommend.

Vigilance is your friend

The shift toward IRAs is likely irreversible, but the vulnerability it creates doesn't have to be. By understanding the guardrails that disappear when leaving a 401(k), savers can take deliberate steps to rebuild them.

“Former employers can charge additional fees for left-behind accounts and, in some cases, move assets to a new provider without your knowledge or consent," cautioned Savova of Pension Bee. That's why you need to be an active participant in planning your retirement.

"Rollovers are now an established part of the retirement saving process, so IRAs and 401(k)s should really be thought of as complementary accounts," she said. "They are both established tools for navigating a fragmented system, and both support wealth building in different ways."

Whether it is seeking out true fiduciary advice, self-regulating early withdrawals, or checking state-specific creditor laws, the burden of protection has moved from the employer to the individual. In this new era of retirement, being a "wise saver" is no longer enough; one must also become a vigilant protector of one's own legacy.

Related Content

• Is Your IRA Protected from Creditors in Bankruptcy?
• Nine Ways to Find Your Lost 401(k)
• Most of the Money in IRAs Comes From a Surprising Source
• Employee Retirement Income Security Act Turns 50: Protecting Your Plans

Spring is a season for cleaning up the garden — planting, pruning and intentionally creating the look and feel you want.

Estate planning is no different.

Each year offers us a fresh an opportunity to step back and review what we have in place — thinking about what has worked best in the past and what we might want to do differently now.

If your garden is like mine, there is usually one plant that requires special attention — whether it's more sun or less water.

Within your estate plan, your IRA might be that special plant this year — deserving thoughtful consideration to ensure it thrives both on its own and in harmony with the broader financial and estate plan you've created.

What is an IRA?

A traditional individual retirement account (IRA) is a tax-advantaged account designed to help individuals save and invest for retirement.

Broadly, during your earning years, contributions may be tax-deductible and investments grow tax-deferred. Then when withdrawals are made in retirement, they are taxed as ordinary income.

A Roth IRA is also a tax-advantaged account, but the timing of the tax advantage is reversed: There is no tax deduction for contributions, and contributions and earnings may be withdrawn tax-free in retirement.

Because I love a good list, here are five facts to know about IRAs as you think about their unique place in your estate plan.

1. Your IRA and your will

IRA assets generally pass to beneficiaries, but not automatically by the terms of your will or revocable trust. It's vital that you regularly review beneficiary designations and coordinate them with the rest of your estate plan to ensure your wishes will be carried out.

2. Beneficiary matters

Different kinds of beneficiaries have different taxation and distribution expectations. It's worth considering these differences when selecting your beneficiaries.

• Spouse beneficiaries. A surviving spouse can roll an IRA into their name and delay required distributions, which provides more flexibility in cash flow, tax and estate planning.
• Non-spouse beneficiaries. Non-spouse beneficiaries need to withdraw the entire IRA within 10 years of the owner's death. This rule is new as of the 2019 SECURE Act and changed how most heirs inherit IRAs. Review your IRA beneficiaries with these new rules in mind.
• Charities. As charities are exempt from income taxes, they can receive the entire account value, making traditional IRAs a powerful tool for leaving a philanthropic legacy.

3. Traditional IRAs and taxes

Unlike most other inherited assets, traditional IRAs are funded with pretax dollars, and they do not receive a step-up in basis at death.

Therefore, every dollar distributed to heirs is generally taxed as ordinary income, which may reduce the realized value of the inheritance. Unlike traditional IRAs, Roth IRAs are generally income-tax free to heirs, though the 10-year distribution rule discussed above still applies.

4. Look beyond taxes

Because creditor and divorce protections for inherited IRAs differ by beneficiary and jurisdiction, beneficiary structure plays a role in preserving wealth.

Using a trust instead of an outright designation may create greater protection, particularly when heirs are minors, vulnerable to external risks or unprepared to manage new wealth.

Update your trust before naming it as the beneficiary of an IRA. If your trust doesn't contain specific provisions, the IRA may be subject to distributions that are less flexible and less tax efficient.

5. Coordination is key

IRA planning is not a single decision, but part of a coordinated strategy for your life and legacy. Consider talking to an adviser about your individual and family circumstances, and strategies such as:

• A Roth conversion
• A qualified charitable distribution (QCD)
• A structured, timed distribution that balances current tax considerations against future tax exposures and the potential tax burden on your heirs

With the right advice, we can all make sure our retirement goals, tax strategies and estate planning are brought together into a cohesive plan.

And just like creating that beautiful, healthy garden, IRA planning is most effective when it is well thought out, coordinated and tended. Spring is a great time of year to get started.

Related Content

• Estate Planning Checklist: 13 Smart Moves
• 10 Reasons to Leave Your Heirs a Roth IRA
• Inherited an IRA? Key Distribution Rules to Know
• A Matter of Trustees: Is Your Spouse the Best Person to Manage the Kids' Trusts?
• I'm Embarrassed to Ask: What Is a Life Insurance Trust?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five questions on inherited IRAs and the 10-year cleanout rule for non-spousal inherited IRAs. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. 10-year cleanout rule for inherited IRAs

Question: Last year, I inherited a traditional IRA from my 89-year-old father. Do I have to withdraw all the money within 10 years or can I take distributions over my lifetime?

Joy Taylor: Before 2020, deceased owners of IRAs could leave their accounts to their children, grandchildren or other individual beneficiaries, and those heirs could stretch required minimum distributions (RMDs) from inherited traditional IRAs over their own lifetimes, thus allowing the funds in the accounts to grow tax-free for decades. Congress saw this as a loophole for the rich and, in the 2019 SECURE Act, curtailed the break for most nonspousal beneficiaries.

For most nonspousal IRAs inherited after 2019, the IRA funds must be distributed to the beneficiary within 10 years of the owner’s death. So, if an IRA owner dies in 2025, as is your case, the beneficiary must clean out the IRA no later than December 31, 2035. There are exceptions for beneficiaries who are surviving spouses or minor children (until age 21) of the account owner, chronically ill or disabled, or not more than 10 years younger than the deceased IRA owner.

If an IRA owner dies before his or her beginning RMD date, and the beneficiary is subject to the 10-year clean-out rule, the beneficiary needn’t take a minimum distribution each year. The beneficiary can immediately cash out, opt to wait until year 10 to get the money, get yearly distributions, or skip years, provided the IRA is fully depleted by the end of the 10-year period.

If an IRA owner dies on or after his or her RMD start date, then the beneficiary must withdraw, at a minimum, annual RMDs from the inherited IRA during the 10-year period, generally beginning with the year after the original owner died, and then fully deplete the IRA by year 10 at the latest. In this situation, the beneficiary generally figures annual RMDs based on his or her life expectancy, so the younger the beneficiary, the smaller the yearly RMD amounts.

Since your father died in 2025 at 89 years old, he would have been taking annual RMDs from his IRA. As such, you will also have to begin taking annual RMDs from the inherited IRA beginning this year, based on your life expectancy. You will also have to deplete the IRA by December 31, 2035, at the latest. Note that you can withdraw more than your annual RMD in any given year, but you can't withdraw less.

There is relief if the IRA owner died in 2020, 2021, 2022 or 2023. Beneficiaries of IRAs in which the original owner was already subject to RMDs won’t be penalized for not taking distributions in 2021-24. They needn’t make up for the missed distribution. But they must take an RMD starting in 2025. This relief wouldn't apply to you because your father died in 2025.

2. Beneficiary not more than 10 years younger than the deceased

Question: My sister died earlier this year at age 55, and I am the sole beneficiary of her traditional IRA. I am 50 years old. How does the 10-year clean-out rule for inherited IRAs apply to me?

Joy Taylor: You don't have to worry about the 10-year cleanout rule. Because you are not more than 10 years younger than your deceased sister, you are considered an "eligible designated beneficiary" under the inherited IRA rules. So you can stretch annual RMDs from the inherited IRA over your lifetime beginning in 2027, the year after your sister died.

In your case, you would figure your annual RMD based on your life expectancy. You would use Table I of Appendix B in IRS Publication 590-B for this calculation.

3. Decedent's final RMD from a traditional IRA

Question: My 82-year-old sister died earlier this year, and I am the sole beneficiary of her traditional IRA. The IRA custodian told me that she didn't take her full RMD for 2026 before she died, and I have to withdraw the remaining RMD for 2026. Is this true?

Joy Taylor: Yes. If an owner of a traditional IRA dies before taking all of his or her RMD for the year, the amount must still be withdrawn from the account. This distribution is generally paid to the beneficiary, and not to the deceased owner or his or her estate. The beneficiary is taxed on the distributed amount. The year-of-death RMD is figured using Table II or III in Appendix B of IRS Publication 590-B, based on the decedent's life expectancy and as if he or she lived for the entire year.

It used to be that that the IRA beneficiary had until December 31 of the original IRA owner's year of death to take that final RMD for the deceased owner. But the IRS has relaxed the rules to give the beneficiary more time to withdraw the decedent's final RMD. According to the IRS, the beneficiary must take the decedent's final RMD by the later of (1) the tax return deadline for the beneficiary's income tax return for the year of the decedent's death or (2) December 31 of the year following the year the decedent died. So in your case, you would have until December 31, 2027, to withdraw your deceased sister's final RMD for 2026.

4. Qualified charitable distribution from an inherited IRA

Question: I am 76, and I inherited a traditional IRA from my 84-year-old sister last year. Can I do a qualified charitable distribution (QCD) from my inherited IRA?

Joy Taylor: Yes. People age 70½ and older can transfer up to $111,000 in 2026 from a traditional IRA directly to charity. QCDs can be done only from an IRA, either one that you own or an inherited IRA. You can’t do them from a 401(k) or other workplace retirement plan.

QCDs are nontaxable and aren't included in your adjusted gross income (AGI). And they can count toward your RMD, thus reducing the taxable amount of the RMD, provided you do the QCD before withdrawing your full RMD for the year.

5. 10-year clean-out rule for inherited Roth IRAs

Question: Are nonspousal inherited Roth IRAs subject to the 10-year clean-out rule?

Joy Taylor: Yes. Similar to the rules for traditional IRAs, many non-spousal beneficiaries of Roth IRAs inherited after 2019 must clean out the account by the end of the 10th year after the owner’s death. But the money is tax-free to them. Also, because Roth IRA owners are not required to take annual RMDs, beneficiaries of inherited Roth IRAs needn’t worry about whether the original account owner died before or after the starting date for taking RMDs. These beneficiaries can opt to clean out the account in year 1, wait until year 10 to take out all the Roth IRA funds, skip years or get annual distributions, provided they fully deplete the Roth IRA within the 10-year period.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Question on Tax Refunds and Penalties
• Ask the Editor: How Can I Resolve My IRS Tax Debt?
• Ask the Editor: Senior Deduction and Tax Filing
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: What Medical Expenses are Deductible?

Question: We are early retirees at 59, with $5.3 million saved. We need $250,000 a year from savings right now to do everything we want. That number will drop significantly once Medicare and Social Security kick in. Is this withdrawal plan safe for a few years, or will we risk our retirement security for a few years of fun?

Answer: Once you reach a certain level of wealth, it's natural to want to retire and enjoy life without the constraints of a job. And if you're a 59-year-old couple with $5.3 million saved, you may be in a perfectly good position to stop working and start living it up.

But retiring at 59 poses some challenges. For one thing, you're too young for Medicare, so you'll need to bridge what could be a costly healthcare gap until you turn 65.

At 59, you're also too young for Social Security. And if you want your benefits without a reduction, you'll need to sit tight until age 67, which is your full retirement age. That means you may be fully reliant on your portfolio for eight years until those monthly checks begin.

In a situation like this, it's important to manage your spending carefully early on in retirement. But those early years are also when your health may be strongest. And if so, you may want to use that time to travel and do other things that are on the more expensive side.

You may be wondering if a $250,000 annual budget is safe for you, keeping in mind that your spending may drop at 65 once you can switch over to Medicare and you won't have to tap your portfolio as much once Social Security begins. The answer is, it may be a safe plan in theory, but you need some guardrails in place.

The plan generally works

You'd think pulling $250,000 a year from a $5.3 million portfolio would seem reasonable. But it's important to be mindful of your withdrawal rate.

"A $250,000 withdrawal on a $5.3 million portfolio comes out to just under 5%, which is relatively high for a long-term retirement plan, especially when taking in consideration inflation and taxation," says Osman Minkara, Founder and Managing Director of CIG Capital Advisors.

However, Minkara calls that rate "reasonable" due to it being temporary.

"What makes this situation different is that spending is expected to drop once Social Security and Medicare begin," he says. "If that reduction is meaningful and predictable, the portfolio is not being asked to sustain a 5% withdrawal rate indefinitely, which improves the outlook."

The average monthly Social Security benefit for retired workers today is $2,076.41, which amounts to roughly $25,000 a year. For a couple where both spouses worked, that translates to about $50,000 annually.

Given that you've managed to save $5.3 million by age 59, you may be eligible for even larger Social Security benefits, which could reduce portfolio strain significantly. But even $50,000 a year in Social Security means you only need $200,000 annually from portfolio withdrawals if you maintain that $250,000 annual budget. That's about a 3.8% withdrawal rate, which is much safer over the long term.

An early market downturn is the biggest risk

It's not uncommon to want to spend freely early in retirement. But Minkara warns that a market downturn early in your retirement could quickly derail your plans.

"The biggest risk here is not the withdrawal rate itself, but what happens if markets decline in the first few years," he explains. "High withdrawals combined with early losses can create lasting damage to the portfolio, even if markets recover later.”

Minkara says a good way to mitigate that risk, called "sequence of returns risk," is to separate short-term spending from long-term investments. He suggests setting aside a few years' worth of cash or diversifying with low-risk assets to avoid locking in major portfolio losses.

"This allows the rest of the portfolio to stay invested and recover through market cycles instead of being drawn down at the wrong time,” he explains.

Be mindful of taxes

If you and your spouse managed to accumulate $5.3 million, it means you may have been higher earners who are accustomed to a certain lifestyle. And if so, a $250,000 yearly budget may be necessary to help you maintain what you're used to.

But Evan Drury, Financial Advisor at Gateway Financial Partners, says the big question is whether your $250,000 budget is gross or net of taxes. And if $250,000 is what you need after taxes, the numbers don't work nearly as well.

"Assuming no other income is earned in the years you use this strategy, then you'd likely have to take out an additional 20% to cover the taxes you would pay for these distributions," Drury says.

All told, you may actually be looking at $300,000 in annual distributions, which is around a 5.6% withdrawal rate. In Drury's mind, that's "higher than any sustainable withdrawal rate."

Of course, you may have considered taxes in your plan. If your $250,000 budget accounts for taxes (meaning, you'll pay your share out of those $250,000 withdrawals), you're in better shape. Or, it may be that you have a Roth IRA or Roth 401(k) and therefore don't have to worry about paying taxes on withdrawals.

But all told, Drury says it's important to factor taxes into your annual budget. If you're withdrawing from a taxable account, he says, you may also be looking at capital gains taxes.

His advice? "Make a financial plan that considers all of this so you can see real assumptions with inflation and taxes built in, and then how your life looks under each scenario."

It's all about planning

Ultimately, Minkara says, "This strategy works if done for a specified period." But it's important to be mindful of market conditions even once your withdrawal rate drops as Social Security kicks in.

If you put the right guardrails in place early on and are willing to be flexible with spending as needed, there's a good chance your portfolio won't run out on you, even if you're tapping it somewhat aggressively for a good number of years.

Read More

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• We Retired at 62 With $6.1 Million. My Wife Wants to Make Large Donations, but I Want to Travel and Buy a Lake House.

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at four questions on inherited IRAs, Roth conversions and more. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Inherited IRA

Question: My son inherited his younger brother's Roth IRA in 2009 when he passed away. Did he need to clean out that IRA within 10 years?

Joy Taylor: No, your son did not need to clean out the inherited IRA within 10 years. The 10-year rule applies only to certain IRAs inherited after 2019. The rule also doesn't apply when the beneficiary is older than the decedent. The exception is technically for beneficiaries who are not more than 10 years younger than the decedent and that would include an older beneficiary.

2. Roth conversions

Question: I'm planning on converting a portion of my traditional IRA to a Roth IRA this year. Do I have to first withdraw my annual required minimum distribution (RMD) before doing the conversion?

Joy Taylor: Yes. People of RMD age who are planning a Roth IRA conversion must first take their full annual RMD for the year before doing the conversion.

For people with multiple traditional IRAs, the rule that you must take your annual RMD before doing a Roth conversion for the year can be tricky. That’s because if a person has multiple traditional IRAs, the total aggregate RMD for the year must be withdrawn during the year before doing a Roth conversion from any of the traditional IRAs. (Note that this doesn’t include RMDs from 401(k)s or other workplace retirement plans.)

3. MLP investments in IRAs

Question: I have a traditional IRA. Can my IRA invest in shares of master limited partnerships (MLPs)?

Joy Taylor: Yes, and these types of investments are popular among certain IRA owners. But be wary of MLPs because of the potential unrelated business taxable income (UBTI) issues.

MLPs issue Schedule K-1s to their owners (including IRAs), reporting the owner’s share of ordinary business income or loss. For IRAs, this income is generally considered UBTI, and the IRA may owe tax. If UBTI from all of an IRA’s investments exceeds $1,000, then the excess is taxed at a rate of up to 37%. The IRA, not the individual owner, uses Form 990-T to report and compute the tax, which is paid from available assets within that IRA. Most big IRA custodians handle the preparation and filing of the 990-T. For self-directed IRAs, the burden of filing the 990-T would fall on the IRA owner.

I would speak with your financial advisor and a CPA before making any such investments. I'm not saying they are bad investments for IRAs — many people have MLPs in their IRAs. I'm just saying you should understand all of the potential consequences that might arise before you put such interests in your IRA.

4. QCDs

Question: I am 74 and still working. I have a traditional IRA and a Roth IRA. I currently contribute to my Roth IRA. Can I do a qualified charitable distribution (QCD) from my traditional IRA this year?

Joy Taylor: Yes. For 2026, IRA owners who are 70½ or older can transfer up to $111,000 from their traditional IRAs directly to charity. QCDs count as part of one's RMD, but they are not taxable and they're not included in adjusted gross income. QCDs aren't deductible as a charitable contribution on Schedule A of Form 1040.

A special rule applies for people who make deductible IRA contributions after 70½. Essentially, these post-70½ contributions reduce one's allowable tax-free QCD amounts until they are used up. Contributions to a Roth IRA are not deductible, so post-70½ contributions to a Roth IRA will not impact your ability to do a QCD.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: IRAs, 401(k)s and RMDs
• Ask the Editor: QCDs and Tax-Planning
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Roth Conversions and Tax Planning
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on 529 Plan Rollovers to an IRA

Death and taxes are life's two certainties, but what if you could have more control of the latter in retirement? That’s the goal of the "Take That, Uncle Sam" rule of retirement spending.

With this approach, money is withdrawn strategically to limit your tax exposure. The less you pay Uncle Sam, the more you have to spend or leave to your heirs.

It’s a strategy any retiree can use, but timing is everything. Those who spend more early in retirement must structure their plans differently from those who wait until later.

Either way, the goal remains the same: Keep as much of your hard-earned savings as possible without running afoul of the law.

"It makes a big difference if you've got all these taxes like IRMAA and RMDs hitting you at different times," said Steve Parrish, professor of Practice, Retirement Planning at The American College of Financial Services.

What taxes are the 'Take That, Uncle Sam' rule worried about?

When it comes to the taxes that the "Take That, Uncle Sam" strategy aims to limit, they include the following:

Ordinary income: Most withdrawals from traditional IRAs and 401(k)s in retirement are taxed as ordinary income, just like a paycheck.

IRMAA surcharge: If your annual income exceeded $109,000 (for single filers) or $218,000 (for joint filers) in 2024, you're on the hook for an IRMAA surcharge on your Medicare premiums in 2026. (There is a two-year look-back period for determining whether you must pay the surcharge.)

Required minimum distributions (RMDs): Once you reach age 73 (or age 75 if you were born after 1959), you're required to take annual withdrawals from your traditional IRA. These RMDs can easily push you into a higher income tax bracket.

Keep in mind that tax planning and retirement spending can get complicated quickly, depending on your assets, account types, income streams and how you want to spend your money.

That's why it might be in your best interest to work with a tax professional or a financial adviser — or at least, a trusted friend, family member or an online financial planning tool.

"I don't recommend anyone DIY this unless they know taxes," said Julie Williams, wealth adviser at Wealthspire. "Taxes layer on themselves."

Breaking down the 'Take That, Uncle Sam' rule

Now that you understand some of the tax levers at work, here's the "Take That, Uncle Sam" rule in action, whether you want to spend money in the go-go or slow-go years.

Spending during the go-go years

If you plan to spend a lot in the early years of retirement and your withdrawals will push you into a higher income bracket that creates a big tax event, the "Take That, Uncle Sam" approach could be for you.

Parrish says in that case, you withdraw from your Roth IRA first to avoid paying taxes. After that, you tap your brokerage account and IRA. Once your spending slows down, you stop withdrawing from your Roth.

The reason to tap your Roth IRA? Withdrawals are tax-free. The downside: You're giving up future tax-free growth. It means heirs won't receive as big a tax-free inheritance. Nonetheless, Parrish said it could be worth it if you faced a big tax bill.

Keep in mind that this approach won't reduce your RMD exposure, since you aren't touching your traditional IRA. Your RMDs could be larger if your balance continues to grow.

To get around that, try a hybrid approach in which you wi,thdraw just enough from your traditional IRA to stay in your existing tax bracket and take the rest from your Roth. You can lower your RMDs, but you'll have to pay some income tax.

Spending during the slow-go years

If you expect to withdraw more money later in retirement and want to avoid a big tax hit, do the reverse: Withdraw from your traditional IRA up to the top of your tax bracket, and if you need more, take it from your brokerage account, said Parrish.

The reason to tap your traditional IRA first? Typically, you're in a lower tax bracket in retirement, so the tax hit is minimal. It also gives you a chance to reduce your RMDs. The downside: You must pay some taxes on withdrawals.

Do that year after year, then move to your Roth. When it comes time to make large withdrawals later, the money will be tax-free.

"The nice part is you burn up some of your IRA when it comes time to take your RMDs," said Parrish.

It isn't an exact science

At the end of the day, tax planning for retirees isn't about avoidance; it's about minimizing the amount you owe. It's about making those tax-smart moves, particularly when you begin withdrawing the money you worked so hard to save.

"It’s about what you can do today to keep more money in your pocket for your entire family, the next generation and your lifetime," said Williams.

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Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week she's looking at eight questions on IRAs, 401(k)s and required minimum distributions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. First RMD

Question: I turned 73 earlier this year, and I am retired. I know I must start taking required minimum distributions (RMD) from my traditional IRA. Can you explain the rules to me?

Joy Taylor: You are correct that people 73 and older must take annual RMDs from their traditional IRAs. (Note that starting in 2033, the beginning RMD age rises to 75.) To arrive at the RMD amount for 2025, you would start with your IRA balances as of December 31, 2024, and divide each one by the factor for your age, which you find in the tables in IRS Publication 590-B. The sum of the required withdrawal amounts can be taken from any IRA that you choose.

Generally, IRA owners must take their annual RMD by the end of the year. However, since 2025 is your first RMD year, you have until April 1, 2026, to take your 2025 RMD.

If you opt to defer your first RMD to 2026, be sure you understand the consequences. You will be taxed in 2026 on two RMDs – the deferred one for 2025 and the RMD for 2026. This will end up increasing your adjusted gross income and taxable income in 2026. Note also that if you choose to defer your 2025 RMD, the deferred 2025 RMD amount will still be based on your total IRA balance as of December 31, 2024.

2. RMDs and traditional 401(k) accounts

Question: I am 73 years old and am still working. I don’t have an IRA, but I have two 401(k)s, one from a previous employer and one from my current employer. Do I have to take RMDs from these accounts for 2025?

Joy Taylor: Similar to owners of traditional IRAs, participants in traditional 401(k) workplace retirement plans must generally take RMDs, beginning at age 73. For people with multiple 401(k)s, the RMD must be taken from each 401(k) account. However, there is an exception in your case, since you are still working. You can generally delay taking an RMD from your current employer’s 401(k) until you retire, provided you don’t own more than 5% of the company that employs you. This exception doesn’t apply to 401(k) accounts with previous employers, so you will have to take your 2025 RMD from your 401(k) account with your previous employer.

Since 2025 is your first RMD year, you have until April 1, 2026, to take the RMD from your 401(k) account at your previous employer. If you opt to defer your first RMD to 2026, be sure you understand the tax consequences. You will be taxed in 2026 on two RMDs – the deferred one for 2025 and the RMD for 2026. This will end up increasing your adjusted gross income and taxable income in 2026.

3. Roth IRAs and 401(k)s

Question: Must RMDs be taken from Roth IRAs?

Joy Taylor: No, Roth IRA owners do not need to take RMDs. The same applies for owners of Roth 401(k) accounts. This is one of the benefits of investing in Roths.

4. RMDs for 2026

Question: I understand that I would use the balances in my traditional IRAs as of December 31, 2025, to figure my RMD amount for 2026. A significant portion of my IRA investments is in equities. What happens if the stock market tanks in 2026? Will the IRS eliminate RMDs for 2026 if this happens?

Joy Taylor: I can’t answer this question at this time. First, it is Congress, not the IRS, which must act to waive the RMD for any particular year. For example, Congress waived RMDs for 2020 soon after the COVID-19 pandemic started. Congress also waived RMDs for 2009 because of the economic recession. If the stock market falls precipitously next year and remains low for a while, then maybe there could be RMD relief, but this is just speculation.

5. RMDs and inherited traditional IRAs

Question: I just inherited a traditional IRA from my aunt, who died earlier this year at age 78. I know that I must clean out the IRA within 10 years, but do I also have to take an annual RMD from the IRA?

Joy Taylor: The answer is likely yes. For most nonspousal IRAs inherited after 2019, the IRA funds must be distributed to the beneficiary within 10 years of the owner’s death. Since your aunt died this year, you must clean out the IRA no later than December 31, 2035. There are exceptions for beneficiaries who are surviving spouses or minor children (until age 21) of the account owner, chronically ill or disabled, or not more than 10 years younger than the deceased IRA owner.

If the original IRA owner dies before his or her RMD date begins, and the beneficiary is subject to the 10-year clean-out rule, then the beneficiary needn’t take a minimum distribution each year. The beneficiary can immediately cash out, opt to wait until year 10 to get the money, get yearly distributions, or skip years, provided the IRA is fully depleted by the end of the 10-year period.

However, in your case, your aunt died after her RMD start date. Because of this, you must withdraw, at a minimum, annual RMDs from your inherited IRA during the 10-year period, generally beginning in 2026 (the year after your aunt’s death), and then fully deplete the IRA by year 10 at the latest. You would calculate your annual RMD based on your life expectancy and not that of your aunt.

6. RMDs and inherited Roth IRAs

Question: How does the 10-year clean-out rule apply to inherited Roth IRAs? Must RMDs be taken from inherited Roth IRAs?

Joy Taylor: Similar to the rules for traditional IRAs, many nonspousal beneficiaries of Roth IRAs inherited after 2019 must clean out the account by the end of the 10th year after the owner’s death. But the money is generally tax-free to them. Also, because Roth IRA owners are not required to take annual RMDs, beneficiaries of inherited Roths needn’t worry about whether the original Roth account owner died before or after the starting date for taking RMDs. These beneficiaries don't need to take annual RMDs. They can opt to clean out the account in year 1, wait until year 10 to take out all the Roth IRA funds, skip years or get annual distributions, provided they fully deplete the Roth IRA within the 10-year period.

7. RMDs and QCDs

Question: I have a traditional IRA, and I am currently taking annual RMDs. I am charitably inclined, and my financial advisor told me that if I make a qualified charitable distribution (QCD) from my IRA, then it will count against my taxable RMD. Is this true?

Joy Taylor: People age 70½ and older can transfer up to $108,000 in 2025 ($111,000 in 2026) from a traditional IRA directly to charity. A QCD can count as all or part of your RMD, provided you do it before taking your RMD for the year. QCDs are not taxable, and they are not added to your adjusted gross income or your modified adjusted gross income. Note that QCDs cannot be done from a 401(k) or other workplace retirement plan.

8. RMDs and Roth IRA conversions

Question: I am 74 years old, and I want to convert a portion of my traditional IRA to a Roth IRA next year. Must I take my full 2026 RMD from my traditional IRA before doing the conversion, even if I do the Roth conversion in early 2026?

Joy Taylor: Yes. Traditional IRA owners who are 73 and older must take annual RMDs. People of RMD age who are considering a Roth conversion must first take their full annual RMD for the year before doing the conversion. So if you plan to do a Roth conversion in 2026, you must first withdraw your full 2026 RMD from your traditional IRA before you do the conversion.

If you have multiple traditional IRAs, the rule that you must take your annual RMD before doing a Roth conversion for the year can be tricky. That’s because if a person has multiple traditional IRAs, the total aggregate RMD for the year must be withdrawn during the year before doing a Roth conversion from any of the traditional IRAs. For example, say you own three traditional IRAs, and your 2026 aggregate RMD from those three IRAs will be $73,612. If you want to do a Roth conversion from any of your traditional IRAs in 2026, you must first take your 2026 aggregate RMD of $73,612 from any of your traditional IRAs that you choose and then do the Roth conversion for the year.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Home Sale Tax Break
• Ask the Editor: QCDs and Tax Planning
• Ask the Editor: Questions on Inherited IRAs

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. In the Ask the Editor August 8 column, she answered five questions on Roth IRA conversions. This week, she’s looking at six more questions on the topic. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Annual limits on Roth IRA contributions

Question: I am thinking of doing a Roth IRA conversion for 2025, but my income is above the limit for making annual Roth IRA contributions. Can I still do a conversion?

Joy Taylor: Yes. Although there are income limitations for making regular, annual contributions to Roth IRAs, those income limitations do not apply to Roth conversions. Even if you cannot make an annual $7,000 ($8,000 for people 50 and older) Roth IRA contribution for 2025 because your income is too high, you can still transfer money from your traditional IRA to your Roth IRA in a Roth conversion. There is no limit on the amount of funds you can convert.

2. Taking the annual RMD and married couples

Question: I am 74 years old. I understand that if I want to transfer some funds from my traditional IRA to my Roth IRA in a Roth conversion, I must first take my total aggregate annual required minimum distribution (RMD) from my traditional IRA before I do the Roth conversion. My husband and I file joint tax returns, and he also has a traditional IRA. Does he have to take his full annual RMD before I can do a Roth conversion for the year?

Joy Taylor: Traditional IRA owners who are 73 and older must take annual RMDs. People of RMD age who are considering a Roth IRA conversion must first take their full annual RMD for the year before doing the conversion.

Since IRAs are individual accounts, only you must take your full required RMD for the year before converting any part of your traditional IRA into a Roth IRA. It’s OK if your husband waits until later in the year to take his annual RMD from his traditional IRA. That won’t have any impact on your Roth conversion for the year.

3. Rollover IRAs and Roth Conversions

Question: I am 63 and retired, and I want to do Roth conversions over the coming years. I have an existing Roth IRA. I also have a rollover IRA to which I had previously rolled over all the funds in my 401(k) account shortly after I retired. Can I do Roth conversions from my rollover IRA to my Roth IRA, or do I have to convert my rollover IRA to a traditional IRA first and then do the conversions?

Joy Taylor: You can do a Roth conversion from a rollover IRA to a Roth IRA. The income tax consequences should be the same as doing a Roth conversion from a traditional IRA.

4. SIMPLE IRA and SEP IRA

Question: Can a Roth IRA conversion be done from a SIMPLE IRA or SEP IRA?

Joy Taylor: Yes, you can transfer funds from a SIMPLE IRA or a SEP IRA to a Roth IRA, and the tax consequences should be the same as if you did the Roth IRA conversion from a traditional IRA.

5. Converting entire traditional IRA vs. a portion

Question: Can I transfer only a portion of my traditional IRA to a Roth IRA in a Roth conversion, or must I transfer all my traditional IRA funds in one swoop?

Joy Taylor: In a Roth conversion, you can convert all or a portion of your traditional IRA to the Roth. And in fact, many personal finance professionals advise to space out the Roth conversions by converting a portion of their traditional IRA each year. That way, you minimize the income tax impact on each conversion, thereby allowing you to manage your adjusted gross income (AGI) or modified AGI in the conversion years. This helps if you are of Medicare age and are trying to avoid Parts B and D Medicare premium surcharges on top of your regular monthly premiums. It also helps if you are trying to qualify for tax deductions or credits that have AGI phaseouts.

There are many factors to consider before doing a Roth conversion. I would suggest you talk with your IRA custodian or other personal finance professional before making any moves.

6. Five-year rules for Roth IRAs

Question: I know there is a five-year rule for withdrawing money tax-free from a Roth IRA. Can you explain the rule? When does the five-year rule start?

Answer: There are actually two five-year rules that apply to Roth IRAs. The first applies to Roth IRA contributions, including rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the owner first contributed to a Roth IRA.

For this first five-year rule, the five-year clock starts the first time that money is deposited into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t start for later Roth contributions, conversions or for newly opened Roth IRA accounts.

The second five-year rule applies specifically to Roth IRA conversions, and whether the 10% early distribution penalty hits pre-age-59½ payouts. This rule is an anti-abuse rule to prevent people who are younger than 59½ from circumventing the early IRA withdrawal penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth IRA. That’s because the 10% early withdrawal penalty doesn’t hit Roth IRA conversions.

This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pre-tax income from traditional IRAs to Roths. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period.

Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above. For instance, if you do multiple Roth IRA conversions, there will be multiple five-year time periods, even if each conversion is done into the same Roth IRA account that you have owned for years.

For more information on the two Roth IRA five-year rules, see what to know about the five-year rules for Roth IRAs.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: QCDs and Tax Planning
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on the $6,000 Senior Deduction

Question: I'm 57 with a great remote job, but after five years of working from home, my company wants me in the office full-time. I don't have the energy for a daily commute. Help!

Answer: In early 2020, many companies implemented remote work policies in response to the pandemic. And a good number of employees have been enjoying a fully remote schedule ever since.

But companies are increasingly asking workers to return to the office. And many are mandating it. CBRE reports that 77% of companies today across the U.S., Canada and Latin America expect employees to report to the office three days a week or more.

If you're 57 and have been working remotely for the past five years, you may feel that you don’t have the energy to start commuting daily. But if your employer wants you back in the office full-time, you may also feel like you don’t have a choice.

It’s hard to start over at a new employer at age 57, since you may be approaching the tail end of your career with plans to coast until retirement. Plus, it may not be so easy to get hired at 57.

Almost two-thirds of workers ages 50 and over have seen or experienced age discrimination in the workplace, according to AARP. It is especially a problem for older women. And while it’s illegal to pass over a qualified job candidate on the basis of age, it’s also a hard thing to prove.

Also, there’s no saying that if you were to apply for a new job, you’d be able to find one that’s fully remote. So all told, you’re looking at a tough situation. But that doesn’t mean there aren’t solutions.

It pays to have an open mind

After five years of remote work, the idea of a daily commute may be jarring. But Suzanne Hawes, a seasoned human resources consultant, says it’s important to have an open mind. If you like your job and the commute is the one sticking point, there may be ways to make it work.

The most important thing, she says, is to give commuting a chance.

“Often, it takes a few weeks to get used to the old routine again,” says Hawes. “If you were able to balance work and life before, it may be possible to find that balance going forward. If the only negative thing about the job is having to be in the office full-time, you might try it for a few months before deciding to leave.”

Diana Bernal, CEO and Career Strategist at Diana Inc, says you may be able to make the most of a commute.

"Use it as a chance to listen to audio books or podcasts," she suggests. And if you don't have to drive, you could read or watch TV and use the commute as an opportunity to enjoy some downtime.

Bernal also points out that if you can afford to do so, there may be ways to make your commute more comfortable.

"When I got a new job downtown that increased my commute, I leased a comfy Lexus, a nice step up from my Honda Accord," she explains.

Or, you may realize that there are benefits to being in the office, such as family, friends, or activities nearby. All told, it may not be so bad once you get used to it.

There may be some wiggle room

If you’re being asked to return to full-time office life, one thing to consider, says Hawes, is that your employer may be more flexible than you’d think.

“One possibility,” she says, “is to comply with the order and come back full-time for a few months. Then, see if your leadership is open to one or two work-from-home days. People who show they are willing to comply with the return-to-office order may find that buys them some flexibility.”

Hawes also says that the more leverage you have at your job, the more your employer may be willing to negotiate.

“If you’re a high performer or in a role that’s hard to replace, your leaders may be more willing to offer you a hybrid arrangement,” she explains.

Consider a new job or go freelance — if it fits your financial plans

If your employer insists on five days a week in the office and it doesn’t work for you, you could always look for a different job. But Hawes warns that it may be tough going.

“Not only is remote work harder to come by now,” she explains, “but in some locations, all jobs are harder to come by. If you’re going to leave your job because of a return-to-office order, either find your next job before you leave this one, or make sure you have enough savings to support a potentially long job search.”

Hawes says that while taking a lower-paying job with more flexibility may be possible, you should work with a financial adviser to understand how prepared you are for retirement now.

“If your planner says you’re in good shape, a lower-paying job may make sense,” she says. “But be clear about what you’re giving up in return for fully remote work. Are you used to a high level of independence and decision-making? Are you prepared for a role with less authority or visibility than you have today?”

Hawes says you can also consider a shift into freelance work if you can’t find a suitable job that will let you work from home. But there are risks involved.

Freelance income can be inconsistent, and it may take time to build up a steady stream of it.

Before going the freelance route, Hawes says, “Talk to people who are doing it and find out what it takes to get work. Ask how they price their services and, if they are willing to share, what they earn in a typical month.”

You’ll also need to consider the benefits you may be giving up by going freelance, such as employer-subsidized healthcare and access to a workplace retirement plan, like a 401(k).

“Many employers contribute to employee plans, often by matching contributions,” Hawes says. “That’s free money you would be giving up.”

The good news is that, as an independent contractor, you can save for retirement through vehicles such as SEP IRAs, Solo 401(k)s, or SIMPLE IRAs. And in some cases, you can contribute more than you could to a 401(k).

But as Hawes warns, “All of those contributions will be coming from you.”

Don’t rush into a decision

You may be tempted to quit your job if you’re forced to resume a five-day commute you’re dreading. But before you do that, Hawes says, it’s important to have a game plan.

“My recommendation would be to go back and approach it as an experiment,” she says. “Give it at least three months and pay attention to how you feel and how the rest of your life is functioning.”

If, after three months, you’re truly unhappy, you can explore other options. But as Hawes says, “If you still want to quit after that, take the time either to find another job that better fits your needs or to save enough money to give yourself a cushion while you build a freelance or consulting practice.”

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Recently I was stopped in my tracks by a newspaper column headlined “I Was Terrible at Money. My Daughter Should Learn From My Mistakes.”

The young woman columnist went on to say her own mother had taught her that it was “vulgar to talk or even really think about money.” As a result, she laments, “I am somehow terrified of anything to do with finances.” And she “sometimes worries about passing along these extraordinarily unhelpful attitudes to my own children.”

As someone who has been writing about women and money for more than two decades, I find that both disheartening and frustrating. So is the flurry of press releases I’ve received telling me that women are poised to be major heirs of a massive generational transfer of wealth and wondering whether they will be up to handling it.

Yes, they will.

My first book, published in 2003, was called Think Single! The title had nothing to do with a woman’s state of marriage and everything to do with a state of mind in which you’re confident of your ability to manage money regardless of marital status or stage of life — what one of my good friends referred to as being captain of your own ship.

Far from treating women as financial neophytes, my goal has always been to give women specific financial advice tailored to their needs and the unique challenges they will face in their lives.

Some examples: spending strategies for single women; spousal IRAs for married women who stay at home to raise children; catch-up retirement contributions for older women who may be reentering the workforce after a long absence or a divorce; and retirement and long-term-care planning for all women.

Over the years, it has been rewarding to hear from money-smart women like Chris Williams, who writes, “I have always managed the money in my marriage, and based on my management, our retirement will be a comfortable one.”

And I have learned a lot from research on how women think about money and make financial decisions. So I offer the following advice for women who still suffer from the same financial anxiety as that newspaper columnist.

Talk, talk, talk about money. Talk to your parents, your spouse, your children (especially your daughters), the women in your book club. Men tend to have more conversations about money than women, which puts them at an advantage. Research shows that talking to young girls about money can lead to better financial outcomes later in life.

Read this magazine and tap other sources of information. Women consistently score lower than men in tests of financial literacy, but much of that gap is a result of a lack of self-confidence. Their instincts are sound, and they’re perfect candidates for adult education classes or workplace seminars.

Tackle one task at a time to avoid being overwhelmed. For example, you could focus on paying off credit card debt and then move on to opening college savings accounts for your kids.

Don’t delay investing. In one survey, 85% of women investors said they wish they had started earlier. And women are ideal investors because they take time to make decisions, they stick with them, and they trade stocks less often, all of which result in lower costs and higher returns. Your workplace retirement account is a convenient place to start investing.

Bottom line: When you start your adult life, take control of your finances and never give up your independence. Even if you share financial tasks when you marry, know where the money is. Think single!

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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The backdoor Roth IRA is typically touted as a workaround for the wealthy to boost the amount of retirement income they can withdraw tax-free. But there’s upside for heirs who inherit the retirement account, too.

What’s often overlooked is that this retirement savings strategy provides the same tax-friendly perks to heirs — making a backdoor Roth IRA a strategic estate-planning tool for high earners looking to secure their wealth legacy. That’s especially true for wealthy folks who don’t open an IRA for their own retirement, but rather with their heirs in mind.

"It’s a great estate planning technique because your beneficiaries can also take tax-free withdrawals whenever they take money out of the account after you pass," said James Ciamacco, senior financial advisor at Wescott Financial Advisory Group.

What is a backdoor Roth IRA?

A backdoor Roth IRA is a term to describe the strategy of converting nondeductible contributions in a traditional IRA to a Roth IRA.

A Roth IRA, of course, offers a key perk that traditional IRAs do not: tax-free withdrawals.

The catch? There are income limits that preclude folks who earn too much from contributing directly to a Roth IRA via "the front door." In 2026, for example, you’re not eligible to contribute to a Roth IRA if you are a single filer with modified adjusted gross income (MAGI) of more than $168,000 or are a married couple filing jointly with a MAGI over $252,000.

Enter the backdoor Roth IRA.

This loophole gives wealthy savers access to a Roth IRA and dodges the IRS’s income restrictions. It also enables them to pass on assets in the Roth IRA — and the tax-free growth and tax-free withdrawals these retirement accounts offer — to named beneficiaries. Since Roth IRAs are not subject to required minimum distributions (RMDs), the original account holder can keep the money growing tax-free longer, boosting the eventual nest egg an heir will inherit.

How a backdoor Roth IRA works

There are a few more steps to open a backdoor IRA than a standard one.

First, open a traditional IRA and fund it with after-tax, non-deductible contributions (not pre-tax). A non-deductible IRA has no income limitations.

Next, convert the traditional IRA to a Roth IRA soon after. Since you didn’t get a deduction on the contributions to the traditional IRA, you’ll have zero taxes on the conversion amount, although you are subject to tax on gains. (To prove your initial IRA deposits were made with after-tax dollars, you’ll need to fill out Tax Form 8606.)

Be aware, however, that you may have to pay taxes on a portion of a backdoor Roth conversion if you also have IRAs with contributions made with pre-tax dollars, as the IRS treats all pre-tax and non-deductible traditional IRAs as one pool of assets. The so-called "pro-rata" rule adds complexity to the calculation, so it’s best to get clarity from a tax professional or financial adviser.

Contributions through the so-called backdoor are subject to the same limits as other IRAs. In 2026, the max is $7,500 for savers younger than 50 and $8,600 for those 50 and older.

How a backdoor Roth IRA benefits heirs

Tax-free growth. If you inherit a Roth IRA, the money grows tax-free, allowing the account balance to potentially grow over time due to the appreciation of the assets held in the Roth IRA.

Tax-free withdrawals. The wealthy retirement saver who does a backdoor Roth IRA is passing on the benefits of their Roth IRA directly to named beneficiaries.

"Are you setting up a retirement account with your loved ones in mind? You might rejoice to find out that your heirs get to inherit your Roth IRA tax-free," Craig Parker, assistant general counsel at Trust & Will, noted in a blog post.

Let’s say the heir is a daughter in her thirties, in her prime earning years. Unlike a traditional IRA withdrawal, which is taxed as regular income and could, as a result, boost income enough to push the daughter into a higher tax bracket, the Roth withdrawal will be tax-free.

Ciamacco says he has had clients in their prime earning years who inherit a large traditional IRA balance and end up bumping into higher tax brackets, paying as much as 32%, 35%, or 37% in taxes. “Distributions with accounts funded with tax-deductible contributions can really spike your tax bill,” said Ciamacco. Doing a backdoor Roth IRA eliminates those types of dreaded tax bills, he says.

Tax-free withdrawals are especially powerful given the so-called 10-year rule enacted by the SECURE Act. This rule requires most non-spouse beneficiaries of inherited retirement accounts to withdraw the entire balance within 10 years of the original owner’s death. So, the tax-free nature of the Roth IRA withdrawal becomes far more valuable to the heir when taking distributions.

Spouses who inherit a Roth IRA can roll it over into a Roth IRA in their own name.

Diversifies tax treatment of retirement portfolio. The more withdrawal options an heir has when it comes to retirement accounts and other investment accounts, the better.

"A Roth IRA can also help you access new options to diversify your taxes," said Trust & Will’s Parker.

Withdrawals from a traditional IRA or 401(k), for example, are taxed at your regular income rate. Distributions from taxable brokerage accounts are taxed at the lower long-term capital gains rate of 0%, 15% or 20%. In contrast, the Roth IRA allows you to access your money without paying any taxes.

"When it comes to backdoor Roth IRAs, the estate planning piece is one of the main benefits," said Christian DiRusso, senior financial advisor at Altfest Personal Wealth Management.

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As your retirement savings in a traditional 401(k) grow over decades of working, you may feel an increasing sense of financial security. And that is good.

You're doing what you've been told to do: Save as much as possible, ideally in your 401(k) so you can defer tax.

After all, shouldn't you save on taxes today while you're making a bunch of money, and pay it later in retirement while you're in a lower tax bracket? That's what you're told.

And don't forget, you often also get free money in the form of your employer's matching contribution.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Between consistent contributions and wise investing, the compounding growth of a 401(k) can produce a large nest egg for your retirement. It feels great to see that balance.

However, when it's time to start withdrawing money from your 401(k), the tax bills start and your sense of comfort dissipates.

Here's what you need to understand: When you're ready to retire, a 401(k) becomes the highest-taxed asset(s) you own, and the IRS can't wait to get its share. The same goes for other pre-tax accounts, such as a 403(b) or traditional IRA.

What many people don't realize is that when they take money out of their 401(k), they could be taxed multiple times for each distribution. Here are the main reasons why you shouldn't leave your nest egg there, or at least not the majority of it.

Income tax and RMDs

The money you withdraw from a traditional defined contribution plan, such as a 401(k), is taxed as ordinary income at the rate of your tax bracket in the year you take the distribution.

A traditional 401(k) is subject to required minimum distributions (RMDs), which begin at age 73 for most people. If you save a lot of money in your 401(k), your annual RMDs could significantly increase your income, push you into a higher tax bracket and punish you in taxes.

By the time you reach your 80s, RMDs can become so large that they are a real problem, causing a shocking amount of taxation and leading to higher premiums on your Medicare.

Don't assume, as many people do, that you'll be in a lower tax bracket in retirement than the one you were in during your top earnings years. That's a big lie people are told.

If you do a good job saving for your retirement, aren't you going to be able to retire at roughly the same standard of living you enjoyed when you were working?

A similar standard of living equals a similar income, which leads to similar tax rates. Also consider that tax rates are likely to increase by the time you retire.

Social Security

Your 401(k) distributions could also make more of your Social Security benefits taxable. A withdrawal from a pre-tax account raises your combined income, an equation the IRS uses to determine how much of your Social Security may be subject to tax.

Up to 85% of your Social Security benefits may be taxable if you're single and earn more than $34,000 or are married and earn more than $44,000.

Higher Medicare premiums

When 401(k) distributions are added to your taxable income, it increases your modified adjusted gross income (MAGI). If your MAGI exceeds certain income thresholds, you must pay an income-related monthly adjustment amount (IRMAA), which is an additional surcharge on your Medicare Part B and D premiums.

Impact on the surviving spouse

If you're married and taking distributions from your 401(k), the good news is you're getting hit with all these taxes while you're in the most favorable tax bracket of married filing jointly.

But what happens when one of you dies? Then the surviving spouse goes into the higher tax obligation, filing single. The net effect is that the surviving spouse often sees their taxes doubled or more. We like to call this the "spousal tax trap."

The Roth solution

Part of financial fulfillment in retirement often comes down to this decision: Do you want to pay tax on the seed or on the harvest? With a traditional 401(k), you're saving tax on the seed, but you're paying tax on the harvest. That is the exact opposite of what you should be doing.

The 401(k) is a great tax shelter when you are working, but it's the worst place to have your money in retirement.

What can you do about it? The most obvious answer is to speak with a tax planner well in advance of your projected retirement. They can help you put together some type of Roth conversion glide path while using your current tax bracket.

With a Roth conversion, you transfer retirement assets from a 401(k) or other pre-tax accounts into a Roth IRA. You must pay income tax on the money you convert in the year you convert, according to your tax bracket at the time, but the advantages when you retire are well worth it.

Withdrawals are tax-free as long as you are at least 59½ and have had the account for a minimum of five years. And unlike other types of retirement accounts, Roth IRAs are not subject to RMDs.

Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.

Also, if you don't need part or all the money, you can let your Roth IRA keep growing and leave it to your heirs or your spouse. Roth IRAs aren't just tax-free for you; they are also tax-free to your beneficiaries.

There are no IRS limits on the amount of money you can convert from a traditional IRA or other pre-tax retirement account into a Roth IRA, but spreading the conversion over several years can help reduce your tax burden in those conversion years.

Roth misconceptions

Of course, it's far better to start contributing to a Roth IRA, or Roth 401(k), earlier in your work life. But what sometimes happens, if you're a high earner in your 40s and doing a good job saving, is that everyone tells you to make pre-tax contributions to your 401(k).

So here you are, maxing out your 401(k) contributions, putting $25,000 a year into your 401(k) and getting that tax deduction for that amount. It feels like the "smart" move, because that's what everyone tells you to do.

But socking money away in your 401(k) may not actually be the most efficient tax move. You may even want to consider doing the opposite by changing those contributions to Roth. You won't get the tax deduction up front, but you will certainly appreciate tax-free money as you approach retirement.

When it comes to Roth conversions, people often have two misconceptions that make them hesitant to do them.

One is that they mistakenly think they have to pay the tax on the conversion in one lump sum by writing a check to the IRS or withdrawing from their savings or investment account.

However, provided that you are over the age of 59½, you can simply do it by having the tax withheld by whatever financial firm holds your retirement account.

The second misconception: If you do a Roth conversion, you must wait five years before you touch that money. The truth is that you have to wait five years to touch the earnings on that money.

When you're over 59½, just withhold the tax and you can take distributions on the principal from day one.

Take action to avoid 401(k) tax bombs

Beware of building your traditional 401(k) during your working years while ignoring the tax repercussions you'll face in retirement.

Take action now by changing your 401(k) contributions to Roth and strongly consider converting any IRAs you have to a Roth.

Don't wait until you're near retirement. Give yourself a true sense of future financial security and remember: It's far better to pay tax on the seed rather than the harvest.

Dan Dunkin contributed to this article.

Centennial Advisors, LLC is an Investment Adviser registered with the U.S. Securities and Exchange Commission ("SEC"). Registration as an investment adviser does not imply a certain level of skill or training.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you're looking to increase or preserve your retirement savings, this year has been a roller-coaster ride — and that's true whether you're still collecting a paycheck or you've already made your exit from the workforce.

Conflicting signals about the economy and the financial markets abound. Inflation is finally under control — no, wait, it may be ticking up again, the latest data suggests. Tariffs are on, then off, higher, then lower, on a continuous loop.

Stocks nosedived in April, then shot up to record highs. As for a possible recession? Economists keep changing their minds, with the latest forecasts putting the chances of a downturn in the next 12 months at 30% to 40%, down from as high as 60% earlier this year.

Faced with these headwinds, many Americans are increasingly stressed about the potential impact on their financial security.

More than half of people ages 45 to 75 now say they're concerned about outliving their money in retirement — a jump of six percentage points from a year ago, according to a recent survey from the Alliance for Lifetime Income by LIMRA.

Nearly half of the pre-retirees and retirees polled are revisiting their retirement plans as a result, with moves that include postponing their retirement, cutting expenses and revamping their investment strategies.

While "stay the course" is standard advice in periods of economic and market turmoil, financial advisers say that reviewing your retirement plan and portfolio now, and tweaking as needed, is critical to ensure you're prepared for whatever comes.

"If you build in protections as part of the planning process, you're not dependent on the markets and the economy doing well to have a successful retirement," says Wade Pfau, a professor at the American College of Financial Services and author of Retirement Planning Guidebook. "Small adjustments can have a really big impact."

That advice feels particularly relevant in periods of heightened uncertainty such as now, when it's tough to know exactly which danger poses the greatest threat. Being proactive can not only help ensure that your savings last your lifetime but can also alleviate the anxiety that bubbles up for many people in the current environment.

"You can't control what the president will do about tariffs, how the Federal Reserve will act on interest rates or what happens in the Middle East," says Michelle Perry Higgins, a principal with California Financial Advisors in San Ramon, California, and a certified financial therapist. "But you can control the level of risk in your portfolio, how much you're spending and how you plan for life's what-ifs, which not only is good for you financially but helps lower your stress level as well."

Eager to protect your savings from the dangers that seem to be lurking everywhere lately? Financial advisers say that these are your best moves now.

1. Build a strong cash buffer

Your first line of defense in a shaky economic environment is to put together a runway of safe assets that you can tap to fund your living expenses if trouble hits.

That way, if a recession materializes that causes unemployment to jump or there's a prolonged downturn in the stock market, you won't need to pull money from your retirement portfolio at the worst time to pay your bills.

The biggest threat, if you're still working and are several years away from retirement: a lengthy bout of joblessness. That could push you into an early exit from the workforce, cutting years off contributions to a 401(k), or nudge you into taking a hardship withdrawal from your account.

Some 4.8% of 401(k) participants took such a withdrawal last year, up from just 1.7% in 2020, Vanguard reports — and that was when the economy was still robust.

A traditional emergency fund with enough cash to cover at least three months' worth of living expenses — stashed in a safe, liquid vehicle such as a money market account — is a solid starting point. But if the labor market weakens, six to 12 months is better, particularly if you're older.

Recently, according to the Bureau of Labor Statistics, workers ages 55 to 64 have required an average of 26 weeks to find a new job after a layoff, and people 65 and older have needed 32 weeks, compared with 19 weeks for employees ages 25 to 34. And those averages would likely rise in a recession.

But if you're planning to retire in five to 10 years, or you've been retired for a decade or less, the greater danger is a lengthy slump in stock prices.

"If a big bear market clocks your portfolio right at the outset and you don't have safer assets to spend from, you risk not having enough money left to recover when stocks eventually bounce back to sustain you for the rest of your retirement," says Christine Benz, director of personal finance and retirement planning at Morningstar and author of How to Retire.

A Morningstar study last year found that in simulated random trials, about 70% of the portfolios that ran out of money during a 30-year retirement involved retirees who had suffered losses in the first five years of tapping the accounts. The other 30% had gains in those early years but spent too much or experienced big enough losses later on that they ran out of money anyway.

What to do? Benz recommends shifting enough of your portfolio funds to cash to cover your spending needs for two years when combined with your income from other sources, such as a pension, Social Security or wages from part-time work. Keep another five to eight years of spending needs in fixed-income investments.

It's also a good idea to identify other assets outside of your portfolio that you could tap to help cover your bills in a down market, such as a cash-value life insurance policy or a reverse mortgage, Pfau advises.

"These buffer assets can be expensive," he says. "But even with the high fees, their value in helping to extend the life of your retirement investments gives you a better financial planning outcome in the end."

2. Fix your mix — a little

Small tweaks to ensure that you are appropriately diversified and have the right level of risk in your investments for your age and circumstances can go a long way toward extending the longevity of your retirement savings and giving you peace of mind.

"Big, heroic gestures are never the right move," says Benz. "If you build a portfolio plan you know is durable, then make small, periodic adjustments as needed, you don't have to respond to every economic headline, market move or inflationary shock that comes along."

If, for instance, you haven't rebalanced in a while, now is the time to do so, because the big run-up in stocks — not only this year but over the past decade — has probably altered your mix substantially.

Benz calculates that left untouched, a portfolio that was 60% in U.S. stocks and 40% in U.S. bonds 10 years ago would have shifted to 81% in stocks by the end of June.

This exercise is especially important if you're in the critical five- to 10-year period just before or after you stop working because of the damage a market swoon in those years can inflict.

"The biggest mistake I see people make is that they have too much risk in their portfolios when they start needing their money," says certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida. "Don't shoot the lights out trying to make more money in the market at the risk of losing a lot more."

McClanahan often recommends a portfolio split evenly between stocks and bonds for clients at this stage. That allocation historically has generated average gains of 8.2% a year, which is 1.5 percentage points less than the 9.7% annual returns from a more aggressive portfolio of 80% stocks and 20% bonds.

However, the more moderate blend has lost less, too. Its biggest one-year drop: 22.5%, compared with 34.9% for the more aggressive account.

You don't want to swing too far to bonds, though, because of another big risk: inflation. That's especially pertinent now, with many economists concerned that the widespread tariffs imposed by the Trump administration could cause inflation to reignite, although the impact on consumer prices has been muted so far.

"People often think the thing that could really wreck their retirement would be to lose a lot of money in the stock market," says retirement expert Anne Lester, former head of retirement solutions at J.P. Morgan Asset Management and author of Your Best Financial Life. "But inflation eroding how much your money can buy can be worse."

At a recent 2.7% rate, for instance, inflation will cut your purchasing power by half over the course of a typical 25- to 30-year retirement. If, as an analysis by the Federal Reserve Bank of Boston found, tariffs add an estimated one to two percentage points to that rate, it would take just 15 to 18 years to inflict the same damage.

Stocks, the only asset class that historically has beaten inflation by a comfortable margin, are still your best hedge against that outcome, says Peter Lazaroff, chief investment officer at Plancorp, a wealth management firm in St. Louis.

Research shows that all it takes is at least a 30% commitment to stocks in your portfolio to get that long-term protection, he says.

Benz also recommends layering in some inflation-protected securities in the fixed-income portion of your retirement savings.

You might, say, keep anywhere from one-fourth to one-third of your fixed-income holdings in Series I savings bonds and Treasury inflation-protected securities (TIPS), which adjust their rates twice a year to reflect changes in the Consumer Price Index.

This year has also driven home the importance of diversifying more generally, with international assets outpacing U.S. securities by a substantial margin for the first time in many years, notes Lazaroff. He recommends keeping 20% to 30% of your stocks in international holdings and choosing bond funds that include international exposure as well.

"There's a mathematical reason why diversification reduces volatility and returns compound better at lower volatility," Lazaroff says. "But it's also just an exercise in humility, saying we don't know what's going to happen. If you spread your bets, no one thing can topple your entire investment plan."

3. Adapt your spending

In response to growing concerns about the economy, two-thirds of Americans ages 18 to 65 are cutting back on spending, according to a summer survey by Life360, an information technology company. Dining out, online shopping and travel lead the list of expenses on the chopping block.

Meanwhile, 41% of retirees in the Alliance for Lifetime Income survey said they are looking to spend less as well.

It's a smart move, financial advisers say. During your working years, every dollar you don't spend is one you can direct toward saving, either to build up your cash reserves or bulk up retirement accounts. And if you're already retired, every dollar you don't spend is one less you need to pull from savings when stock prices may be down.

McClanahan suggests identifying expenses that you could pare back in advance of another market meltdown or downturn in the economy, even if you're financially comfortable now.

"You don't have to make any changes yet," she says. “But this way, if the world goes crazy and your returns go south, you already have a plan in place."

Conversely, McClanahan also encourages her retired clients to spend more, within reason, when markets are surging.

"Need a new car? Want to take that bucket-list trip? When the market is doing great, it's a good time to take money off the table and do those things," says McClanahan, a former emergency room doctor. "You never know if or when illness or other events will upend your life. So, while you need to plan financially so that your money will last a long time, you also want to make sure you're enjoying your money along the way."

That kind of adaptability to economic and market conditions can greatly extend the life of your retirement portfolio, research shows. Says Benz: "Flexibility is a superpower for retirees."

Among the flexible withdrawal strategies that research has shown to be most effective in helping your money last longer, Pfau says, is installing upper and lower limits on your withdrawals (often called guardrails), depending on how the market is faring.

Rather than following the standard advice to withdraw 4% initially in retirement, then adjust that amount annually for inflation, he says, you might instead take out only, say, 3% from retirement savings in bad years for stocks, but as much as 5% when the market is on an upswing. Another simple option: Give up the inflation raise when stocks are down.

"These small adjustments can have a dramatic impact on the longevity of your assets," says Pfau. "The more flexibility you have to make these adjustments, the easier it is to weather any storm."

4. Don't let fear drive your decisions

Exacerbating the recent stress about the economy is growing anxiety about Social Security. Some 58% of respondents in the Alliance for Lifetime Income survey expressed concern that Social Security benefits will eventually be reduced. As a result, 34% of pre-retirees are considering claiming earlier than planned.

Evidence suggests that's already happening. Initial claims are up 13% so far this year, to nearly 3 million — more than triple the usual rate of increase.

A recent Urban Institute analysis also found that the Social Security Administration has received more early claims in 2025 from higher earners, especially at age 62, than in previous years, concluding that recent staff cuts and policy changes contributed to the numbers by causing fear and confusion among future recipients.

Adding to the concerns: The most recent report on Social Security's financial health indicates that the primary trust fund that pays retiree benefits will run out of money in 2033, failing government action to prevent a shortfall, at which point only 77% of benefits will be paid.

All the worry is understandable, but financial advisers urge that pre-retirees and retirees who have yet to take benefits not act on it.

"If Congress doesn't do something, you're going to get a 23% reduction in benefits, no matter what," says certified financial planner Lee Baker, founder and president of Apex Financial Services in Atlanta. "But if you've claimed early, you'll be facing a double reduction because of the hit you're already taking on Social Security benefits before your full retirement age."

That hit is a hefty one. For every month you collect before your full retirement age, your payments are permanently reduced by a small percentage, which can really add up over time. Depending on when you were born, claiming at age 62 instead of your full retirement age, for instance, will lower your benefits by 20% to 30%, the Social Security Administration reports.

If instead you delay beyond full retirement age, your benefits increase by 8% a year until you turn 70. All told, your monthly payments will be 76% higher if you claim at age 70 instead of age 62, according to Boston University economist Laurence Kotlikoff, founder of Maximize My Social Security, an online tool to help with claiming decisions.

Still, the decision to postpone benefits until 70 is not entirely a slam dunk. Your health, family circumstances and how you would pay your expenses until you begin collecting also affect your timing.

Morningstar research shows, for example, that if you can rely on income from work, a pension or other non-investment sources to cover your bills while you wait, delaying Social Security until age 70 will generally leave you in the strongest financial position over the course of your retirement.

But if you'd need to withdraw money from your portfolio to pay your expenses, the decision is less clear. The study showed that someone who retired and started collecting Social Security at 67 fared slightly better financially during a 30-year retirement than someone who waited until 70 but had to cash in investments until then to make ends meet.

5. Keep your hand in

There are plenty of good reasons to work longer. Besides helping you bridge the years until you collect Social Security without breaking into your nest egg, it gives you more years to save, shortens the number of years those savings have to last and reduces the chances you'll be forced to tap your portfolio during a market downturn. "Your human capital is your safest asset," McClanahan says.

Given all the benefits, it's not exactly a shocker that many people these days are embracing the work-longer approach. Both the average retirement age and the percentage of people 65 and older in the workforce have been steadily creeping up, the Center for Retirement Research at Boston College reports.

And many people plan to keep drawing a paycheck after they've quit their career job: A recent Northwestern Mutual study found that 48% of Gen Xers and 30% of baby boomers plan to work or are already working in retirement.

Of course, keeping a job isn't always in your control; health problems and layoffs often force older workers into retirement earlier than planned. Then, too, after an adult lifetime spent toiling 40 or more hours a week and answering to a boss, you may simply not want to work that much or that hard anymore.

Working longer, though, doesn't have to mean working as hard as you did at the peak of your career. Part-time or occasional freelance work can allow you to postpone withdrawals from savings, take less money out when you do, and provide an income bridge that allows you to delay Social Security.

You may be able to find opportunities at websites such as RetirementJobs.com, SideHusl.com and Upwork.com.

"Find something you're passionate about to supplement your income," says Baker. One of his clients, a pickleball fan, earns extra money by coordinating local championship matches. Another, who is more than comfortable financially, works part-time at Trader Joe's just because he thinks it's a cool place.

"Working some in retirement is not just helpful for the nuts and bolts of financial planning," says Baker. "Staying engaged and interacting with people is incredibly helpful for your physical and mental well-being, too."

6. Consider the what-ifs

What's the worst that could happen if a recession, prolonged bear market or spike in inflation comes to pass?

Although it may seem counterintuitive, thinking about how the economic scenarios that worry you could play out and how you would manage the personal fallout can be an anxiety-reducing exercise, advisers say.

"You want to consider emergency decisions when you're not in an actual emergency and can think strategically, not from a place of heightened emotion or panic," says Lester. "It's why we do fire drills."

Take the market outlook, for example. While stock prices bounced back quickly this year from their April slump, a downturn historically is more likely to last about 18 months, and stock prices were down or sideways for more than a decade in the 1970s and early 1980s.

"That's not a probability now, but it is a possibility, so maybe that belongs on your bingo card," says Lester, noting the point of the exercise is not to scare you but to prepare you.

In this case, she says, in addition to making sure your portfolio doesn't have too much risk and you're well diversified, you might want to think about adding an immediate annuity to your mix so that you have a source of steady income outside of your investment portfolio (you can find options at immediateannuities.com).

Higgins suggests that you also think about the trade-offs you might be willing to make if, as a result of renewed inflation or a bad bear market, you can't cover your spending at current levels.

"Ask yourself what you would be willing to change," she says. "Could you work two more years than you planned? Where could you cut expenses? Are you willing to downsize? You want to go into the storm with a plan."

Realizing you have a variety of options is crucial not just to be prepared financially but for your peace of mind as well. "There are a lot of tools you can use, not just one solution," says Pfau. "The key is to think ahead about how the different tools fit together so they can help you build a stronger foundation for your retirement."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Saving for retirement is essential, but it can feel overwhelming; even some higher earners might fall short.

The reality is that those with a workplace 401(k) have a significant advantage in saving. The 57 million employees without a workplace plan not only miss out on employer-matched contributions but also lack an easy account to invest in, in which contributions are made by default from paychecks.

Those who have had no workplace plans for most of their working life are typically hit the hardest and struggle the most with financial security in retirement. However, losing access to a 401(k), even for a short time late in life, can have a significant impact during prime saving years.

This is an issue many older workers face if they're forced out of a secure job too soon, often working part-time or in jobs that offer few benefits and earnings far below their peak. In both 2024 and 2025, 22% of workers felt they were pushed out of their jobs because of their ages, according to AARP.

Whether you're a young worker who doesn't have the kind of job that comes with a 401(k) or an older worker struggling to keep up with savings goals, there's some good news on the horizon. A growing number of states are offering a viable 401(k) alternative, which will come with some additional benefits starting in 2027.

This solution can help if you don't have a 401(k) at work

States are often left to pick up the slack when there's a retirement savings gap, as individuals with too little invested turn to social-assistance programs.

In an effort to increase retirement savings and reduce reliance on government benefits, 17 states now offer some type of automated individual retirement accounts (auto-IRAs), as of January 2026.

While there's some variation, auto-IRAs generally enroll employees automatically (PDF) in individual retirement accounts managed by state-approved financial services firms, and automated contributions are collected through payroll deductions.

This happens in much the same way many workplace plans auto-enroll new staff members in 401(k)s, and transfer funds automatically into the company's 401(k) plan before paychecks are issued.

Auto-IRAs do allow workers to opt out or change their contribution rates, and employers don't make additional matching contributions as they typically do with 401(k)s. The fact that auto-IRAs make enrollment the default significantly increases the chances of people contributing — and improving their retirement readiness.

Participating states are indicated in dark red below. If your state is a different color, you can read more about its efforts to start an auto-IRA or similar program in a summary developed by the Georgetown University Center for Retirement Initiatives.

South Dakota is the only state not involved in this type of program. If you live in California, you can take advantage of the new "CalSavvy" chat function to help you navigate the CalSavers program.

A federal program that sweetens the pot: Saver's Match

As most state programs lack matching contributions, there's less incentive for worker participation, and workers get less support in saving.

Changes start in 2027, as the federal Saver’s Match incentive takes effect under SECURE 2.0. In President Donald Trump's February 24, 2026, State of the Union address, he announced plans to expand access for workers without employer-sponsored plans, providing them a retirement option similar to the federal Thrift Savings Plan, with the government matching contributions up to $1,000 annually.

White House officials confirmed this aligns with and advances the existing Saver’s Match. Under the program, the federal government will match 50% of contributions to an eligible worker's IRA or workplace plan, up to a maximum of $1,000 for individuals or $2,000 for couples filing jointly on the first $2,000 saved.

The matching funds are available to individuals earning $35,000 or less, or couples with $71,000 or less, with phase-outs beginning at $20,500 for singles or $41,000 for joint filers. These thresholds are indexed for inflation in future years.

During his address, Trump had this to say about the program:

"Half of all working Americans still do not have access to a retirement plan with matching contributions from an employer. To remedy this gross disparity, I'm announcing that next year, my administration will give these oft-forgotten American workers, great people, the people who built our country, access to the same type of retirement plan offered to every federal worker. We will match your contribution with up to $1,000 each year."

Saver's Match could enhance the retirement savings of millions of low- and moderate-income households, Pew wrote in a report about the new accounts. This greater opportunity for workers to save for retirement would help them secure their futures and ease burdens on state budgets as lawmakers face the demands of an aging population.

The existence of the match could also prompt people to save more. While 84% of respondents to Pew's survey expressed initial interest in an auto-IRA program even without the matching funds, that number jumped to 94% after hearing about the Saver’s Match.

With explicit support from the Trump administration in the recent State of the Union, the Saver’s Match appears on track for implementation in 2027, rather than facing risks of defunding.

Should you contribute to an auto-IRA?

If your state offers an auto-IRA and you're eligible, contributing to it is a no-brainer.

Even with the Saver’s Match now on track for likely implementation in 2027, IRA accounts offer numerous benefits regardless, including greater flexibility in your investment choices.

Saver's Match FAQs

If you suspect you might qualify for the Saver's Match, though, it's important to make sure you don't lose out. As per the specifics outlined in SECURE 2.0, Section 103, here's what's needed:

1. Make eligible contributions in 2027. You must contribute to a qualifying retirement account, such as:
   1. A workplace plan (e.g., 401(k), 403(b), governmental 457(b), SIMPLE IRA, SEP IRA) via elective deferrals or voluntary contributions.
   2. An IRA. Keep in mind that traditional IRAs qualify; Roth IRAs generally do not, as the match goes to pre-tax accounts. The match applies to up to $2,000 in your annual contributions (50% match equals up to $1,000 maximum per person, or $2,000 for joint filers if both qualify/contribute).
2. Meet basic personal requirements (same as the current Saver’s Credit):
   1. Be age 18 or older by the end of the tax year.
   2. Not a full-time student for any part of five calendar months in the year.
   3. You aren't claimed as a dependent on someone else’s tax return.
   4. Not a nonresident alien (with limited exceptions).
3. Check your modified adjusted gross income, or MAGI: This is the primary limiter, and thresholds are set for 2027 but will be inflation-adjusted in future years.
   1. Full 50% match: MAGI up to $20,500 for single filers; $30,750 for heads of household, or $41,000 if married and filing jointly.
   2. Partial/phased-out match: Reduces gradually from $20,501 to $35,500 (single), $30,751 to $53,250 (head of household), or $41,001 to $71,000 (joint). There aren't matching amounts above the upper limit. To estimate, use your expected 2027 MAGI, or use the Retirement Clearinghouse Saver’s Match Estimator.
4. Make a claim via your tax return (process details still finalizing):
   1. File your 2027 tax return (in 2028) and indicate your qualifying contributions.
   2. A new separate IRS form will likely handle the Saver’s Match claim.
   3. The Treasury will deposit the match directly into your eligible retirement account.
   4. Your plan or IRA provider must accept these federal deposits. No separate "application" exists now — it's claimed on your taxes after contributing.

Note: This program is still in the implementation phase, with the IRS seeking comments and planning details, such as a new tax form, so official tools or final forms aren't fully rolled out yet. In fact, it's still unclear whether employers would fund the account and how exactly the match would come into play.

Funding for the Saver’s Match is authorized as mandatory spending under the 2022 SECURE 2.0 Act and requires no new congressional approval for its 2027 rollout. However, expansions announced by Trump might need Congressional approval.

Keep track of your auto-enrollments

Whether you're eligible for a Saver's Match, auto-enrolled in an IRA, or auto-enrolled in a 401(k), you'll always want to keep tabs on your retirement funds.

It's up to you to build a secure retirement, so make sure you have a clear idea of your savings goals and that you're on track to achieve them, so you don't find yourself struggling as a retiree.

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The Washington Post recently profiled a man from Baltimore County, Md., who spends his free time — actually, pretty much all of his time — retrieving illegally abandoned tires from stagnant creeks and mosquito-infested swamps.

Since 2013, Jon Merryman has dug up an estimated 15,000 tires and has set a goal of picking up tires in every county in the U.S. The average tire weighs 25 pounds, so he doesn’t need to go to the gym to stay in shape.

While most of us aren’t as driven as Merryman, just about everyone I know has expressed a desire to volunteer in retirement. Along with the recipients of their generosity, volunteers reap the rewards, too: Research has shown that older people who volunteer on a regular basis are less likely to suffer from age-related health problems and cognitive decline.

The key is finding a good fit. In some cases, that may involve volunteering for an organization that will benefit from your professional skills.

A friend of mine who has a background in health care is a volunteer for the State Health Insurance Assistance Program, which helps Medicare beneficiaries navigate their benefits at no cost.

Another friend, a longtime journalist, is helping high school students publish a local newspaper.

Tax breaks for volunteers

The IRS doesn’t allow you to deduct the value of the time you spend volunteering. But if you itemize on your tax return, you can deduct some of the out-of-pocket costs associated with charitable work.

For example, if you transport dogs for a rescue organization, you can deduct the cost of gas, tolls and parking.

You can deduct either the IRS flat rate of 14 cents per mile or your actual costs. (Congress hasn’t adjusted the flat rate since 1998, so you’ll probably get a larger deduction by tracking actual expenses.)

If you travel on behalf of the charity, you can deduct air or train fare, lodging, and meals, as long as the trip is primarily for the organization.

Most retirees claim the standard deduction, so they can’t take those itemized deductions. But volunteering is a great way to determine whether an organization will make good use of any money you donate — and those contributions could lower your taxes even if you don’t itemize.

If you’re 70½ or older, you can transfer up to $108,000 for 2025 from your traditional IRA to a charity (or charities) of your choice by making a qualified charitable distribution (QCD). The contribution isn’t deductible, but it will be excluded from your adjusted gross income, which could shield you from certain taxes and surcharges tied to your AGI, such as extra charges that are added to your Medicare premium if your modified adjusted gross income exceeds a certain threshold. Once you turn 73, the QCD will count toward your required minimum distribution.

Another option is to use a donor-advised fund. These funds, offered by most major financial institutions, allow you to make a charitable contribution now, take the deduction on your 2025 tax return, and decide later which charities to support. Even if you don’t itemize, donating stocks or other assets that have increased in value will provide a tax break because you won’t have to pay taxes on capital gains (and the charity won’t, either).

I’m planning to take advantage of QCDs when I turn 70½. In the meantime, I’ve signed up to help the AARP Foundation’s Tax-Aide program, which provides free tax assistance to low- and moderate-income taxpayers.

I’ve written about taxes for more than 20 years and am all too familiar with how complex they can be, so this seems like a good way to give back. Plus, no mosquitoes.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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For many, funding a 401(k), IRA or other retirement account is the first order of business as they save for long-term goals, and for good reason: These accounts offer significant tax benefits.

But tax-advantaged retirement accounts come with restrictions on how much you can contribute and at what age you can make withdrawals without penalty. A taxable brokerage account adds some flexibility to your mix of investments.

Tax treatment and withdrawal rules

In a taxable brokerage account, you pay tax on interest, dividends and capital gains in the year you receive them.

Capital gains from investments held for a year or less are generally taxed at your ordinary income rate, which can be as high as 37%, while gains on assets held for more than a year are taxed at rates ranging from 0% to 20%, depending on your income. There are no tax deductions for contributions to taxable brokerage accounts.

You don't pay taxes on investments in a tax-advantaged retirement account, however, as long as the money remains in the account. With a traditional IRA or 401(k), you get an up-front tax break on contributions and pay income tax on withdrawals.

With a Roth account, you pay income tax on your contributions, but distributions are tax-free in retirement.

Although taxable brokerage accounts don't offer special tax benefits, you won’t have to worry about contribution limits. So if you're maxing out your retirement plan, a taxable account can be a good place to direct extra savings.

In 2025, the most you can contribute to a 401(k) is $23,500 if you’re younger than 50. Workers ages 50 to 59 or 64 or older can contribute an extra $7,500, and those between 60 and 63 can make catch-up contributions of up to $11,250. The maximum IRA contribution in 2025 is $7,000 ($8,000 if you’re 50 or older).

Thinking of retiring early? You can withdraw money from a taxable brokerage account anytime without facing penalties, so funding a taxable account can provide you with savings to live on until you can tap your retirement accounts.

If you withdraw money from a traditional IRA or 401(k) before you turn 59½, you'll pay a 10% early withdrawal penalty in most cases. (With a Roth IRA, you can withdraw contributions anytime without penalty, but you must own the Roth for at least five years and be 59½ or older to avoid penalties on investment earnings.)

With both taxable brokerage accounts and Roth accounts, you don’t have to take required minimum distributions. If you have a traditional IRA or 401(k), you must take RMDs once you reach a certain age – currently, it's 73 – even if you don't need the money.

Depending on the size of your account, an RMD could push you into a higher tax bracket.

Along with rounding out your retirement portfolio, you can use a taxable brokerage account to save for a variety of other goals, says Cody Garrett, a certified financial planner and founder of Measure Twice Money. You might, for example, invest money to buy a car or a house in a few years.

Getting started

You can open a taxable brokerage account at major brokerage firms such as Charles Schwab, Fidelity Investments and Vanguard; many large banks also offer the accounts through their investment services.

You usually pay no fee to open a brokerage account, and many don't require a minimum investment.

Some firms impose annual account service fees, but they may be waived if you meet certain requirements, such as signing up to receive electronic statements or investing a minimum amount of assets.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Having multiple retirement accounts may give you a heightened sense of financial security.

Many people, in fact, end up with multiple 401(k)s, IRAs and other accounts scattered across different institutions.

But having numerous accounts to manage can be difficult, and failing to properly attend to them all can create unnecessary headaches, especially as you get closer to retirement.

Those issues can include hurting your investments' performance — and, ultimately, your retirement plan.

Consolidating your retirement accounts, on the other hand, can simplify your financial life, reduce stress, save you time and help you possibly get more out of your investments.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Types of accounts that can be consolidated include 401(k) plans, IRAs, SEP IRAs and SIMPLE IRAs. They can be rolled into one another, giving you far easier oversight over your retirement savings.

Sure, for some people, managing multiple retirement accounts makes sense. But if you're considering that route or are already doing it without a specific strategy, here are some downsides to consider about holding numerous accounts:

Difficulty with asset allocation. Diversification is key to achieving strong long-term investment performance. But when you have multiple investment accounts, trying to implement an asset allocation strategy for each can lead to over- or under-diversification.

Also, there might be too much overlap in investments. Some people have multiple 401(k)s from past jobs, and that type of retirement plan may be limited in investment options, thus hampering your ability to achieve your ideal asset allocation.

Investment fees. These add up and can be hard to track when you have multiple accounts. Portfolio value can shrink significantly when you're paying fees for several years.

Some accounts may begin charging you a management fee if you're no longer contributing to them or no longer employed at your old company.

Tax time hassles. More accounts mean more tax forms and possibly paying more taxes than you would if you consolidated your accounts.

Plus, tracking down 1099-Rs from multiple institutions can be time-consuming and frustrating. You may receive tax statements at different times. But fewer accounts mean less paperwork and make it easier to track your earnings.

Consolidating can help reduce taxes, allowing you to strategically place investments in tax-advantaged accounts.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

Leaving a burden on a surviving spouse. Many couples have one spouse who handles the finances, while the other isn't as involved. When the financially adept spouse passes, having accounts scattered everywhere can be overwhelming for the surviving spouse.

Consolidating makes managing the money much simpler. And it can make it easier for the surviving spouse and heirs to execute the estate plan.

Missed opportunities to rebalance your portfolio. When holding multiple accounts, especially old ones, there's a tendency to neglect some of them.

A set-it-and-forget-it approach can prove costly, especially if investment choices you made years ago may not align with your current goals.

Tracking required minimum distributions (RMDs). Once you hit age 73 (or 75 if born in 1960 or later), you'll need to take RMDs from each of your 401(k) and IRA accounts separately.

Managing multiple calculations and withdrawals can be frustrating. Consolidating makes it easier to calculate and take the RMD.

Consolidating isn't the best move for everyone, and not all accounts can be transferred, such as certain types of annuities and securities. Check with your financial adviser to see if it makes sense for you.

Whichever route you choose, weigh all your options to ensure that managing your retirement accounts isn't a pain, but rather a streamlined process toward the pleasurable retirement you've earned.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Morningstar, a financial services firm and a trusted name in retirement planning, offers guidance that differs from the famous 4% withdrawal rule. We looked at research on that strategy to see how it panned out. We also reviewed this year's recommended rate.

The firm publishes an annual report, "The State of Retirement Income," which includes its own strategy for a safe withdrawal rate.

The report, which began in 2021, has a history of challenging conventional wisdom, including the 4% rule devised by financial adviser William Bengen in 1994. That rule holds that retirees can begin with a withdrawal rate of 4% of their balance and adjust for inflation each year to have a good chance of their money lasting through retirement.

Unlike Bengen's research, which reviewed data back to 1926, Morningstar's research is forward-looking. In recent years, it has led new retirees to be advised to withdraw less than 4% to reduce their risk. This included research published in 2021 that recommended a 3.3% safe withdrawal rate (for 2022), and in December 2025, when 3.9% was announced as the optimal rate for those retiring in 2026.

For retirees who are uncertain about how much they can withdraw from their portfolios, this Morningstar guidance — which takes future events into account — could be an invaluable guidepost if proven to work.

That's why it's so exciting to see that Morningstar recently put its research to the test, aiming to determine whether its past advice has panned out.

Has the financial services firm given retirees good advice, or did analysts steer retirees wrong by suggesting a more conservative withdrawal amount?

Source: Morningstar, 2025.

Did Morningstar steer retirees wrong?

To put Morningstar to the test, researchers looked at whether the recommendation to stick to a 3.3% withdrawal rate in 2021 had panned out. They tested a hypothetical retiree's $1 million portfolio performance, with the test portfolio presumed to be invested in an appropriate mix of U.S and international stocks, bonds and cash. The study ran Monte Carlo (portfolio stress-test) simulations over a 30-year period.

The research revealed that the more conservative (3.3%) approach would have paid off for those who retired at the start of 2022, as double-digit losses and inflation that year led to major declines in portfolio value. Specifically:

Retirees who followed the 4% rule would have seen their portfolio balance decline to $773,000 after withdrawals made at the start of 2023 and rebound to $934,000 by 2024. If they continued to follow the 4% rule and adjusted withdrawals for inflation, they'd be withdrawing $45,000 per year in 2025, or 4.85% of their balance.

Retirees who followed the 3.3% recommendation would have seen their portfolio balance dip to $786,000 after 2023 withdrawals and bounce back to $960,000 by 2024. Their 2025 inflation-adjusted withdrawal rate would be 3.89%, giving them $37,357 to spend.

While retirees in the first group who followed the 4% rule would have more to spend now, Monte Carlo simulations predict just a 72.30% success rate over 30 years for this group, compared with a 91.80% chance of their money lasting for the group that followed Morningstar's guidance.

Should you follow Morninstar's advice for your withdrawal rate?

Every retiree would prefer a 92% chance of their money lasting to a 72% chance. There's a solid argument to be made that Morningstar was 100% right, and retirees should have listened to the analyst's suggestions and chosen the more conservative rate years ago.

Of course, there are many factors that go into choosing a safe withdrawal rate — including your goals for retirement.

The first group that followed the 4% rule has had more money to spend during a turbulent period, and some retirees would accept that as a tradeoff for having a lower chance of future retirement success.

The 2022 to 2025 period was also a time of exceptionally high inflation, so if the increase in their withdrawal amount slows over time, retirees in the 4% group might not fare so badly in the end.

Retirees also need to follow required minimum distribution (RMD) rules, which might conflict with both the 4% rule and with Morningstar's guidance. As a result, seniors may be more limited in how much they withdraw from traditional retirement accounts.

In addition, remember that your portfolio may not match the test portfolio's conservative construction. The test portfolio included "a 40% weighting in US stocks, 10% in international stocks, 32% in US core bonds, 8% in global core bonds, and 10% in cash, rebalanced annually."

If you plan to retire in 2026, should you follow Morningstar's latest recommendation to set a 3.9% withdrawal rate?

Ultimately, the best approach is to create a personalized retirement withdrawal plan based on account balances, investment risk, health status and household budget to achieve the best retirement possible now and in the future.

Retirees can get help from a financial adviser if they aren't sure how to do that, and making that investment in professional advice might be worth it rather than simply following a number chosen by analysts online — even if the evidence does suggest their initial advice was rock solid.

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You’ve worked hard to save for retirement in your 401(k) and now IRA — and succeeded. But wait. Your work isn’t done.

If you adopt a plan that combines assets to the best effect, our new IRA study shows average starting income of an IRA4Income plan of 50% to 75% over traditional planning.

Before describing the planning methodology and our study of the results, let’s describe these assets and answer the question, “Why haven’t I heard about this before?”

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

What are these assets? And why haven’t we seen this before?

Are we talking about high-yield bonds, complex annuities or other exotic investments? Nope. In fact, the elements are a little boring:

• An IRA account invested 50/50 in fixed income and stock investments
• Lifetime income annuities with income starting immediately or in the future
• A home equity conversion mortgage (HECM) that generates income and liquidity

What’s unique is that the asset classes come from three separate financial businesses — investments, insurance and mortgages — and the Go2Income planning methodology (a little like AI) has figured out how to put the pieces together for maximum benefit, for all retirement ages and objectives.

If you haven’t heard about this method, it’s because the different businesses operate quite separately, sales forces have their own requirements for what they can sell you, and combining these asset classes requires complying with multiple regulations.

That means most advisers can’t, or won’t, talk about the asset classes they don’t represent.

Consumers don’t share those restrictions and can explore something like my company’s IRA4Income method, which, besides the huge increase in income, creates more liquidity than the IRA alone. By age 85, it can provide nearly double the IRA by itself.

That increase could help to cover, for example, the long-term care costs that 40% of retirees will incur.

How well do these assets have to perform?

Using our Go2Income planning technology, we’ve put the assets together into IRA4Income by first combining two programs: IRA2Income, made up of investments and immediate annuities, and HomeEquity2Income, made up of a HECM and a QLAC deferred-income annuity. (For more on this combo, see my article How Combining your Home Equity and IRA Can Supercharge Your Retirement.)

As you’ll see below, these programs can also be set up on their own to provide benefits, even if you don’t seek the maximum win-win of complete integration into your retirement income plan.

Our study analyzes results for different ages, marital status, IRA savings amounts, value of home and market conditions.

The old rule about taking $40,000 as starting income from your $1 million IRA has been upended, with starting income amounts that range from $60,000 to $80,000, depending on the case.

Highlights from the study

Each case study starts with $1 million from a rollover IRA and $1 million in home value. Besides starting income, the study looks at liquid savings and legacy, making sure we consider all three key retirement objectives. Starting income grows by 1.5% per year until age 85.

Set out below are key results for sample cases, as well as key planning assumptions:

62-year-old man

• Starting income: $70,000
• Total liquid savings at 85: $763,000
• Total legacy at 95: $2,597,000

65-year-old woman

• Starting income: $69,100
• Total liquid savings at 85: $977,000
• Total legacy at 95: $2,659,000

70-year-old couple

• Starting income: $68,200
• Total liquid savings at 85: $1,138,000
• Total legacy at 95: $2,583,000

75-year-old couple

• Starting income: $70,700
• Total liquid savings at 85: $1,115,000
• Total legacy at 95: $2,364,000

Key planning assumptions: Stock market investment returns: 8%; fixed income total return: 5%; allocation to annuities: 30% in an immediate annuity, 20% in a QLAC deferred-income annuity; HECM adjustable interest rate: 7.75%.

Too good to be true?

As with any retirement plan, the study results are based on certain assumptions about the performance of each asset class. The most important aspect is that no one assumption drives the results:

• The lifetime annuity is fully guaranteed and is issued by a highly rated insurance company
• The HECM interest rates are adjustable within limits, but with a large portion of the mortgage interest paid by the QLAC deferred-income annuity
• The IRA investment assumptions reflect an equity return that is lower than average long-term market returns

In setting up a personalized plan, you can customize the assumptions to your risk tolerance.

An IRA4Income plan in more detail

Let’s look at our example investor, Sally, age 70, who now has $1 million in rollover IRA savings and a home worth the same amount. She wants the maximum amount of income, within reason, and liquidity for long-term care costs.

Fortunately, Sally has read our articles and realizes her home is a valuable asset and that she can consider it as a way to ensure her money not only lasts for her lifetime but also provides a resource for unplanned expenses.

The charts below demonstrate how IRA4Income can bolster her spendable income (starting at $71,000) while providing access to savings that could pay for large unplanned expenses after age 85. Her total liquid savings under this plan are nearly $1 million at age 85 and will continue to grow thereafter.

What about taxes? What about risk?

Sally is not obsessed with taxes but would like to understand whether there’s any portion of her income, unlike the IRA, that’s free from tax. She’s pleased that, until 85, about 20% of her income is tax-free.

If we measure risk by the uncertainty of the value of the investment portfolio, a 100% IRA is all at risk, while with IRA4Income, only about 50% is subject to market risk.

If you’re nervous about plunging in all at once, the parts of an IRA4Income plan can be put in place one at a time, following your own timeline.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

As pointed out above, you could start by combining investments with an immediate income annuity (IRA2Income) or access the value of your home with a HECM and a QLAC.

At the same time, you might consider whether to delay claiming your Social Security benefits to get larger payments.

You might be able to wait until 73 (or 75 if you were born in 1960 or later) to take RMDs (required minimum distributions) from an IRA, allowing that income source to grow.

When you consider all your options together, you have choices.

Are you ready to start now?

In these articles, we have worked to explain these financial approaches in clear language so readers can talk knowledgeably with an adviser about what steps to take and when.

Still, there are indications that some people just throw their hands in the air and resolve to live with their savings in different silos for stocks/bonds, annuities and their home.

You don’t have to do that.

Visit Go2Income to order a Go2Income plan that with IRA4Income inside can meet more of your retirement objectives. A Go2Specialist can answer questions about the plan or refer you to a qualified adviser.

Related Content

• What the HECM? Combine It With a QLAC and See What Happens
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan
• Would a Reverse Mortgage Work for You in a Gray Divorce?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It's helpful to know the average retirement savings of your peers because, let's face it, your friends won't volunteer their numbers. As you near the end of your career, you'll want to be in at least as strong a financial situation as others your age so you can afford to vacation together or even move to the same retirement community. Most of all, it's a crucial step to ensure you're saving enough for the kind of retirement you want.

Calculating your retirement savings is easier than determining your net worth. You don't need to subtract liabilities like your mortgage from the equation. Instead, you can start by checking the balances of any IRA and 401(k) accounts you have. Then include the balances of HSAs and your after-tax accounts, such as Roth IRAs, mutual funds and brokerage accounts, as if they were all one “retirement portfolio.” You may already know your numbers if you have a financial adviser or financial software that aggregates your accounts.

To get a sense of where you stand relative to your peers, we've assembled the average retirement savings and the median retirement savings for your age.

Average retirement savings: mean vs median

When there are wide variations in income and savings within a given group, as is the case in the U.S., it's essential to look at both kinds of averages: mean and median. You might have to harken back to sixth-grade math to recall that "mean" is what we typically think of as "average," and "median" is the "middle" value in a range of numbers. When we look at retirement savers, the enormous wealth of individuals like Warren Buffett can make our overall retirement savings appear healthier than they actually are for the typical American. So, we focus here on both numbers, but particularly the median.

Over half of American households (54%) report having no dedicated retirement savings, according to the Federal Reserve's Survey of Consumer Finances (SCF). Yet the total 401(k) savings rate remained steady for a third consecutive quarter at 14.2% in Q4 2025. These seemingly contradictory numbers indicate that the gap between non-savers and savers is growing. That gap can further distort what you can learn from average (mean) retirement savings balances, unlike comparing those actively saving in a 401(k) or IRA against other plan participants and contributors.

Let's examine the mean and median retirement account balances by age, as reported by the Federal Reserve.

Total mean and median retirement savings by age

One of the most anticipated moments in life after marriage and parenthood is retirement. Similar to other key milestones in life, this is a decision filled with joy, relief, fear and anxiety. It will come as no surprise that a lot of the anxiety comes from a fear of outliving their retirement assets. The “magic number” Americans think they need to retire comfortably in 2026 is $1.46 million. That's $200K more than the $1.26 million figure from 2025 and is still a far cry from what most people have socked away in their various retirement accounts.

As you can see from the table below, the median retirement savings for those aged 55-64 ($185,000) and 65-74 ($200,000) are far below that $1.46 million "magic number."

Table Source: Federal Reserve: Survey of Consumer Finances, 2023.

For more details on specific retirement accounts, consider the average 401(k) and IRA balances in the table below.

How Americans save in retirement accounts

Retirement assets accounted for 34% of all household financial holdings in the U.S. as of December 2025. The $49.1 trillion national nest egg grew by $3.3 trillion from the third quarter of 2025. The majority of IRA balances come from 401(k) rollovers. Here's how these funds were allocated, according to the Investment Company Institute.

How to catch up

If you are behind in saving for retirement, you aren't alone. You are ahead of 54% of people who admit to having no retirement savings whatsoever. Whether you need to make up for lost time or want to build a cushion against inflation or unexpected expenses, it's never too late to do something now. Every dollar you set aside will grow as you continue to work toward retirement.

Here are ways to build up your retirement portfolio depending where you are in your savings journey:

20s & 30s: The "compounding" phase

At this stage, your most powerful tool isn't the amount you contribute, but the time that money stays in the market. Because of compound interest, a dollar invested at age 30 can be worth significantly more than a dollar invested at 50. For example, $10,000 invested at 30 with a 7% return grows to roughly $106,000 by age 65. If you wait until 45 to invest that same $10,000, it only grows to about $38,000. Start early, even if the amounts feel small.

• Audit your employer match: This is an immediate 100% return. Ensure you are contributing at least enough to get the full match before addressing other financial goals.
• The "raise" rule: Whenever you get a salary bump, commit half of that increase to your retirement account. You won't "feel" the loss in your paycheck because your take-home pay still technically went up.

40:s Front-Loading and "The 15-Year Horizon"

By age 45, you are roughly 20 years away from standard retirement age. This is the last window where compounding can still do the "heavy lifting" without you needing to contribute astronomical amounts in your 60s.

• Maximize the "gap" with front-loading: If your cash flow allows, try to hit your annual 401(k) limit ($24,500 for 2026) as early in the year as possible. Getting that money into the market by March or April rather than December gives it an extra six months of growth.
• The 15-year rule: Aim to reach a "coasting" point by age 50. If you can aggressively over-fund your accounts now, the compounding effect over the next 15 years can potentially double your balance even if you have to scale back contributions later in your 50s to cover other life expenses

50s: The "catch-up" phase

Turning 50 unlocks higher contribution ceilings, allowing you to shove more money into tax-advantaged buckets.

• Standard catch-up contributions:
  • 401(k)/403(b): You can contribute an extra $8,000 in 2026, bringing your total possible contribution to $32,500.
  • IRA (traditional/Roth): The catch-up limit for 2026 has been adjusted for inflation to $1,100, allowing for a total contribution of $8,600.
• Downsize early: If your children have moved out, consider moving to a smaller home or a lower-tax area now. Redirecting the difference in property taxes and maintenance into your 401(k) can bridge a massive gap in one decade.

60s: The "super catch-up" phase

The SECURE 2.0 Act created a unique high-velocity savings window for those in their early 60s.

• "Super catch-up": If you are aged 60, 61, 62, or 63, your catch-up limit increases significantly. For 2026, this limit is $11,250 for 401(k)s, allowing for a total annual contribution of $35,750.
• Delay Social Security: Every year you wait to claim past your Full Retirement Age (FRA), up to age 70, increases your benefit by 8% annually. This is a guaranteed "return" that is hard to beat in the open market.

Get the full story: what you're worth

Want to see how more of your retirement portfolio compares to peers? Read:

The Average Net Worth by Age,

The Average 401(k) Balance by Age,

The Average IRA Balance by Age,

The Average Social Security Check by Age, and

Average Retirement Income by Age and State.

Related Content

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• How Much Would Social Security's 2033 Shortfall Cost You?
• Five Myths About Social Security That Can Cost You
• Retirement Savings on Track? How Much You Should Have by 50 and 55
• The Five Biggest Stealth Costs in Retirement

Will RMDs ruin the 4% rule for you in retirement? It's quite possible if you have a good chunk of your retirement savings in traditional accounts. To some degree, building that retirement nest egg is easy. You set aside money each month to go into your IRA or 401(k), invest it in an S&P 500 index fund or collection of stocks, and wait for it to compound.

It’s managing your savings in retirement that’s the tricky part.

Once you’ve accumulated wealth, you don’t want to risk having your nest egg dry up. A recent Allianz survey found that 64% of respondents worry more about running out of money than actually dying, which speaks to the importance of withdrawing from your savings carefully.

To that end, there’s some guidance in the form of the 4% rule.

The 4% rule goes as follows: Withdraw 4% of your savings in your first year of retirement. Repeat that 4% withdrawal in future years while making adjustments for annual inflation. Do this consistently, and your savings are likely to last 30 years.

Of course, not everyone agrees with the 4% rule. In 2024, Morningstar recommended a 3.7% withdrawal rate for retirees due to stock market valuations and bond yields at the time. (That said, Morningstar stuck with 4% in 2023, when bond yields were slightly more favorable.)

Nonetheless, many financial professionals think 4% is a safe withdrawal rate, for the most part. And you may be inclined to stick with it for your retirement. But will required minimum distributions (RMDs) get in your way?

When RMDs ruin the 4% rule

The IRS offers traditional IRA and 401(k) savers some pretty great perks — tax-free contributions and tax-deferred growth. In exchange, the IRS wants IRAs and 401(k)s to be used for their intended purpose, and not as a loophole for wealthy people to pass money on to future generations in a tax-advantaged manner.

For this reason, the IRS forces savers born between 1951 and 1959 to take Required Minimum Distributions (RMDs) from these accounts starting at age 73. For those born in 1960 or later, RMDs start at 75.

Your RMD calculation changes every year based on the fair market value of your retirement account that’s subject to those withdrawals and your life expectancy. For this reason, as people age, their RMDs can increase. But that could make it difficult to stick to the 4% rule.

If you have a large IRA or 401(k) that’s subject to RMDs, as you get older, you may find that your mandatory withdrawal amount is greater than 4% of your total nest egg.

Remember, RMDs may not apply to every account you’re holding in retirement. But if a 4% withdrawal rate applied to all of your accounts results in $38,000 and your RMD amount is $45,000, you’re effectively being forced to withdraw from your savings at a higher rate.

Working around RMDs

While it’s clear that RMDs could make it difficult to stick to a 4% withdrawal rate, there are workarounds.

Reinvest rather than spend.

As Drew Boyer, CFP and Founder at Boyer Financial Group explains, if your RMD is greater than 4% of your total assets, the solution is simply not to spend it all.

“If your RMD is higher than 4%, it’s the IRS’s distribution calculator you must follow. But your spending patterns don’t need to change,” he says. “If you are forced to take out 6%, you don’t need to spend 6%. You can still spend 4% but reinvest the excess amount.”

One caveat is that you can’t put an RMD back into a tax-advantaged account. But a taxable brokerage account is fair game, Boyer says. I-bonds could be an appropriate investment for you, too, depending on your risk tolerance and what interest rates look like.

And there’s no rule stating you have to invest RMD funds you don’t want or need to spend. You can put the money into a savings account or CD if there’s no specific investment that aligns with your goals. Either way, you’re preserving the cash rather than spending it.

Avoid RMDs with Roth conversions.

Another option? Get ahead of RMS by doing a Roth conversion.

James Hutchens, National Practice Lead for Wealth Advisory at Northern Trust, says, “Big RMDs can be planned for. A Roth conversion is a potential workaround if your planning horizon is long enough and you use other assets to pay the income tax bill associated with the conversion. This reduces the amount that is subject to RMDs.”

That said, Hutchens warns that Roth conversions need to be timed carefully. Not only do they increase your taxable income the year you make them, but they can have other impacts.

As Hutchens points out, having a large income in any given year could result in Medicare surcharges known as income-related monthly adjustment amounts (IRMAA) two years later.

That’s why “a conversion should be considered after careful consideration of income flows, goals, and your planning horizon,” Hutchens insists.

Handle large RMDs with a qualified charitable distribution.

Finally, Boyer says, you can consider a qualified charitable distribution if you end up with an RMD that well exceeds the 4% mark. This won't help you lower your withdrawal rate, but it could help you avoid a big tax bill.

"It satisfies your mandatory RMD and helps pay it forward for those in need," says Boyer. "That’s a win-win move that’s tax-smart."

Read More

• Required Minimum Distributions (RMDs): Rules, Deadlines, and Important Changes to Know
• The 4% Rule Gets a Closer Look
• Ask the Editor, May 9 — Reader Questions on QCDs
• Roth Conversion in a Down Market: Is it Right for You?
• You're Stuck Taking RMDs: Now What?

The average retirement lasts about 20 years. One way to look at that is through the lens of time: How many good years of life you might have left and how to make the most of them.

But financially, it means something even more concrete. You’ve got 240 paychecks to spend.

The math is simple. Retire at 65, live to around 85, and that’s 20 years × 12 months = 240 monthly retirement paychecks.

Yet turning a lifetime of savings into a steady stream of income for retirement planning is no small feat. According to the 2025 Schroders U.S. Retirement Survey, 87% of non-retirees said they’re at least slightly concerned about how to generate income in retirement. And among retirees, more than half (52%) admit they don’t follow a specific strategy; they simply take money when they need it.

That’s a lot of pressure, especially when you’re the one signing your own checks now. And like any good boss, you need to pay yourself wisely.

But financial experts say the goal isn’t just to make those 240 paychecks last, but also to make them count.

Writer Annie Dillard famously wrote, "How we spend our days is, of course, how we spend our lives." In retirement, how you spend those retirement dollars each month can shape what those years feel like.

The rule of 240 paychecks: where will they come from?

Most retirees rely on a mix of income sources. A Gallup poll found that 58% of retirees cite Social Security as their primary source of income, followed by workplace pensions, personal retirement savings, home equity and more.

At a minimum, most people retire with a combination of Social Security and savings. The average monthly Social Security benefit is $2,012, which is a meaningful base but unlikely to cover all expenses.

A good starting point is to list all your guaranteed sources of income alongside variable sources. "We typically layer guaranteed income sources like Social Security, pensions and annuities with systematic portfolio withdrawals tailored to risk tolerance and longevity," says Nathan Sebesta, CFP® and founder of Access Wealth Strategies.

Just as important: estimating your expenses. As David Rosenstrock, director of financial planning and investments at Wharton Wealth Planning, advises: "How much you want to spend in retirement is one of the biggest factors driving how much you need for a secure retirement."

A common rule of thumb suggests retirees need about 80% of their pre-retirement income to maintain their lifestyle. But that number can shift based on your spending habits, health care costs and retirement goals.

How to create your retirement paycheck

Turning your retirement assets into a paycheck is more chess than checkers. The key variable is the withdrawal amount.

Many retirees begin with the 4% rule: withdraw 4% of their retirement portfolio in the first year and adjust for inflation in subsequent years. While this is a useful starting point, it’s not a one-size-fits-all solution or static rule. For example, Morningstar recommended a 3.9% withdrawal rate for those retiring in 2026.

As Sebesta points out: "Success comes from balancing reliability with adaptability across a 20-plus-year retirement horizon and being able to live within your means."

The order in which you tap your accounts also matters. A common strategy is to start with taxable brokerage accounts, since distributions from these accounts are not taxed as ordinary income. After that, you might move to tax-deferred accounts like traditional IRAs or 401(k)s, and finally to tax-free accounts like Roth IRAs.

But that order isn’t always ideal. "It’s important to understand the details of your own situation," Rosenstrock explains. "The conventional wisdom of withdrawing funds from taxable brokerage accounts first, then tax-deferred accounts, followed by tax-exempt accounts, may not be best for everyone."

Another strategy is to delay Social Security until age 70 — boosting benefits by up to 8% per year plus inflation adjustments — says Easton Price, CFP® and financial planner at Apella Wealth. “If you retire at 65 and elect to delay Social Security benefits until age 70, you may be a good candidate for Roth conversions depending on other sources of income and who your beneficiaries are,” he says.

Still, there’s a trade-off. The longer you delay Social Security, the more you may have to rely on your investment portfolio in the early years of retirement. Moreover, if Congress doesn't fix Social Security in the next few years, you might need to save an extra $100,000 to compensate for the reduced benefits predicted to start in 2033.

Common retirement paycheck mistakes

Even the best-laid retirement income plans can run into trouble. Taxes, inflation, market downturns and unplanned expenses are among the biggest threats.

One often overlooked opportunity is proactive tax planning. "Many retirees focus solely on generating income without considering the tax planning opportunities that come with lower income early in retirement," says Patrick Fontana, CFP® and founder of Fontana Financial Planning. Strategic Roth conversions during those lower-tax years, he notes, can significantly reduce lifetime tax bills and leave more for heirs.

Another common misstep is withdrawing too aggressively in the early years. "Underestimating inflation or pulling too much too soon can put a plan at risk," says Sebesta. "That’s why we stress flexibility and encourage clients to revisit their income strategy at least annually."

Market volatility can also derail a paycheck plan if you're not careful. Selling stocks during a downturn (or "sequence of returns risk") can lock in losses. Instead, advisers recommend using cash or bonds to cover income needs during rough markets and letting equities recover, preserving their role as an inflation hedge.

Finally, "without a clear spending plan, retirement lifestyle creep can lead to spending that is not sustainable over the long run," Price says.

The psychology of spending your 240 paychecks

"Retirement is a difficult life transition," Price adds. "Going from stable work, steady income and a fixed schedule to managing portfolio distributions, associated taxes and no set routine can be daunting."

A BlackRock study found that five years into retirement, less than one in five retirees had clear goals for how much they wanted to have left at the end of life. Among those who did, most wanted their assets to grow, not be spent.

It underscores a common challenge. The habit of saving is hard to break. Many retirees hesitate to spend because of lingering fears of experiencing a financial or medical emergency.

That’s why Price encourages clients to revisit their values and aspirations as they head into retirement. "When people get clear on what really matters, they’re more comfortable with spending."

And what you spend your money on matters. Research from Merrill Lynch and Age Wave shows that retirees report the greatest satisfaction when they spend on experiences, especially those shared with loved ones, rather than material items.

As journalist Gloria Steinem once said: "It is more rewarding to watch money change the world than watch it accumulate."

Which raises the real question: What will you do with your 240 paychecks?

Read More Retirement Rules

• The 'Die With Zero' Rule of Retirement
• The 80% Rule of Retirement: Should This Rule be Retired?
• The 4% Rule for Retirement Withdrawals Gets a Closer Look
• The Rule of 25 for Retirement Planning

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at five questions on qualified charitable distributions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1: QCDs and 401(k)

Reader Question: Can I make a qualified charitable distribution (QCD) from my 401(k) this year?

Joy Taylor, Editor, The Kiplinger Tax Letter
No, QCDs cannot be done from a 401(k) or other workplace retirement plan. A QCD can only be done from an IRA.
People age 70½ and older can transfer up to $108,000 in 2025 from a traditional IRA directly to charity. QCDs can count as all or part of your required minimum distribution (RMD), but they are not taxable, and they are not added to your adjusted gross income. The QCD strategy is a good way to get tax savings from charitable gifts for taxpayers not itemizing because of higher standard deductions.

2: How to do a QCD

Reader Question: Someone told me that the only way I can do a QCD is for my IRA custodian to directly transfer the money from the IRA account to the charity. Is this true?

Joy Taylor, Editor, The Kiplinger Tax Letter
It depends on the IRA custodian. It is true that only transfers from your IRA directly to charity are considered QCDs, but different IRA custodians have their own procedures for complying with this. Some will require that the check go directly from the custodian to the charity. Others will, at the account owner’s request, have the check written from the IRA account and send the check to the IRA owner to forward to the charity. Vanguard, for example, allows this second approach. Both procedures work for QCDs. What is not acceptable is for the custodian to write the check to the IRA owner, who then deposits the money and writes a check from his or her own account to the charity.

3: Charitable Gift Annuity

Reader Question: I’ve been receiving requests from my alma mater about doing a QCD through a charitable gift annuity. I thought QCDs could only go to a section 501(c)(3) charity. Have the rules changed?

Joy Taylor, Editor, The Kiplinger Tax Letter
As a general rule, in a QCD, the money must generally go to a section 501(c)(3) organization. The 2022 SECURE 2.0 legislation provided an easing to this. It allows IRA owners to do a one-time (not annual) QCD of up to $55,000 for 2025 through a charitable gift annuity, charitable remainder unitrust or a charitable remainder annuity trust. Many private colleges with charitable gift annuity programs are touting the QCD option. If you already did this in 2023 or 2024, you can’t do it again.

4: Deductible IRA Contributions

Reader Question: I am working and made a tax-deductible contribution of $3,500 to my traditional IRA in 2024. I also did a QCD that year. My accountant told me that I don’t get the full advantage of the QCD because I also contributed to my IRA. Is that true?

Joy Taylor, Editor, The Kiplinger Tax Letter
Yes. There’s a special rule if you do a QCD and you make tax-deductible contributions to a traditional IRA after 70½. Essentially, these post-70½ contributions reduce your allowable tax-free QCD amount until used up. Post-70½ deductible contributions to a SEP or SIMPLE IRA aren’t affected.
Let’s take a simple example:
A 75-year-old working man is planning to do a QCD for the first time in 2025. For 2021, 2022, 2023 and 2024, he made tax-deductible contributions to his traditional IRA totaling $23,000. In 2025, the man does a QCD and transfers $20,000 from his IRA directly to charity. He would owe income tax on the full $20,000 because it is less than the $23,000 of post-70½ tax-deductible IRA contributions. Let’s say that in 2026, he then transfers another $15,000 to charity directly from his IRA. $12,000 will be a nontaxable QCD, and $3,000 will be treated as a normal distribution.

5: What's the maximum QCD for spouses?

Reader Question: My wife and I want to max out donations from our IRAs to charity this year. What is the maximum QCD we can make for 2025?

Joy Taylor, Editor, The Kiplinger Tax Letter
$108,000 per IRA owner. Since you are married, you and your spouse can each potentially give up to $108,000 in QCDs from your separate IRAs, making the maximum QCD $216,000, provided each of you has substantial amounts in your IRAs. But let’s say you have a $70,000 balance in your IRA, and your wife has an IRA worth $1.2 million. In this situation, your QCD cap is limited to $70,000, and your wife’s QCD cap is limited to $108,000. Your wife won’t be able to make a QCD of $146,000 to make up for the deficit.

About Ask the Editor, Taxes

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on topics related to charitable contributions, gifts and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• Ask the Editor, April 25, 2025: 529 plans.
• Ask the Editor, April 18, 2025: Amended returns.
• Ask the Editor, April 11, 2025: IRAs, RMDs and PTPs.
• Ask the Editor, April 4, 2025: The new tax bill, estate tax, and muni bonds.

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at five questions on tax deductions and losses. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1: Theft loss

Q. I was a victim of internet fraud and lost a lot of money. Can I claim this loss on my Form 1040?

A. Depending on the circumstances, this might be a deductible theft loss that you can claim on Schedule A of your 1040 if you itemize. A deductible theft loss must be incurred in a transaction entered into for profit or in a trade or business. Personal theft losses not connected with these two factors aren’t deductible through 2025. The analysis is based on facts and circumstances.

The IRS released a legal memorandum in mid-March that can help with this analysis. In the memo, IRS lawyers addressed five scenarios involving common internet scams and ruled whether a victim could deduct a theft loss. In each fact pattern, the victim owned IRAs or taxable accounts and transferred funds from the accounts to the scammer or to new accounts that the scammer controlled. Essentially, individuals who were victims of kidnapping or romance scams can’t deduct their theft losses because they are personal. The result is more favorable for victims of scams in which the scammer convinced them that their existing account was compromised or that they could put funds into an investment with better returns.

You can read the IRS memo [opens PDF]. You can also read more on the subject in IRS Publication 547, Casualties, Disasters and Thefts. Additionally, I would suggest that you consult with a tax professional, such as a CPA, before making any decision as to the deductibility of your loss.
— Joy Taylor, Editor The Kiplinger Tax Letter

2: Leasing a car for business

Q. I am self-employed. I lease a car that I use 80% for business and 20% for personal use. Can I deduct my car lease payments on Schedule C of my Form 1040?

A. Yes. If you lease a vehicle for use in your business, you can opt to use actual expenses to figure your deductible expense. You can deduct the part of each lease payment that is for business. There’s also this oft-forgotten rule: If you lease a car worth more than a certain value ($62,000 in 2025), you must pay income tax for each year of the lease term on an amount shown in IRS tables. The extra income partially offsets the lessee’s tax deduction of the lease payments and is intended to approximate the squeeze on buyers from the cap on depreciation. Note that you don’t add the amounts to your income when filling out your tax return. Instead, you reduce the size of your deduction for the lease payments on the vehicle.

Here’s a simple example.
You’re self-employed and in 2025, you lease a car for use in your business that is valued at $71,000. You must reduce the deduction for the lease payments on Schedule C of your Form 1040 each year by the amount shown in Table 3 of IRS Revenue Procedure 2025-16 [opens PDF]. If you use a leased car in business 80% of the time, you can only deduct 80% of the lease payments, and you would include 80% of the numbers in Table 3 of Revenue Procedure 2025-16 as a reduction to your deductible lease payments.

IRS Publication 463, Travel, Gift and Car Expenses, delves into these rules in more detail.
— Joy Taylor, Editor The Kiplinger Tax Letter

3: Qualified Business Income (QBI) deduction

Q. The 20% qualified business income deduction is set to expire after 2025. Do you think Congress will extend this tax write-off?

A. Yes, it’s quite likely that the qualified business income (QBI) deduction will be extended if Congress is able to pass its large tax, border security and energy bill this year.

Self-employed people, independent contractors and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their QBI, subject to limitations for individuals with taxable income in 2025 of more than $394,600 for joint filers and $197,300 for single filers and head-of-household filers. (The 2024 amounts are $383,900 and $191,950.)

This deduction ends after 2025, unless Congress acts. It was first enacted in the 2017 Tax Cuts and Jobs Act to provide some federal income tax parity between C corporations, which are taxed at a 21% rate, and pass-throughs, in which the individual owners pay income tax on earnings up to a 37% tax rate. Republican lawmakers want to extend the QBI deduction. And they have lots of support from lobbying groups representing Main Street businesses.
— Joy Taylor, Editor The Kiplinger Tax Letter

4: Deduction for rental profit

Q. I own rental homes and generate a profit from them that I report on Schedule E of my 1040. I heard that I can get a tax deduction for 20% of the profit. Is that true?

A. It depends. Rental income reported on Schedule E of the Form 1040 may, in some cases, be eligible for the 20% qualified business income deduction (discussed above). The IRS’s regulations say the rental activity must generally rise to the level of a trade or business, a standard which is based on each taxpayer’s particular facts and circumstances. Alternatively, there is a safe harbor if at least 250 hours a year of qualifying time are devoted to the activity by the taxpayer, employees or independent contractors. Time spent on repairs, collecting rent, negotiating leases and tenant services counts. Taxpayers who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their tax returns. Meeting the safe harbor will let you treat the rental activity as a trade or business for QBI purposes. Note that you would take the QBI deduction on line 13 of your Form 1040 after completing Form 8995 or 8995-A.
— Joy Taylor, Editor The Kiplinger Tax Letter

5: Home office deduction

Q. My employer closed its office, and I now work fully remote from home for that employer. Can I claim the home office deduction if I itemize on Schedule A of the Form 1040?

A. No. Prior to 2018, certain employees could deduct the cost of home office expenses as unreimbursed employee costs included in Schedule A miscellaneous itemized deductions, subject to the 2%-of-adjusted-gross-income threshold. But the 2017 Tax Cuts and Jobs Act repealed this group of tax breaks through the end of 2025. We don’t know yet whether this prohibition on deducting employee business expenses will get extended past 2025.

The home office deduction is still available to self-employed people or independent contractors who file Schedule C with their 1040 and use a room or space in their home or apartment exclusively and regularly as their principal place of business. If you are self-employed and qualify for the write-off, there are two ways to figure the deduction. You can allocate your actual costs on Form 8829. Or you can use a simplified option by deducting $5 per square foot of space used exclusively for business, up to 300 square feet, resulting in a $1,500 maximum write-off.
— Joy Taylor, Editor The Kiplinger Tax Letter

We have already received many questions from readers on topics related to inherited IRAs, gifts, qualified charitable contributions and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about a tax topic. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

Read more from our Ask the Editor Series

• Ask the Editor, April 25, 2025: 529 plans.
• Ask the Editor, April 18, 2025: Amended returns.
• Ask the Editor, April 11, 2025: IRAs, RMDs and PTPs.
• Ask the Editor, April 4, 2025: The new tax bill, estate tax, and muni bonds.

Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…

Are you thinking of converting your traditional IRA to a Roth IRA? Now might be a good time to consider it. But before you pull the switch, there are lots of factors you will want to consider when it comes to Roth conversions, ranging from the possibility of future tax rate changes to whether the conversion will subject you to higher Medicare premiums and everything in between. Below, we discuss nine important factors to keep in mind when deciding to do a Roth conversion.

1. Present, Future Income Tax Rates

When you convert a traditional IRA to a Roth IRA, you will have to pay income tax on the conversion for the year you do the switch. But once the money is in the Roth IRA, future earnings and distributions that you take from the account are generally tax-free. So present and future income tax rates are key to deciding on whether a Roth conversion makes sense to you.

If you expect the income tax rate that you will pay in retirement will be equal to or higher than the rate in the year of the Roth conversion, then switching to a Roth IRA can pay off from a tax perspective. If your tax rate in retirement will be lower, then tax-free Roth distributions are less advantageous.

Federal income tax rates are low right now, and we think they will stay low for a while. Although the lower rates enacted in the 2017 Tax Cuts and Jobs Act are set to expire at the end of this year, it's widely thought that President Trump and congressional Republicans will extend them in their one big, beautiful bill.

We have heard that Republican lawmakers are mulling whether to impose higher taxes on millionaires. There's been chatter that some GOPers want to bring back the 39.6% top federal income tax rate for people who report $1 million or more of income. The revenues from this proposal could be used to help offset other tax cuts that lawmakers want, such as no tax on tips or overtime pay. It's too soon to know whether this tax hike proposal will come to fruition. Naysayers argue that raising income tax rates on individuals is anathema to the views of the Republican Party.

2. Distributions From Roth IRAs

Roth IRAs are more flexible than traditional IRAs when it comes to withdrawing funds, as you can see here:

• You can withdraw your contributions from Roth IRAs at any time without having to pay income tax.
• Distributions of earnings from Roth IRAs are free of income tax, provided you are 59 1/2 or older when you take the distribution, and at least five years have passed from the year that you first put funds in any Roth IRA that you own, either by contribution or through a Roth conversion.

3. Don't Use IRA Funds to Pay Tax on the Conversion

As we already discussed, you are responsible for paying the income tax on the Roth conversion for the year you do your switch. An important tip to keep in mind is that you should not use funds within your IRA to pay the tax on the conversion.

A Roth conversion is treated as a taxable distribution from your traditional IRA to you followed by a contribution of those funds to your Roth IRA. The custodian of your traditional IRA will by default withhold 10% federal tax from the converted funds. This withheld amount is treated as a distribution to you on which you have to pay tax, in addition to the remaining funds that you move to the Roth. That is why experts advise paying tax owned on a Roth conversion with non-IRA funds and requesting that the custodian withhold 0% on the conversion.

4. Roth IRAs Don't Have RMDs

There are no required minimum distributions for owners of Roths. So if you don't otherwise need the money from your Roth IRA while in retirement, you can let it continue to grow tax-free within the Roth.

Keep in mind, though that if you are subject to RMDs from your traditional IRA, you must first take your annual RMD from your traditional IRA in the year of the switch before you do the Roth conversion.

5. The 10-Year Cleanout Rule For Inherited IRAs

For most non-spousal beneficiaries who inherit an IRA after 2019, the IRA funds must be distributed to that beneficiary within 10 years after death. So, if an IRA owner dies in March 2025, the beneficiary must clean out the IRA no later than December 31, 2035.

This 10-year cleanout rule applies to beneficiaries of traditional IRAs and Roth IRAs, but there are a couple of key distinctions. First, beneficiaries of inherited Roth IRAs don't have to pay tax on the distributed funds, unlike beneficiaries of traditional IRAs. Second, beneficiaries of Roth IRAs needn't take an annual RMD from the inherited Roth account during the 10-year period. Many beneficiaries of traditional IRAs have to take an annual RMD in each of the 10 years if the original IRA owner died on or after his or her beginning RMD date.

6. Higher Medicare Premiums

IRA owners who do a Roth conversion will report income from the conversion on their federal tax return for the year of the switch. This additional income from converting might trigger higher Medicare premiums if you have Medicare.

Medicare participants with modified adjusted gross incomes over a certain amount pay a monthly surcharge for Parts B and D coverage on top of their regular monthly premiums. In determining 2025 Medicare premiums, the government looked at modified AGI reported on 2023 federal income tax returns. If your modified AGI on your 2023 return was higher than $212,000 for joint filers or $106,000 for single filers, then you are paying a monthly premium surcharge this year for Medicare Parts B and D coverage on top of your regular monthly premium. The surcharge amount increases as your income goes up.

The modified AGI amounts are indexed each year for inflation and will be slightly higher for the 2025 modified AGI used for figuring the 2027 monthly Medicare premium surcharges. Income from converting from a traditional IRA to a Roth IRA is included in the calculation of modified AGI.

7. Value of Investments In Your IRA

Converting to a Roth IRA can pay off if you expect that the assets in your IRA will soar in value. The same rationale applies if you have assets in your traditional IRA that are now depressed in value. For example, Roth conversions are sometimes more popular when there is a downturn in the market.

8. Partial Conversions

There is nothing in the tax law that requires you to convert all of the funds in your traditional IRA to a Roth IRA at one time. You can do Roth conversions in increments over time to space out the income tax hit on the conversion. For many IRA owners, a series of partial conversions over the years might be a more effective strategy.

9. You Can't Undo a Roth Conversion

Prior to 2018, if you converted all or part of a traditional IRA to a Roth IRA, you had until Oct. 15 of the year following the conversion to undo the switch and eliminate the tax bill by transferring the funds back to a traditional IRA. This is called a recharacterization and usually made sense if the Roth IRA lost money shortly after the conversion. The 2017 Tax Cuts and Jobs Act ended recharacterizations of Roth conversions. So if you do a Roth conversion, you are stuck with your original income tax bill, even in cases where your Roth IRA assets go down in value soon after the conversion.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

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• Ask the Editor: Reader Questions — IRAs, RMDs and PTPs

In 2024, 44% of households in the United States owned IRAs, including 33% with traditional IRAs, 26% with Roth IRAs, and 4% with IRAs through their workplace. These IRAs collectively held around $16.2 trillion in assets in mid-2024, representing 38% of all U.S. retirement wealth.

However, while nearly half of all households now have an IRA — and these IRAs hold around 13% of household financial assets — very few people actively contribute money to these accounts regularly. In fact, fewer than one in five households invest money into IRAs.

So, how did all of this money get into these accounts if people aren't investing in them? The bulk of it comes from a surprising source.

Most money in IRAs doesn't come from contributions

According to recent research from The Investment Company Institute, rollovers from employer-sponsored retirement accounts have been largely responsible for the growth of IRAs.

In total, 59% of households with a traditional IRA said the account contained a rollover from an employer-sponsored plan. Among those households that had rollovers in their account, 85% rolled over the entire balance from their workplace plan in their most recent rollover. However, just 41% of those households said they had also made contributions outside of the rollover.

ICI reports that, in total, the most recently available data from 2022 demonstrated households had rolled over an estimated $670 billion from employer-sponsored plans into traditional IRAs.

Most of this money (69%) came from people who moved their money into an IRA after a job change, layoff, or termination, while 46% shifted their funds into their IRA upon retiring.

Why are so many people rolling their 401(k) into an IRA?

Rollovers are popular and common because they are one of three options when you leave a job with a 401(k) — and they are often the best option. Here's what you can do with your 401(k) when you separate from an employer.

Leave it be. You can usually, but not always, leave your money invested, but you risk forgetting the account and losing the funds.

Empty your 401(k). You can withdraw the funds, but this is the worst possible option and not one worth considering, as it will trigger penalties and taxes and leave you without the invested funds for your future.

Roll over your 401(k). You can roll over the account to a traditional IRA without incurring a tax bill and preserve the ability to enjoy tax-deferred growth until retirement. (You can also roll over a traditional 401(k) to a Roth IRA, but there will be tax consequences.)

For many, rollovers are the best choice due to the significant advantages they can provide.

"Usually, rolling over a 401(k) to an IRA will allow for a much wider array of investment options, instead of being limited to what a 401(k) plan offers," according to Clifford C. Cornell, CFP, and associate financial advisor at Bone Fide Wealth, LLC. "The investment options in an IRA can even be more cost-effective than the funds offered by the 401(k) plan."

With the Bureau of Labor Statistics reporting a median job tenure of just 3.9 years for wage and salary workers in 2024, Americans also change jobs often. The ability to move multiple old 401(k) accounts to a single IRA is a significant advantage.

"A rollover could also be good if you have several 401(k)'s to consolidate into one rollover IRA," said Chad Gammon, CFP and Owner at Custom Fit Financial. "This can help simplify your finances."

And keep in mind that rolling over a 401(k) to an IRA does not count as an IRA contribution.

Rollovers aren't always the right choice

Although these advantages mean moving a 401(k) into an IRA is often the right move, that doesn't mean it always is.

"I have seen 401(k)s that have great options and very low costs, so it doesn't make sense to do a rollover," Gammon said. "There are also greater protections from creditors on 401(k)s than IRAs. The 401(k) is protected at the federal level, and the IRAs are protected at the state level. The states' protections vary state to state, and you will want to look at that for the state you live in and the state you plan to live in at retirement."

Cornell also warned that converting a 401(k) to an IRA could affect your ability to take advantage of the backdoor Roth option. "If someone is taking advantage of the Backdoor Roth on an annual basis, rolling their 401(k) to an IRA would make any conversion of pre-tax funds to their Roth IRA a taxable event."

That happens because the "pro rata" rule requires that you take all IRA distributions proportionally from pre-tax and after-tax contribution sources — and your 401(k) is a pre-tax contribution source.

Because of this, if you use the backdoor Roth option, Cornell advises rolling IRA funds to your new employer's 401(k) instead of to a traditional IRA so you don't affect your options for IRA to Roth conversions.

Should you contribute to an IRA?

While IRAs clearly serve an important role in providing Americans with a place to move 401(k) funds, the fact that so much IRA money comes from rollovers raises the question of whether more Americans should be directly investing in these accounts.

"Traditional and Roth IRAs can be a great way to add another level of tax efficiency to someone’s overall financial scenario," Cornell said.

While Roth IRAs have income limits, and traditional IRAs limit tax-deductible contributions for higher earners if the accountholder or their spouse has access to a workplace plan, IRAs do provide benefits, including a greater number of investment options as mentioned above. Further, for those who only have access to a traditional 401(k) at work, a Roth IRA offers an alternative that allows you to defer tax savings until retirement.

Ultimately, many Americans don't contribute to IRAs, though, and often for financial reasons. Investment Company Institute data shows four in 10 don't contribute to these accounts because they don't have extra funds to do so or because their workplace plans meet their savings needs.

Maxing out a 401(k) match is always more important than IRA contributions. But for those who have already earned all the contributions their employers offer, it may be worth funneling some of their spare funds to a traditional or Roth IRA instead of making additional 401(k) deposits to gain the added diversification IRAs can offer.

Read More

• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• The Average IRA Balance by Age
• How to Roll Over a 401(k) in Five Steps
• The 'Die With Zero' Rule of Retirement
• 10 Reasons to Leave Your Heirs a Roth IRA

If you are retired and worried about a recession, join the crowd. For current retirees or those planning retirement soon, just the whiff of a possible recession is alarming. The American economy has been remarkably strong, but confidence in the economy is plunging in the face of multiple economic and political challenges.

Economists have been flirting with the idea of a recession ever since the Federal Reserve began raising interest rates in early 2022 in response to soaring inflation. Despite 11 interest rate hikes between March 2022 and July 2023, consumer spending held steady. It wasn't until January of 2025 that spending fell by 0.2%, marking the first monthly decline since March 2023.

But while consumers may have been equipped to withstand a years-long period of elevated inflation and interest rates, the question is whether recently enacted tariff policies will push them over the edge. If tariffs drive prices up even more, it could lead to a broad consumer pullback and more inflationary pressure. Plus, tariffs could burden U.S. companies to the point where they have to make payroll cuts. That could lead to an uptick in unemployment and fuel a broad economic downturn.

Retired and worried about a recession

An early April Ipsos poll found that 61% of Americans think the economy is headed for a recession within the next year. And JPMorgan recently upgraded the likelihood of a global recession to 60% by year-end, up from 40%.

If you’re retired, recent economic news and events may have you understandably worried. Although you may not have to concern yourself with job loss the way working Americans do, you may be fearful that a prolonged economic slump will wreak havoc on your portfolio and upend your finances. But if you prepare accordingly, you can set yourself up to get through a recession relatively unharmed.

Here are some steps every retiree can take to prepare for a recession.

1. Boost your cash reserves before a recession

Portfolio values can decline dramatically during a recession. That’s problematic when you’re at a stage of life when you’re tapping your portfolio regularly for income.

To avoid locking in portfolio losses during a recession, boost your cash reserves so you can leave your non-cash assets alone to ride out the storm. Generally, it’s wise to have enough cash to cover a year or two of bills. You may want to veer toward the higher end of that range in case your portfolio plunges and it takes months for its value to come back up.

2. Assess your portfolio

Risk assessment is an integral part of managing a retirement portfolio, so it’s something you should be doing regularly. But it’s particularly important to check up on your asset allocation now, when recession fears loom. It's also wise to be deliberate and stay calm. Try to take emotion and worry out of your decision-making.

If you’re uncomfortable with the share of your portfolio in equities, consider shifting some of those assets into bonds. Given recent market events, now may not be the best time to sell stocks. But the S&P 500 enjoyed gangbuster returns in 2024. If you cashed in some gains earlier on in the year, losses you take now as part of a rebalance could help offset an associated tax bill.

If you are just about to retire or at the start of retirement, tread cautiously. The sequence of returns risk could put a serious dent in your retirement nest egg if you decide to sell too many equities.

3. Revisit your spending and withdrawal rate

When you’ve worked hard your entire life, you deserve to enjoy retirement – not penny-pinch your way through it. But if you’re worried about a recession and its impact on your retirement income, now’s the time to review your spending, see if there’s room to cut back and commit to a budget.

And if you’re not keen on reducing your spending, one thing you can do is pledge not to take on any new expenses until things settle down. For example, If you were considering upgrading a car, you may want to hold off on that as long as your current vehicle is drivable.

Finally, if you are following the 4% rule rate of retirement withdrawal, you may want to pare back to a lower withdrawal rate. Before you act, talk to your financial adviser.

4. Consider part-time work

Retirees often struggle to make peace with the idea of living off of savings. If you’re particularly worried about doing so given the potential for a recession, and you’re capable of working in some capacity, then there’s no reason not to do it. There's even a term for this trend: "unretiring."

Today’s gig economy offers ample opportunity to earn money without having to resort to a traditional desk or retail job. And if you’re worried about the impact of a job on your Social Security benefit, rest assured that you’re allowed to work while receiving benefits.

If you’ve reached full retirement age, you can earn any amount of money from a job without negatively impacting your monthly benefits. If you filed early, you must be mindful of Social Security’s earning test limits.

5. Explore options for tapping home equity

In 2022, median home equity among homeowners ages 65 and over was $250,000, according to Harvard University's Joint Center for Housing Studies. If recession fears are worrying you, see how much equity you have in your home and shop around for borrowing options in case you wind up needing to tap it.

Granted, any home equity loan or HELOC you sign today is likely to come with an interest rate that’s higher than what you want to pay. But it could make sense to have that option in your back pocket in case you need to exercise it.

6. Find the silver lining in recession

It may be hard to believe that a recession can bring opportunity to retirees, but for those who are well-positioned, a recession can bolster financial security. For example, there are multiple ways your estate can benefit when markets are down. You could plan a Roth conversion from a traditional 401(k) or IRA. By doing so, you could convert your investments with a lower tax cost that would benefit from tax-free growth when the market recovers.

Read More

• How to Protect Your 401(k) in a Down Market
• Stock Markets Are Tanking: Here’s How Retirees Can Stay Calm
• Thinking About Unretiring in 2025? You're Not Alone
• Should You Retire Now or Work Five More Years?

There’s a reason savers are often encouraged to either stow money for retirement in a Roth account from the start or do Roth conversions ahead of retirement. Roth accounts do not force savers to take required minimum distributions (RMDs), which can be problematic in several regards.

RMDs effectively force you to spend down your savings in your lifetime to a large degree. The reason for this is that lawmakers do not want tax-advantaged retirement accounts like IRAs and 401(k)s to become wealth-transfer tools utilized primarily by the rich. Instead, the IRS is willing to allow savers to contribute thousands of tax-free dollars each year to these accounts for the promise that that money will eventually be spent in retirement.

But it’s not just that RMDs limit the extent to which you get to enjoy tax-advantaged growth in retirement. They also create a tax liability. Plus, they can have other consequences, like pushing higher earners into income brackets that result in Medicare surcharges.

For this reason, many savers try to avoid RMDs. But not everyone can.

If you were a high earner for most of your career, you may not have had an opportunity to do a Roth conversion before retirement. So, if you’re stuck taking RMDs, you might as well make the most of that money. Here’s how.

If you're stuck taking RMDs, then use QCDs to soften the tax blow

Qualified charitable distributions (QCDs) are a great way to reduce the tax liabilities associated with RMDs. To make one, choose a registered charity that's meaningful to you and confirm that they're able to receive QCDs. From there, it's a matter of filling out the right forms within your retirement plan to arrange for the direct transfer of funds.

If you're on the hook for very large RMDs, though, QCDs may not totally solve your problem. They max out at $108,000 this year for singles and $216,000 for married couples filing jointly.

Reinvest RMDs for a tax-efficient legacy

RMDs force you to remove funds from a tax-advantaged retirement plan. But no one is going to force you to spend the money. Evan Potash, executive wealth management advisor at TIAA, says that if you don't need the funds, you can pay the taxes and reinvest RMDs in a taxable brokerage account.

"This is a great way for individuals to leave a tax-efficient legacy for their families," he says.

Pass RMDs on to family

It may be that you're in a better financial position than your grown children, who may be struggling to cover their expenses while grappling with childcare costs. Potash says another great way to make the most of RMDs is to gift the money to someone you care about.

"The IRS also allows you to gift $19,000 per year to anyone," he explains." This allows you to transfer your wealth to family when they may need it the most. You can also see them enjoy the gift while you’re alive."

Travel as a family

You may have ample room in your retirement budget for travel. But if you have funds from RMDs coming your way, Potash suggests using the money to treat your loved one to shared travel experiences. Traveling as a family allows you to make memories you’ll cherish forever, and you may find the experience more rewarding than traveling solo or with your spouse or partner.

Start a business

Many people with successful careers suffer an identity crisis in retirement. The loss of a job can translate into a loss of purpose, leaving retirees lost.

That's why starting a business can be beneficial for retirees, even if it's not a major money-maker. And Jake Falcon, CEO at Falcon Wealth Advisors, says, "For those with entrepreneurial aspirations, RMDs can be used to start a small business or invest in a passion project. This can provide a sense of purpose and potentially generate additional income, making retirement more fulfilling."

Retrofit your home to age in place

A growing number of Americans are seeking to age in place. Often, that requires home modifications to address safety and mobility issues.

Falcon says, "As retirees age, it's important to ensure their living environment is safe and comfortable. Using RMDs to retrofit their home with accessibility features, such as grab bars, ramps, and stairlifts, can improve their quality of life and allow them to age in place."

If your home is already well-suited to aging, or you’re not sure you’ll stay there forever, you can spend your RMDs on improvements that might enhance your quality of life in the near term. That could mean springing for the ultra-plush carpet you’ve always wanted or installing seasonal window treatments.

Invest in your health

Rather than bemoan upcoming RMDs, you can use them as an opportunity to improve your health, says Falcon. You’re never too old to hire a personal trainer or invest in equipment that helps you build up or maintain your strength.

Read More

• Protect Your Retirement: Seven RMD Mistakes to Avoid
• How to Calculate Your RMDs (Required Minimum Distributions) for IRAs
• You Can't Take It With You: Four Things You Lose in Retirement
• The Rule of 1,000 Hours in Retirement

Artificial intelligence (AI) is still in its early days, but it is going to change lives in ways we cannot imagine — and some of those changes could directly affect the way you plan and save for retirement.

"AI is already being integrated into retirement platforms," explained Arjun Bali, a senior data scientist at Rocket Mortgage. "Among the most notable is the use of robo-advisors dynamically managing portfolios depending on personal risk profiles, age, income, and retirement objectives. Personalized nudging systems also use behavioral data to recommend the best time to rebalance portfolios, optimal asset allocations, or increases in contribution rates."

This technology is still developing, though, and it is still being incorporated in new ways — including in workplace plans. In fact, MetLife's 2025 Enduring Retirement Model Study revealed multiple ways AI could change the landscape of employer-provided retirement benefits to help workers build a more secure future.

How AI could impact your workplace retirement plan

According to MetLife's research, "plan sponsors believe artificial intelligence has the potential to significantly impact retirement benefits for plan sponsors and plan participants alike."

Specifically, plan sponsors believe artificial intelligence technology will enable them to:

• Use predictive analytics to estimate participation levels in workplace plans.
• Estimate the future performance of workplace plans.
• Summarize large volumes of plan information.
• Automate complicated plan management tasks.
• Optimize the process of deciding which benefits to offer.

By taking these tasks off the to-do lists of plan administrators, AI could incentivize more companies to offer workplace retirement plans by reducing the cost burden. It could also help employers provide plans with lower fees that better meet workers' needs.

Changes for plan participants

Employees will also feel the impact of AI more directly as artificial intelligence enables employers to incorporate new features and tools in retirement savings plans. Specifically:

• 52% of plan sponsors believe AI will help workers select investment options based on their specific goals.
• 49% say AI can help workers develop customized retirement strategies.
• 48% believe AI will assist retirees in choosing retirement income options based on their needs.
• 43% believe AI will help employees make decisions about benefit distributions.

Faisal Hoque, a technologist and author of Transcend: Unlocking Humanity in the Age of AI says some employers have begun to deploy these features, although there's still significant potential for growth.

"In many 401(k) plans today, AI tools personalize savings recommendations based on each person's income, goals, and risk tolerance — making it easier for people to make better financial decisions," he explained. "Over time, these tools will get even smarter, automatically adjusting contributions and investments to help people stay on track."

How AI could change the retirement planning landscape

These changes ushered in by AI could profoundly reshape how workers interact with their plans, which could have a major impact on retirement preparedness.

"The promise of artificial intelligence is in its capacity to reduce complexity," Bali said. "For the typical participant who might lack the time or financial knowledge to actively control their plan, AI offers timely, data-driven, individualized direction. Predictive analytics can model retirement results under several circumstances, and natural language chatbots can simplify investment choices into plain English. This enables people to be more confident and wiser in their choices."

Bali believes this could result in less inertia, higher plan participation rates, and better long-term outcomes for participants — especially for those most in need of help, including younger employees and underprivileged employees.

Experts from the World Economic Forum (WEF) also believe AI could be a solution to retirement challenges created by increased longevity. "Covering basic expenses [for more years] could require people to work longer, save and invest more aggressively, or adjust their standards of living. But artificial intelligence may offer a remedy, potentially bolstering pension plans and social security in pursuit of better retirement outcomes," a WEF article said.

Consumers still need to be aware of risks

With 60% of retirement plan participants reporting they're overwhelmed by plan information and 77% indicating they're eager for more professional help in decision-making, demand for these AI tools is likely to be high.

"These AI tools can simplify complex financial decisions, offer real-time insights, and personalize recommendations in a way that many people wouldn't get otherwise. That kind of support can be a game changer, especially for workers who don't have access to financial advisors," Hoque said.

However, Hoque warned that while AI tools may become effective sources of aid, they'll live up to that potential only if designed responsibly.

"Technology is only as good as the intention and ethics behind it," Hoque said. "If these tools are built with transparency, fairness, and human well-being in mind, they can absolutely help people make smarter, more informed choices about their retirement. The key is to make sure AI is used to empower, not overwhelm or manipulate."

Some specific risks that Hoque said to be mindful of include:

• Over-reliance, or placing too much trust in algorithms without a full understanding of how decisions are being made.
• Bias that's baked into the data that causes AI tools to make recommendations that don't serve everyone equally.
• AI tools that end up prioritizing profits or efficiency over what's actually best for individuals.

Bali also cited many of the same risks, and added data privacy and security to the list of concerns as well, commenting, "retirement plans include highly private financial data. Any violation or misuse of that information could undermine confidence in the system." Make sure to protect your privacy while using AI.

However, despite sharing many of the same concerns, both Hoque and Bali believe the careful design of AI tools can mitigate these risks. However, at the same time, both made clear that machines will augment human-decision making, but that there's ultimately no substitute for it.

"While AI can be a powerful guide, users should always stay informed and ask questions," Hogue said. "Remember, no algorithm can fully replace human judgment when it comes to your financial future."

Learn more about AI

• How AI Will Impact Our Lives in 2025 and Beyond
• How to Protect Your Privacy While Using AI
• Major AI Companies You Should Know
• What Is AI Investing?

Most people are familiar with the laws that protect 401(k) plans from bankruptcy and insurance that protects individual deposit accounts from bank failures. But are there any federal protections for individual retirement accounts (IRAs)? The short answer is yes.

The Employee Retirement Income Security Act (ERISA) protects 401(k) plans from employer and employee bankruptcies, and the Federal Deposit Insurance Corporation (FDIC) insurance protects up to $250,000 in individual deposit accounts from bank failures.

For IRA holders, there are limited protections in place through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Before its enactment, IRA holders relied solely on state law to shield their assets.

Now, the extent of the protection will be dictated by what type of IRA you have and the statutory maximum amount of IRA funds that can be excluded from a bankruptcy estate. As the number of bankruptcies rises, understanding the protections your IRA enjoys can give you some leeway to reorganize your finances.

How many people have filed for bankruptcy?

Total bankruptcy filings rose 13.1% during the 12 months ending March 31, 2025. Non-business, or individual bankruptcies, rose 13.0% to 505,771, compared with 447,458 in 2024, according to statistics released by the Administrative Office of the U.S. Courts.

The Consumer Bankruptcy Project (CPB) found that the median age of those filing for bankruptcy was 49. And people 65 and older filing for bankruptcy have become the fastest-growing demographic group over the past 20 years. This group has grown from 4.5% of bankruptcy filers in 2001 to 18.7% of filers by 2022. This is partially a result of the growing number of people 65 and older in the U.S., which increased 38.6% between 2010 and 2020, according to Debt.org.

New York’s eastern district recorded the highest percentage of repeat filers, 54%, with Utah close behind at 52%. North Dakota and Puerto Rico had the lowest number of repeat filers filing Chapter 13, at 13% and 16% respectively.

Why are people filing for bankruptcy? In one survey, 78% of respondents cited a decline in income as a reason, and 65% reported that their bankruptcy filing stemmed from medical debts and missed work due to illness.

Protections for IRAs under BAPCPA

Knowing if your particular IRA account is protected is important because not all retirement accounts share the same type of creditor protection. This is becoming a more pressing concern as the number of people filing for bankruptcy is rising generally and the number of people filing over age 65 has grown substantially.

ERISA provided federal bankruptcy protection for 401(k) plans and traditional pensions before the passage of BAPCPA. Previously, IRA protections were defined at the state level, if at all. After the law's passage in 2005, IRA account holders in every state were afforded some form of bankruptcy protection for their assets.

When you apply for bankruptcy, you are required to liquidate your assets to repay your creditors. If you file for a Chapter 7 or a Chapter 13 bankruptcy, certain property is exempt from entering the estate. These estate exemptions are typically governed by state law, but the federal bankruptcy code does include an exemption list for states that do not have their own. This estate, a collection of your nonexempt assets, is used to repay your creditors.

Limits on IRA protection

For 2025-2028, under BAPCPA, Roth and traditional IRA balances are exempted from the bankruptcy estate up to $1,711,975That is an increase of $199,165 from the previous limit of $1,512,350. This increase went into effect on April 1, 2025. Any amounts over the limit will be included in the petitioner's bankruptcy estate.

This exemption amount is subject to cost-of-living adjustments (COLAs) and is adjusted for inflation every three years. The next time the exempted amount can go up is in April of 2028.

Remember that the $1,711,975 does not include funds rolled into the IRA, such as from a 401(k). Former employer plan dollars remain 100% protected from bankruptcy within the IRA and do not reduce the $1,711,975 cap.

Rollovers from employer-sponsored retirement plans. Eligible rollover distributions retain the unlimited bankruptcy protection given to them while held in the exempt retirement plan if they are contributed to another eligible retirement plan within 60 days of distribution. Earnings on the rollover assets are protected as well. However, in non-bankruptcy situations, state laws apply to IRA assets, including rollover IRAs.

Inherited IRAs. If you file for bankruptcy and have an inherited IRA, those funds can be taken by creditors. This is true even though retirement funds are often exempt in bankruptcy filings. The protection does not apply when you inherit an IRA, except in one case — when you inherit from a spouse.

While you may read that the status of inherited IRAs is unclear, in June 2014, the U.S. Supreme Court ruled unanimously, 9-0 in Clark v. Rameker, No. 13-299 (U.S. 6/12/14), that inherited IRAs are not protected in bankruptcy under federal law; upholding a Seventh Circuit decision, that said inherited IRAs do not enjoy the protections of IRAs in bankruptcy proceedings.

Non-bankruptcy situations

In non-bankruptcy situations, assets held in ERISA plans are fully protected under the anti-alienation provision of the law. This provision prevents the assignment or transfer of pension benefits to third parties, ensuring funds are protected for retirement. That is not the case for IRAs; for anything other than a bankruptcy, state law determines whether IRA assets will receive protection from creditors’ claims. And many states have strong creditor protections for IRAs, SEPs, and SIMPLE IRAs.

Neither BAPCPA nor ERISA provides absolute protection from all claims. Exceptions apply to: federal criminal fines, back taxes and penalties, court orders related to divorce, child support, and qualified domestic relations orders (QDROs).

Creditors can't get your IRA, but Uncle Sam can still tax you on it

The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) put IRAs out of the reach of bankruptcy creditors and gave account holders a way to protect their retirement funds in hard times. Remember that any qualified retirement plan or IRA, including traditional, Roth, rollovers, SIMPLE, or SEP IRAs, may be subject to an IRS tax levy. The government rarely puts your money beyond reach.

Employees in qualified retirement plans protected by ERISA should consider the degree of creditor protection when deciding to keep their accounts under an ERISA plan or rolling over accounts to an IRA. If you want to move the money out of a former employer’s plan, you can move it into your new 401(k) retirement plan and keep the bankruptcy and creditor protections afforded by ERISA.

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An IRA conversion to a Roth IRA is a popular pre-retirement or early-retirement move. Roth IRAs offer several benefits that traditional retirement plans don’t. Not only are investment gains in a Roth IRA tax-free, but withdrawals are tax-free, as well.

Just as important, Roth IRAs don’t require savers to take required minimum distributions (RMDs), as traditional IRAs and 401(k)s do. This allows Roth IRA holders to benefit from tax-free growth indefinitely and to use their retirement accounts to pass on wealth to younger generations.

However, because higher earners are barred from making direct contributions to a Roth IRA, some people find themselves needing to convert a traditional IRA or 401(k) to a Roth IRA after the fact. The process is fairly simple, but it’s essential to get the timing of those conversions just right.

IRA conversion to Roth from traditional accounts

If you have a traditional IRA, converting it is a straightforward process: contact the financial institution holding the account and complete the necessary paperwork. With a 401(k), things could get a touch more complicated, but not unreasonably so.

Many 401(k) plans allow direct rollovers to a Roth IRA. If not, you may need to open a traditional IRA, receive a check for your 401(k) balance and roll the funds into an IRA within 60 days. Once your traditional IRA is funded, you can initiate a Roth conversion.

Another option, if you have a 401(k), might involve an "in-plan conversion," which means converting your traditional employer retirement plan to a Roth, then moving those funds into an IRA.

You should know that a Roth IRA conversion is a taxable event. The amount you move triggers a tax bill for the year you make the conversion. That means you must plan ahead for these taxes.

You should also know that there's a five-year waiting period before you can withdraw converted Roth IRA funds to avoid a 10% penalty. However, that rule doesn't apply to the principal sum converted — only gains. It also doesn't apply once you turn 59½. At that point, you’re entitled to penalty-free withdrawals from any tax-advantaged retirement account you have.

Who benefits from a Roth IRA conversion?

People who expect to be in a higher tax bracket in retirement than during their working years can commonly benefit from a Roth IRA conversion. But there’s more to the story.

Bryan Bell, CFP®, ChFC®, is a vice president, senior investment adviser, and regional director at First Horizon who says Roth conversions can be especially useful for people in cyclical industries.

“Mortgage brokers and real estate agents, for instance, tend to go through feast-or-famine years,” he explains. “As such, we advise them to make maximum contributions to their retirement plans during feast years and then do a Roth conversion in famine years.”

Like Bell, Brian Schmehil, managing director of wealth management at The Mather Group, LLC, says Roth conversions are optimal for people who suddenly find themselves in a lower tax bracket.

“A Roth conversion may be wise if you’re transitioning from filing jointly to single due to a divorce or widowhood,” he says.

Doug Carey, CFA and president of WealthTrace, agrees and says the key is to focus on what your taxes look like now vs later.

“I have found that people who retire in their early to mid-50s, do not have a pension, and have very little taxable income from investments are prime candidates for a Roth conversion,” he says.

Timing a Roth IRA conversion

Because Roth IRA conversions are taxable events, it’s crucial to get the timing right. Natasha Howe, wealth manager and vice president at Siebert Financial, says the best time to do a Roth conversion is towards the end of any year in which you've received the least amount of taxable income.

“The reason why you should wait to do it towards the end of the year is because at that point you will have a better sense of your total projected income, which ultimately determines which tax bracket you fall into for that specific year,” she explains.

Carey also says that generally speaking, the sooner you can start converting, the better, provided you have a lower income tax rate than you expect to have in the future.

“By starting earlier, you allow the benefits of the Roth IRA tax treatment to compound over time,” he explains. To this point, Carey notes that the longer your life expectancy, the more valuable a Roth conversion becomes.

As he explains, there’s a break-even period before the conversion becomes beneficial because of the immediate tax bill it triggers. “You need time for the tax benefits to offset the upfront costs,” he says.

Carey also thinks it’s wise to spread Roth conversions over time to avoid jumping into a higher federal income tax bracket.

Bell, meanwhile, suggests paying attention to the stock market when a Roth conversion is on the table.

“Consider making a conversion when the market is down,” he says. “The strategy is to convert and pay taxes when the balance is relatively low and then let it grow back tax-free.”

Schmehil also warns that you must consider how your Roth conversion could impact your Medicare costs. Higher earners are subject to income-related monthly adjustment amounts, or IRMAAs, which drive up Part B and D premiums based on your modified adjusted gross income from two years earlier.

"If you're under 63 and planning to enroll in Medicare at 65, Roth conversions might be beneficial since you won’t yet face IRMAA surcharges," he explains. Otherwise, be cautious: a Roth conversion could increase your Medicare costs, at least initially.

The OBBB complicates things a bit

The passage of the One Big Beautiful Bill (OBBB) has introduced changes that could complicate Roth conversions, warns Schmehil.

"Instead of merely converting up to a certain income tax bracket or being mindful of IRMAA income levels, you now need to be aware of losing the additional $6,000 deduction for seniors over 65, with phaseouts beginning at $75,000 for singles and $150,000 for married couples," he explains.

Schmehil also warns those considering a Roth conversion to keep the new SALT cap rules in mind.

"There is an increased SALT cap of $40,000 for both single and joint filers, but it begins to phase out at $500,000 MAGI," he explains. "Staying below these income thresholds may make sense in certain circumstances, even if it means converting less in a given tax bracket."

If the OBBB makes a Roth conversion less appealing, Schmehil says there are ways to soften the potential tax blow from RMDs in a traditional IRA.

"As long as you plan to make qualified charitable distributions to offset most, if not all, of your RMDs, there’s no need to do Roth conversions just to pay taxes to the government, which could have been avoided altogether if the money was directed to charity," he insists.

All told, says Schmehil, there needs to be a compelling upside for a Roth conversion to pay off.

"Conversions only make sense if you’re achieving some form of tax arbitrage, meaning paying less now to avoid higher taxes in the future," he concludes. "Estate taxes and Medicare premium increases are also part of this consideration."

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When markets are volatile, your estate can benefit from a refresh. That includes how you manage your portfolio in a down market. The S&P 500, Nasdaq and Dow Jones Industrial Average are all slipping as war breaks out in Iran. But for those with an estate they want to pass on to heirs, the declines bring opportunity.

“Assuming that the markets will recover, we are able to transfer a lot of assets outside the estate at discounted dollars,” says Howard Sharfman, senior managing director at NFP Insurance Solutions. “There are many ways to use a temporary dislocation to benefit.”

From gifting to charities and heirs, to engaging in a Roth IRA or Roth 401(K) conversion, here’s how you and your estate can benefit in volatile times.

Markets are volatile, amp up your gifting

For 2026, the Internal Revenue Service lets you give up to $19,000 for single filers and $38,000 for couples without paying the gift tax or using any gift tax exemption.

You can make as many gifts as you want within those limits. In addition, as of 2026, each person can give up to $15 million during their lifetime (or at death), free of gift and estate tax. When the markets are down, you can gift more stock within the annual tax-free limit.

“You can give away more assets worth less under the hope they will grow in value,” says David Handler, a partner in the trust and estate group at Kirkland & Ellis. Apple, Nvidia or Exxon may be tanking today, but that doesn't mean they will be that low a few years from now.

There are several ways to gift your heirs more assets, such as an irrevocable trust, a Grantor Retained Annuity Trust (GRAT), or a Donor-Advised Fund (DAF).

Irrevocable Trust: It can't be changed or terminated. When the assets are transferred into the trust, you no longer own them. That also means they are no longer considered taxable assets.

Grantor Retained Annuity Trust (GRAT): You avoid using the lifetime gift and estate exclusion. Each year, an annuity is paid out for a predetermined period, and the excesses are passed on to your heirs gift-tax-free.

Let’s say you own $2 million worth of Tesla shares and believe the stock slump is short-lived and will appreciate in the coming years. You want to transfer that future growth to your heirs and create a two-year GRAT that holds the $2 million in Tesla shares.

The annuity payments you get over the two years will equal the initial value of the gift plus interest at the IRS's assumed growth rate. If the value of the stock in the GRAT rises above the assumed growth rate, that excess return is transferred to your heirs gift-tax-free.

“You have to do it while the value is low,” says Handler. “If the stock market rose 500 points, you missed the opportunity.” Remember that just because a stock is low, there is no guarantee it will go back up. In that scenario, there won’t be anything to pass along to heirs.

Donor Advised Fund (DAF): A DAF is a charitable giving vehicle in which you contribute assets, get a tax deduction, and then have a say in grants going to qualified charities. You can donate stocks, cash, real estate and even cryptocurrency.

Using a DAF, you can donate stocks at a lower price and get a charitable deduction on the current fair market value. If the stock recovers, the assets in the DAF grow tax-free, yielding a larger future gift for the charity.

This strategy only works if your main goal is to give charities something that has the potential to appreciate. If you are more focused on the tax deduction, donating when assets are richly valued is a better move.

Roth conversions

A Roth conversion occurs when you move funds from a traditional IRA, 401(K), or 403(b) into a Roth IRA or Roth 401(k). In other words, you are transforming a "traditional" investment into a "Roth" investment.

In a down market, you can convert assets at a lower tax cost because they are worth less and benefit from tax-free growth when the markets turn around.

With a Roth IRA or Roth 401(K), contributions are made with after-tax dollars, but withdrawals are tax-free (with some exceptions).

Let’s say you planned to convert $100,000 worth of stocks out of a traditional 401(k) into a Roth 401(k), but when you do the conversion, the value of the stock has fallen to $70,000.

You pay 30% less in taxes with the conversion, and if and when the stock market rebounds, all future gains are tax-free. Plus, with a Roth IRA or Roth 401(k), there are no Required Minimum Distributions (RMDs), which means your money can grow tax-free for however long you need it to.

“For any clients that have a Roth conversion on the table, now is a great time to consider doing it,” says Will O’Rourke, a financial adviser at Prime Capital Financial. “Roth money is the best thing to travel through an estate.”

Tax loss harvesting

Tax loss harvesting occurs when you offset gains with losing investments to reduce your capital gains exposure. By pairing a winning and losing stock, it counts as a wash, and there is no capital gains tax.

If your losses exceed the capital gains, you can use up to $3,000 to offset income per year. Losses beyond that can be used in future years. There is one caveat. You can’t repurchase the same or a similar security within thirty days before or after.

To prevent yourself from being out of a stock you love for thirty days in a volatile market, Sharfman says to select another stock to purchase that tends to move the same as the one you sold.

Take AI chipmaker Nvidia for one example. If you use that for tax loss harvesting and don’t want to wait thirty days, you can purchase shares of, say, Google or Microsoft, which tend to trade with Nvidia.

Don't go it alone

At the end of the day, it’s best to speak with your financial adviser if you have one. While you can DIY estate planning, there are many moving parts and different tax implications based on the strategy you employ.

“No one ever got poor paying for good advice,” said Sharfman. “This is a great area to pay for advice.”

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Living on investment income is living the dream. Although many retirees are woefully short on savings, some manage to launch their golden years with plenty of money. But having a giant nest egg doesn’t guarantee that it will last. And that’s a significant concern for retirement planning.

A 2024 Allianz Life survey found that 63% of Americans are more worried about depleting their savings than dying. And while implementing a strategic withdrawal strategy can mitigate that risk to some degree, there are no guarantees.

One way to potentially guarantee that you won’t ever run out of savings, though, is to live on investment income only.

What is investment income?

Investment income, also known as portfolio income, is generated by dividends, interest, and capital gains on investments. It's one of three broad types of income: the other two are passive income (such as from rental properties) and earned income (such as from a job).

Let's look at how investment income could fund your retirement. As a very simplified example, if you have a $1 million portfolio that generates 4% a year, and you can live on $40,000 plus whatever amount Social Security pays you, then there’s no need to touch your $1 million principal. Keep that up throughout retirement, and not only do you lower your risk of depleting your savings, but you’re also then able to leave a legacy behind to your heirs.

It’s a good idea in theory. But does it work in practice? It depends.

Interest rates must cooperate

Living on investment income alone is possible, says Dan Wilson, managing partner of Skyeburst Wealth Management, a private wealth advisory practice of Ameriprise Financial Services, LLC. But it depends on the interest rate environment.

Wilson explains that the 4% rule has been popular for many years because, under it, “you can pull 4% a year against your portfolio, and your money will last 30 years 90% of the time.”

However, bond rates fell for a period of time, to the point where many experts changed their tune on the 4% rule. Morningstar, for example, concluded that a 3.3% withdrawal rate was more realistic for 2021, while it rose to 3.8% in 2022.

In today’s environment, Wilson thinks 4% isn’t unreasonable. “Bond rates are more normalized again,” he says. And so living only on interest has gotten easier now that interest rates are higher. However, if bond yields slide again, this strategy may not hold up as well.

It takes a lot of money

The 4% rule is not meant to leave portfolio principal untouched. Living on investment income alone is an entirely different strategy. And it could require a large savings balance to accomplish.

Domenick D’Andrea, Co-Founder/Financial Advisor at Cetera Investors, says that while not touching principal is difficult for many people, “if you have a combination of considerable assets and low expenses, a plan like this can work for you.”

“With this combination, you may be able to generate more income than you need to cover your expenses, so market downturns may not affect the need to make changes, and you could still live off the decreased income until the market rebounds,” he says.

Douglas A. Boneparth, Financial Advisor and President at Bone Fide Wealth, LLC, agrees. “It’s possible to live solely on portfolio interest and income in retirement without dipping into your principal, provided you’ve built a sufficiently large and well-structured portfolio,” he says.

Boneparth continues, “A $2 million portfolio with a 4% yield could produce $80,000 annually before taxes, which might suffice for some people to live a comfortable lifestyle, depending on needs and location.”

But while $80,000 a year may be enough income early on in retirement, as living costs rise, it may fall short, especially as healthcare needs evolve. And there’s also the risk that over time, an $80,000 income won’t hold up as well due to inflation.

Setting up your portfolio to live soley on income

If your goal is to live solely on portfolio income in retirement, you’ll need the right investment mix.

“The key is generating consistent, reliable cash flow — think dividend-paying stocks, bond interest, or rental income — that covers your living expenses, adjusted for inflation and taxes,” says Boneparth.

Of course, the only way to truly ensure that you won’t see a reduction in your portfolio’s principal is to move all of your assets into cash and spread your money across enough accounts to secure FDIC protection. However, that strategy is unlikely to work in the long run as interest rates fall.

Boneparth says a better plan is to “diversify across asset classes, and reinvest excess early on to compound returns.”

Should you plan to live solely on investment interest?

The peace of mind you get from not touching your portfolio’s principal in retirement could be offset by a more limited lifestyle. If you’re too nervous to touch your principal at all, you could end up denying yourself comforts and experiences you can both enjoy and afford — the opposite of the "die with zero" rule of retirement.

So whether it's a good idea to live on portfolio income alone or not depends on your specific goals, says Wilson. “If leaving a legacy is important, it's a good thing,” he explains.

However, it’s not necessarily a great thing to declare your portfolio’s principal off-limits out of fear. And talking to a financial adviser specializing in retirement planning might change your approach to how you use your money.

“There are investment vehicles that can help you not outlive your assets,” D’Andrea says. “I would suggest talking with a financial professional to see how you should best plan for your retirement.”

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There's a reason financial experts have long touted Roth IRAs as an optimal savings tool. Roth IRAs offer a number of key benefits that traditional retirement plans can't match. But like Pooh's Heffalump trap (which eventually captures Pooh and Piglet), it's all too easy to fall prey to your own best-laid plans if you don't understand what you're dealing with.

Your financial adviser may remind you that traditional IRAs provide a tax break on funds contributed, and earnings get to grow on a tax-deferred basis. However, when it comes time to withdraw those funds, retirees are then dealt the blow of taxes on withdrawals.

Worse yet, traditional IRAs eventually require savers to draw down their funds in the form of required minimum distributions (RMDs). Those not only result in a loss of tax-deferred gains but also create what could be a substantial tax liability.

Roth IRAs, on the other hand, do not offer a tax break on contributions. Instead, they offer tax-free gains and withdrawals, both of which could be invaluable to Americans who wind up in a higher tax bracket than expected later in life.

Furthermore, Roth IRAs don’t impose RMDs, which means savers can enjoy tax-free gains in their portfolios indefinitely. For this reason, Roth IRAs can also function as estate-planning mechanisms, allowing savers who don’t need all their money in retirement to leave a legacy behind to their heirs — and a tax-advantaged one at that.

But there’s a dark side to Roth IRAs that isn’t talked about as much. And it’s important to understand the pitfalls.

1. This Roth IRA pitfall bars higher earners from direct contributions

There are no income limits associated with traditional IRA contributions. Not so with Roth IRAs. Higher earners commonly hit a snag by not being able to fund a Roth IRA directly.

The income thresholds at which contributions are barred change annually. In 2025, direct Roth contributions are off the table for single tax filers earning $165,000 or more, or married couples filing jointly earning $246,000 or more.

Of course, there may come a time when Roth IRA income limits are lifted. The country is deep in the throes of a retirement savings crisis, according to Aaron Tallen, VP, Head of Distribution Ops & 401k Defined Contributions at Security Benefit. So lawmakers may opt to change the rules to incentivize people to save for retirement.

For now, Tallen says, “People need to realize they can take advantage of conversions.” But that introduces a world of complications, as Roth conversions done in one fell swoop could have serious tax implications.

2. There's still uncertainty around taxes

Some financial experts say that we’re in a period of historically low tax rates. But ultimately, we don’t know what the future holds for tax rates. And that’s another potential pitfall of Roth IRAs.

The nice thing about Roth IRAs is that they offer protection against future increases. But Tallen warns that it’s not a given that you’ll be in a higher tax bracket in retirement than you are today.

"There's the uncertainty of ‘I know where my tax bracket is today, but I have no idea what my tax obligation will be in the future,’" he says. Tax code changes and life circumstances could make it so that the time to optimize tax breaks on retirement savings is during your working years, not retirement, making a Roth IRA a less optimal choice.

3. It's almost too easy to take an early withdrawal

Since Roth IRAs don’t give you a tax break on contributions, you’re free to withdraw your principal contributions at any time without a penalty. That might seem like a great thing, since it gives you flexibility. But Terry Parham, Co-Founder, Financial Planner, CFO, and CCO at Innovative Wealth Building, says it’s not.

"It's a less effective forced savings," he explains. And that worries him, because if Roth IRA savers don’t have early withdrawal penalties to worry about, they might raid their accounts ahead of retirement and get stuck with a shortfall later on.

4. You need tax diversification to take advantage of IRS benefits

While Parham is a fan of Roth IRAs, he feels that having 100% of one’s money in a Roth account is not a great thing.

"Tax diversification is the name of the game," he says. “You should have some level of pre-tax assets [in retirement] to get certain tax benefits.”

For example, Parham says, it’s not unusual for well-off individuals to want to donate to charity during retirement. But people in that boat can potentially benefit more from traditional IRAs than Roth IRAs. That way, they get the up-front tax break on the money they put in plus the tax break on qualified charitable donations (QCDs) once RMDs come into play.

“There's no tax break for doing a QCD from a Roth IRA,” Parham explains. “So you're better off getting the tax break on the traditional IRA and then doing a QCD.”

Parham also notes that we don’t know what tax breaks may be coming down the pike. “It could be that there’s a new non-refundable tax credit the IRS makes available,” he says. “If you don't have enough income, you don't get the credit.”

For this reason, Parham warns against going all-on on Roth IRAs. Having some taxable retirement income isn’t a bad thing, he insists.

5. There's no employer match

While this Roth IRA pitfall may be fairly obvious, it bears stating in full. With a 401(k) you usually can earn a company match, but that's not an option with Roth IRAs. In general, if you have access to a 401(k), you should deposit enough funds to get the full employer match and only then contribute to your IRA. For more details on deciding between the two, read IRA vs 401(k): Should You Pick One — or Both?

Read More

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For many 50-year-olds, the magic number for retirement feels like a moving target. Even though building solid retirement savings takes years, even decades, millions of people are falling short in this regard.

That’s particularly true of Americans age 50 and older, as a recent AARP survey revealed. The nonprofit advocate for older adults found that one in five or 20% of Americans 50-plus have no retirement savings at all. Even among those who are saving, 61% expressed concern that they won’t have enough money to support their lifestyle in retirement.

That's bad news. A retirement shortfall could force you to work longer, downsize, or drastically change your lifestyle to make ends meet.

Pre-retiree retirement savings check-up

If you're in the 50 to 55 age range, now is the time to start thinking about the retirement you envision for yourself.

It might be 10, 15 or 20 years away, but age 50 to 55 is a good time to take stock of your retirement savings and make adjustments, if needed.

“You are close to pre-retirement time,” in your early 50s, says Sharon Carson, executive director of J.P. Morgan Asset Management. “You have 10 to 15 more years to save. Take advantage of catch-up contributions, get the employer match and if you have a relatively low savings rate, increase that.”

Are your retirement savings on track?

Not sure if you're on track with your retirement savings? In what might be a wake-up call or elicit a sigh of relief, JPMorgan crunched the numbers to determine how much adults should have saved based on age and income.

The Wall Street bank’s model assumes the following:

Annual gross savings rate: 5%

Pre-retirement portfolio makeup: Target date fund

Post-retirement portfolio makeup: Target date fund

Inflation rate: 2.5%

Retirement age: 65

Years in retirement: 35

For all you 50 to 55-year-olds out there, check to see if you're on track based on JPMorgan’s figures. Keep in mind that these amounts are a general guide. Everyone’s financial situation is different, and some might need more or less in retirement.

Feeling good or falling short? Time to act

If you're on track based on JPMorgan’s calculations, now is not the time to slow down. If possible, increase your savings rate as much as you can.

By upping it to 10% of your income, Carson says you can make up a lot of ground in a decade or more. Use this time to start thinking about when you want to retire and the type of life you envision.

It's also a good time to get your debt under control. You don't want to enter retirement with high-interest debt that will eat away at your cash flow. Don't focus on your mortgage, especially if you have a low mortgage rate. Focus on the high-interest debt.

From ages 50 to 55, Carson says to start thinking about how you’ll pay for any long-term care needs in the future.

Health care in retirement isn't cheap. Fidelity Investments pegged the cost at $172,500 for a 65-year-old retiring this year. That doesn't take into account any accidents or stints in a long-term care facility.

Off track?

If you're facing a shortfall based on JPMorgan’s guide or your own assessment, don’t despair; you still have time to save more in your early 50s and, if need be, work longer than you anticipated.

Even an extra year in the workforce will boost your income, and you'll spend one less year drawing down on your retirement savings.

Plus, you’ll benefit from compounding. Let’s say you have $3 million in your retirement account, earning a 10% return. After one extra year of working and not drawing down from your savings, you’ll have $3.3 million for retirement instead of $3 million.

Additionally, working a little longer will give your retirement savings account time to recover from any losses.

The 30% boost secret: Why working 12 months longer changes everything.
Working longer can also positively impact your Social Security benefits. If you're on the cusp of hitting your Full Retirement Age or FRA, which is typically around 67, depending on when you were born, delaying for six months, nine months, or a year will result in a 30% boost in your benefits.

If you are of FRA and delay retiring for even six months, it can result in larger payments when you begin collecting. Your Social Security benefits are calculated based on your 35 highest-earnings years, adjusted for inflation. If you're at your peak earnings and hold off, that’s more months calculated into your earnings.

At 50, you can also begin taking advantage of catch-up contributions that will allow you to save more in your tax-advantaged company-sponsored retirement account.

For 2026, the contribution limit for a 401(k), 403(b), and most 457 plans is $24,500, while IRA contributions are capped at $7,500.

If you're 50 and over, you can contribute an extra $8,000 to your 401(k) and $1,100 to your IRA.

It's crunch time

Your early to mid-50s should be about positioning yourself for retirement, including saving, paying down debt, and planning and plotting.

“It's starting to be crunch time when you get to 55,” says Carson. “In the pre-retiree phase, you need to start to think about what you're going to do in retirement.”

Editor's Note: "Retirement Savings on Track? How Much You Should Have by 50 and 55" is part of an ongoing series on getting your retirement on track by age. The second story is "Retirement on Track? How Much You Should Have by 55 and 60." The third is "Retirement Savings On Track? How Much You Should Have By 60 and 65."

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Amid heightened inflation and economic uncertainty, the 10-year Treasury yield is about 4.22% and has inched close to 5% in recent months. This means that Treasury bonds are paying their highest rates in years. And buying Treasury bonds could provide a safe and steady income stream for retirement savers.

Treasury bonds are considered among the safest investments around because they are backed by the full faith of the U.S. government, which has never defaulted on its debts.

“There are a lot of concerns about the amount of debt the U.S. has, but even with that sentiment, it is still regarded as one of the safest investments,” said Austin Brown, Chartered Financial Consultant (ChFC) and senior financial advisor at CG Financial Services.

What are Treasury bonds and how do they work?

Treasury bonds have many advantages, but it's important to understand how these securities work before you decide to invest. So let’s take a closer look.

Treasury bonds are essentially loans you extend to the government so it can fund its operations. In return, the bond pays a fixed interest rate or coupon payment every six months. Treasury bonds come in durations of 20 years and 30 years. At the end of that term — when the bond reaches maturity — you’ll get back your initial investment, also called its face value.

Suppose you buy $20,000 worth of Treasury bonds with yields of 5%. Your annual interest payment would be $1,000, or $500 every six months. And when the bond matures, you’ll get your $20,000 back as well. You can use that money to reinvest in Treasury bonds or move funds to different parts of your retirement nest egg.

And if you need your funds before the maturity date, you can sell your Treasury bonds on the secondary market.

This may be a good idea if you need the money when interest rates fall. That’s because your Treasury bond, with its higher yield, could be more attractive in an environment where newly issued bonds have smaller yields. However, those near or in retirement may be more interested in a safe and predictable income stream than in speculating on interest rates.

“Although the value of the actual bond can fluctuate as the interest rate market changes, the interest you receive and the principal you receive are known on the front end," Brown said. “So if you hold to maturity, the outcome is defined and known.”

Generally, the value of Treasury bonds goes down when interest rates go up and vice versa.

Nonetheless, Treasury bonds also enjoy distinct tax advantages.

“A key advantage is that the interest income is tax exempt on the state and local level, which is a huge benefit for high-income investors in states and cities with high taxes,” said Bobbi Rebell, certified financial planner (CFP) and personal finance expert at BadCredit.org.

However, the interest would be taxed at the federal level.

You can buy Treasury bonds in increments of $100 directly from the government through TreasuryDirect, though moving them into an IRA could be cumbersome. You could also purchase Treasury bonds through a brokerage account.

“For many investors who already have brokerage accounts, it makes sense to purchase them through the account they already have open, even if there are some fees involved at times,” Rebell said. “It will be easier to get started, and they will also have an easier time if they want to sell them on the secondary market, so it gives them easier access to liquidity.”

Risks of Treasury bonds

Although Treasury bonds offer many advantages for retirement savers, they also come with some risks. For starters, Treasury bonds are susceptible to inflation risk. When the rate of inflation is higher than your yield, the purchasing power of your interest payments could be significantly eroded. This could be especially troublesome when you’re in retirement.

“If we do see more inflation, the return will remain steady and will not increase with inflation and could lock an investor into returns that aren’t keeping up with increasing costs driven by inflation,” Rebell said.

Another potential pitfall is interest rate risk. If interest rates rise, your Treasury bond could lose value in the secondary market. That’s because newly issued bonds with higher yields could be more attractive to investors.

“There can also be an opportunity cost because historically, other investments like equities have produced better returns,” Rebell said. For retirees trying to manage longevity risk, overinvesting in Treasury bonds might render your portfolio too conservative.

Treasury ETFs for those near retirement

You can also gain exposure to Treasury bonds by investing in Treasury exchange-traded funds (ETFs). Treasury ETFs are professionally managed baskets of Treasury securities with different yields and durations. These ETFs can also hold intermediate-term Treasury notes or T-notes, and short-term Treasury bills or T-bills. These ETFs may also be a defensive play in our current trade-war environment.

This provides diversification and bypasses the leg work of buying individual Treasury securities.

Moreover, Treasury ETFs pay interest in the form of monthly or quarterly dividends. For those near or in retirement, this offers a more frequent stream of income than individual Treasury bonds, which pay interest every six months. You can also buy and sell shares of Treasury ETFs throughout the trading day.

“This is often a great solution for most people because it is easier to adjust your exposure over time,” Brown said.

Still, Treasury ETFs come with potential disadvantages.

Although generally small, Treasury ETFs do charge management fees or expense ratios. If you buy individual T-bonds through TreasuryDirect, you won’t face any fees or commissions.

And because they hold Treasury securities, these ETFs are also subject to inflation and interest rate risk.

However, you could also diversify your portfolio with Treasury inflation-protected securities or TIPS, which are designed to keep pace with inflation.

So, should you invest in Treasury bonds for retirement?

If you’re in or near retirement, you may be interested in Treasury bonds. With durations of 20 or 30 years, these securities make fixed interest payments every six months. And with the backing of the U.S. government along with tax advantages, Treasury bonds are considered among the safest investments available. But they do run inflation and interest rate risks. Still, these bonds, as well as Treasury ETFs, could provide downside protection in your retirement portfolio.

Whether and to what extent you should invest in T-bonds ultimately depends on your individual investment goals and risk tolerance. When in doubt, talk to a trusted financial adviser.

Treasury bonds can be “part of a diversification strategy to reduce risk against the often volatile equity market," explained Rebell. That strategy "is a key consideration for retirement savings as someone gets closer to retirement.”

Read More

• How to Add Treasury Bonds, Bills and Notes to an IRA
• The Average IRA Balance by Age
• Retirement Income Strategies for the Long Haul
• Treasury Bills vs. Treasury Bonds: Know the Difference

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Daniel Aronowitz, has been nominated by President Trump to serve as Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA). The oversight provided by the ESBA is critical to the safety of retirement savings and employee welfare plans, including health care. If confirmed, his responsibilities will include safeguarding the $14 trillion in private sector pension and welfare plans that benefit 156 million workers, retirees and family members.

The EBSA enforces the Employee Retirement Income Security Act (ERISA), a federal law protecting participants' rights in private-sector retirement and health plans. ERISA oversees approximately 2.6 million health plans, 801,000 private pension plans and 514,000 other workplace welfare benefit plans.

If confirmed, he would serve under the secretary of labor. The nominee for labor secretary, Lori M. Chavez-DeRemer, testified at her confirmation hearing on February 19 and will face a vote in the Senate Health, Education, Labor, and Pensions (HELP) Committee when they consider her nomination on February 27.

Who is Daniel Aronowitz?

Aronowitz has spent most of his career focused on representing plan administrators in the context of the Employee Retirement Income Security Act (ERISA). He currently serves as president of ENCORE Fiduciary, an insurer specializing in ERISA fiduciary liability insurance. As head of the ESBA, he would be responsible for protecting employer-based retirement, health, and welfare benefits for workers and retirees of the private and public sectors.

He is a graduate of The Ohio State University and Vanderbilt University School of Law and has achieved the RPLU+ designation from the Professional Liability Underwriting Society.

Lisa Gomez, the outgoing head of the EBSA, said in an interview that she’s happy that the person nominated to replace her is familiar with ERISA plans and understands the challenges plan fiduciaries face, Pension and Investments reported.

Critic of growing plaintiff class action litigation against plan administrators

Aronowitz is a regular critic of plaintiffs’ attorneys suing plan administrators in posts on his The Fid Guru Blog. According to Bloomberg Law, "the number of class actions charging employers with violating strict fiduciary conduct standards under federal benefits law has snowballed over the last decade, reaching an all-time post-pandemic high in 2020 and remaining elevated ever since."

In a December 10, 2024 post titled, Rebuttal to the American Association for Justice’s Supreme Court Amicus Brief Extolling the Virtue of Private ERISA Litigation he wrote, "The plaintiffs’ bar is nevertheless manufacturing fiduciary-breach cases in a business model designed to enrich lawyers, not plan participants, turning these plans into liability traps. ERISA’s fiduciary process standard has been turned into a performance standard in which plaintiff lawyers have become the judge and jury."

He devoted his most recent post outlining why the judgment against American Airlines for a breach of their duty of loyalty for failing to stop their investment manager (BlackRock) from voting for dissident directors in a 2021 Exxon proxy vote, was "unprecedented." He said in his first of four points criticizing the decision that "the decision is wrong on the law and must be reversed on appeal" and that the decision "is a political statement against the evil of ESG, with conscientious American Airlines fiduciaries caught as collateral damage."

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Making a six-figure salary has a nice ring to it. But figuring out how to generate $100,000 in retirement income and replacing that old paycheck can be challenging.

The first step towards this goal is to do the math to estimate how much you need to have saved in your 401(k) to create a $100,000 paycheck.

Your goal is to cover essential expenses such as housing costs, gas, food and electric bills — as well as pay for fun stuff such as eating out, going on vacation or affording a home at the lake, beach or mountains.

What savers think they need to retire comfortably is all over the place. The magic number is typically north of $1 million, according to industry studies.

A Northwestern Mutual study found that Americans think $1.46 million is the "magic number" to save for retirement. Retirement savers responding to a Charles Schwab survey set an even higher bar: $1.6 million.

Those guesstimates are just what people think they'll need to save to pay the bills and live a fulfilling life in retirement.

If you know you’ll need to produce six figures on your own each year in retirement, you’ll have to work your way back to figure out how big an account balance you’ll need for your portfolio to throw off $100,000 in income.

A few simple rules of thumb can help you set a savings target that boosts your chances of a secure retirement and allows you to fund the lifestyle you covet.

Withdraw $100K a year with the 4% rule

The 4% rule calculation

Let’s say you follow the popular 4% rule. This means you’ll withdraw 4% of your portfolio in year one of retirement and $4% plus inflation adjustments in future years. This strategy is designed to make your money last 30 years.

Here’s how the simple math goes:

Annual income / % of portfolio withdrawn annually = Savings needed to retire comfortably

If you want six figures in retirement income, here’s what the calculation looks like:

$100,000 / 0.04 = $2.5 million

No doubt, that’s a big lump sum to get your arms around. Remember, your savings are only needed to fill the so-called “income gap” that arises after your other sources of income are added to the equation, such as Social Security or, if you’re lucky, a work pension.

Note that if your 401(k) or IRA is traditional, rather than a Roth, you'll need to account for the additional taxes you will pay on withdrawals.

Add in Social Security benefits

Let’s say you'll take home the average monthly Social Security retirement benefit of $2,076 as of February 2026. That equates to roughly $25,000 in additional income.

Keep this government-funded benefit in mind when you are deciding when to start taking Social Security, as the longer you wait, the bigger your benefit check will be and the fewer dollars you will need of your own savings to generate income.

If you subtract $25,000 from your $100,000 total, you now need to generate only $75,000 of income with your own savings.

Here’s how the math changes and relieves some of the heavy lifting you need to do with your own portfolio.

$75,000 / 0.04 = $1.875 million, which we'll round up to $1.9 million.

That’s still a lot of dough to save, but it’s still over half a million bucks less than the $2.5 million you would have had to save without those benefits.

Add in a pension

Let’s say you also have a work pension that pays you $2,000 a month, or $24,000 each year, in income. Now you need to generate just $52,000 of income on your own.

The math gets a lot easier to stomach.

$52,000 / 0.04% = $1.3 million

Factor in your rate of return

A key aspect of zeroing in on how much your portfolio can generate in income and what types of assets you must invest in to reach your withdrawal hurdle rate is the annual return you earn, notes James Ritzema, senior portfolio analyst at Baird.

For example, in today’s world of higher interest rates, it’s not hard to get a 3.8% to 4% return without taking on significant risk. That's down, of course, from the salad days of 2024 when you could get a 5% yield from a high-quality bond portfolio.

But that wasn’t the case a few years ago when interest rates were at zero, and savers and retirees needed to take additional risks to generate the return needed to fund their income needs.

“Starting yields are really the thing that’s going to be the best determinant of the income you’re going to be able to generate,” said Ritzema.

Build a diversified portfolio

Don’t go too conservative and put all your money into less-volatile fixed-income assets, such as bonds, as you near or enter retirement. Invest for growth and income.

"You still want a mix of stocks and bonds," said Ritzema. "You want to still have the potential for capital appreciation."

Remember to include inflation

Over the long haul, stocks produce bigger returns, which help you outrun inflation and grow your portfolio, as all the money in your portfolio doesn’t need to be tapped for income all at once. When you account for inflation, which is around 3.3%, $100,000 in income now only generates $96,700 in purchasing power, Ritzema explains.

The types of assets you invest in on the fixed-income slice of your portfolio are also important to help you boost your income. With the economy solid, for example, owning a slice of so-called junk bonds, or non-investment-grade debt, yielding around 7%, will help boost income in the portfolio, says Ritzema.

It’s always nice to have a portion of your portfolio that can generate all the income you’ll need without being subject to market volatility, says Daniel Milan, managing partner at Cornerstone Financial Services.

Ideally, "you don’t want to sell shares of some asset (when they are selling at depressed prices) to generate income," said Milan. "That’s what creates additional risk in distribution years," (known as the sequence of returns risk).

When it comes to income planning, Milan likes to start the transition from the accumulation stage of retirement saving to the so-called distribution phase or withdrawal period.

Portfolio construction

"We transition to a blend of dividend-paying stocks (60% of portfolio), some fixed income (20% of asset mix), and a sleeve of private market credit investments (20%), which generates higher income streams than traditional fixed income," said Milan.

Investors can gain exposure to this private credit via funds that specialize in floating-rate bank loans, whose yields rise when market rates increase. "It creates a hedge against inflation," said Milan.

The benefit of investing in dividend-growth stocks, Milan adds, is that these companies typically have strong underlying fundamentals and consistently increase their dividends year after year.

"You need to have a growth rate of your dividend yield that’s increasing at a rate higher than inflation," said Milan.

Max out and play catch-up

In your savings years, take advantage of employer-sponsored retirement savings accounts such as 401(k)s and individual retirement accounts (IRAs) and save as much as possible.

Maxing out your contributions each year and taking advantage of catch-up contributions if you’re 50 or older can help you get closer to your savings goal. The maximum contribution limit in 2026 for 401(k) plan participants under 50 is $24,500.

If you're 50 or older, you can sock away an additional $8,000 in your 401(k). If you are between the ages of 60 and 63, you can save $11,250 (instead of $8,000) in super-catch-up contributions. The maximum contribution for IRAs in 2026 is $7,500, with savers 50 and older able to contribute an additional $1,000 in catch-up savings.

Control spending if necessary

If it seems too daunting to hit savings targets required to create an income stream of $100,000 each year, then it might be necessary to tighten your budget a bit so you can trim your income needs to a more doable level, says Ritzema.

"One of the things that you can control as an individual (is your spending) and maybe living below your means for a while," said Ritzema. "See how that feels, (especially) if you’re looking for a retirement account to generate a smaller income stream. That’s certainly something to think about."

Milan says the biggest impediment to retirement savers meeting their goals is not sticking to their savings plan over time.

"The financial plan only works if you commit to the savings plan over the next 20 years or so," said Milan. "Two million dollars is not a small thing to accumulate."

However, Milan stresses that not all your retirement income must come from your 401(k) or IRA.

"All future income sources should come into the (magic number savings) calculation," said Milan. "But you first need to determine what that number is."

"What you really need to determine is the future dollar amount I will need to live on in retirement. Whatever your income gap is from fixed sources of income, you need to save in your own accounts to close that gap.”

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Acing all the key components of retirement planning is akin to getting a perfect score on the SAT college entrance exam. It’s not impossible. But for most people, it’s a long shot. And just as a prospective college student may seek help preparing for the SAT, it often makes financial sense for everyday Joe and Jane 401(k) plan savers to seek a financial adviser to help them map out a retirement strategy.

Even 401(k) do-it-yourselfers who did just fine during the nest-egg accumulation stage realize that there’s a lot more complexity in the so-called “distribution phase” when work paychecks stop and paying the monthly bills relies on the retiree’s own assets and retirement plan.

It’s not easy for a DIYer to figure out how much income they’ll need for retirement. Key questions may seem straightforward, but they may quickly get complicated. For example: what funds should I invest in; how should I divvy up assets between stocks and bonds; when should I take Social Security; how should I manage required minimum distributions (RMDs); what financial accounts should I withdraw money from to save on taxes; and should I convert a traditional IRA to a Roth IRA?

That’s a mouthful. However, the laundry list of retirement puzzle pieces is designed to illustrate that coming up with a perfect retirement plan on your own is challenging. For most people, it’s simply too heavy a lift.

When the job of overseeing your retirement-related finances becomes too complex or overwhelming, getting help from a financial adviser could relieve some of the burden. Indeed, working with a financial adviser acting as a fiduciary (e.g., someone who puts your best interests ahead of their own) can go a long way toward helping you get your finances on track, whether you’re nearing retirement or already enjoying your golden years.

The financial adviser, who offers services ranging from retirement planning to portfolio advice, risk management, and tax planning, will assess your financial position holistically and develop a financial plan to help you set and achieve your goals and desired lifestyle in retirement.

So, if you’re looking for a financial pro to help you plan for retirement, where do you start?

How to find a financial adviser for retirement

Word of mouth: One way to jumpstart your search for a financial adviser who specializes in retirement planning is to ask friends, family members, and professional contacts for referrals. Getting recommendations from people you trust, especially your accountant, attorney and other so-called “centers of influence,” can get the ball moving.

Look into a large brokerage firm: Another good option, especially if you already have a relationship with an investment company or brokerage, such as Fidelity Investments, Charles Schwab, Vanguard, or T. Rowe Price, to name a few, is to investigate the relatively low-cost advisory options, retirement planning solutions, and investment options these well-known firms offer. These services typically range from digital advice to a more traditional advisory relationship that includes your own dedicated adviser. In fact, many financial firms, including Schwab and Fidelity, have an adviser search tool on their websites,

Use industry group search tools. Tapping the resources of industry groups representing financial advisers and financial planners is also helpful. For example, the National Association of Personal Financial Advisors (NAPFA) helps you initiate contact with a financial adviser in just a few clicks. Similarly, the Certified Financial Planner Board offers a search tool to find advisers who have earned the Certified Financial Planner (CFP) designation. Some sites allow you to search by zip code, assets under management, area of specialty (such as retirement planning or estate planning), and by the type of client the adviser focuses on (e.g., women, retirees, or LGBTQ).

Financial planning networks: These networks are another excellent resource for locating financial advisers, according to NerdWallet. Examples include XY Planning Network, whose advisers hold the CFP designation and offer virtual services; and CHIP, which focuses on matching clients with African American, Hispanic, and Latinx financial advisers.

Check each adviser's certifications. You’ll run into acronyms for financial certifications and credentials when searching for financial professionals. A CFP, for example, stands for a certified financial planner. This financial professional has passed a comprehensive exam on financial planning topics and has met a minimum threshold for hours worked in a financial planning capacity. CFPs are held to a standard that requires them to act as fiduciaries. You may also encounter a ChFC, which stands for Chartered Financial Consultant, or an RIA, a Registered Investment Advisor.

Do your due diligence. No matter their credentials, ensure you check their professional background, Fidelity Investments advises. “That means treating them like you would any other person you were considering hiring for a job: by looking at their resume or LinkedIn as well as asking for references,” Fidelity noted in a blog post. You can also run a free background check using the Securities and Exchange Commission’s Investment Advisor Public Disclosure database or FINRA’s BrokerCheck system.

Ask these questions before you hire a financial adviser

Michael Cherny, head of Citizens Wealth Management Advisors, recommends getting to know a potential financial adviser better by asking key questions during your first introductory meeting. “Your first meeting can help determine if the financial advisor is a good match for you professionally and personally,” Cherny wrote in a blog post.

Here are the questions Cherney recommends you ask:

• What are your experiences and qualifications? Find out how long they’ve been in the industry and if they have any specialty designations like a CFP or if they specialize in retirement planning.
• Have you worked with people like me before? You can often find a better match, says Cherny, if the adviser commonly works with clients your age and income range and who share similar retirement goals.
• Do you manage investments, prepare financial plans, or both? Make sure the adviser specializes in the area you need help.
• How do you approach investing? You want to ensure that the adviser invests in a way that you are comfortable with and that aligns with your risk tolerance and goals.
• How will we communicate? Get a sense of how frequently you’ll touch base with your adviser. Will it be a monthly, quarterly, or annual check-in? And find out whether you will meet by phone, in person, or digitally. Ask to see a demonstration of the financial software your adviser uses.
• How do you get paid? As noted below, financial advisers are compensated in several different ways. They can charge you based on the amount of money in your account, by the hour, or a flat fee. So, make sure you find out what payment system will be used and that you’re comfortable with that arrangement. “You may also find advisers who earn commissions by selling investments,” says Cherny. Commission arrangements should be evaluated carefully, as advisers can earn commissions by putting you into specific mutual funds or other types of investments when there might be lower-fee options available.

How much do financial advisers charge?

The cost of a financial adviser depends on how the financial professional charges for their services. Here are the common pricing structures:

Assets Under Management. Often, financial advisers charge a percentage based on assets under management — or how much of your money they manage. The industry median charge is 1% (meaning half charge less and half charge more), according to Fidelity. So, if a financial adviser is managing $500,000 of your money and charges 1% of assets under management, their services would cost you $5,000 per year. But it’s possible to get advice for less due to the competitive nature of the business. So, shop around and compare the costs for advice based on assets under management.

Hourly. Some charge by the hour, not by the balance in your account. Rates range from $200 to $400, according to financial website NerdWallet. Going the hourly rate route is a good option if you just want to set up, say, a basic retirement savings plan, or you want an adviser to analyze the holdings and asset allocation in your 401(k) to see how much income that will generate, as well as let you know if you’re on track for retirement or whether any tweaks to your portfolio are necessary to reach your goals.

Flat fee. Some financial advisers charge a set fee based on the work they do. This pay structure is akin to an à la carte menu at a restaurant, where each menu item you select comes with its own charge. A financial adviser, for example, may quote you a set one-time fee to create a comprehensive financial plan for you.

Should I use a robo-adviser to save money?

Not every investor has the time or money to hire a real-life financial adviser to help them with retirement planning. Some people have simple goals, such as saving for retirement or planning a 4% annual withdrawal strategy, and therefore don’t require a comprehensive retirement financial plan. For these people, a robo-adviser may be a good option. Robo-advisers can deliver digital portfolio management and asset allocation decisions at a fraction of the cost of a traditional adviser.

There are several factors to consider when choosing the best robo-adviser for you.

Keep in mind that some digital robo-advisers, including Facet Wealth and Empower, as well as many big brokerages and mutual fund companies, also offer virtual access to a human financial adviser if a financial plan is needed.

Red flags when hiring a financial adviser — avoid the sharks

Zoe, a wealth platform that vets independent financial advisers and connects them with people seeking advisers, highlights key red flags to watch out for when shopping for an adviser.

For one, you’ll want to think twice about joining forces with an adviser who focuses on short-term performance rather than a long-term plan. You should also tread carefully with advisers who claim to consistently outperform the market. Advisers who push products, such as mutual funds or annuities, for which they earn a commission, are another red flag. It’s also important to vet financial advisers to ensure they have no record of unethical or illegal behavior.

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Tax season is here. Employers had until January 31 to distribute W-2 forms to employees. It’s a pretty routine system for working Americans, but how does the process change once you enter retirement?

Unlike your working years, your income streams are a bit different in retirement. In this phase of life, you’re likely going to be living off of a combination of Social Security benefits, retirement account savings such as a 401(k) or IRA, and maybe even an annuity or pension. Regardless of where your income is coming from, managing taxes on those funds is crucial to preserving your savings while maximizing your funds. Fortunately, there are several different strategies to help you reduce or eliminate taxes in your golden years.

Utilizing tax-advantaged accounts is one of the most efficient ways to manage taxes in retirement. If you have a Roth IRA, any withdrawals made after age 59½ and a five-year holding period, are tax-free. In other words, any growth in your investments can be taken out without incurring taxes, potentially reducing your taxable income significantly.

Traditional IRAs work a bit differently. Although distributions from these accounts can be taxed as part of your annual income, you can manage when and how much you withdraw to minimize the tax bill. One example is to consider taking out less from these accounts during the years you’re expecting to fall into a lower tax bracket. It’s important to note, though, that required minimum distributions (RMDs) must be taken from these accounts once you reach age 73, and those are considered taxable income.

Consider delaying Social Security

Delaying Social Security benefits is another option. If you wait until age 70 to claim your benefits, you can increase your monthly check significantly. Waiting until this age to claim Social Security may also help you avoid higher taxation on those benefits during your go-go years when you might be reliant on other sources of income.

If you have investments outside of your retirement accounts, you’re no stranger to the capital gains tax. This tax is due after an investment is sold. For the 2025 tax year, long-term capital gains tax rates can vary from 0%, 15% to 20% of the profit depending on your individual income.

However, holding investments for more than a year will allow you to benefit from lower, long-term capital gains rates when compared to short-term rates.

If you have investments that are underperforming, you may even want to consider tax-loss harvesting. This method allows you to sell investments that have lost value to offset gains made from other investments, therefore reducing your taxable income.

What if you're nearing or just entering retirement?

While these strategies are helpful for folks entering or nearing retirement, you don’t have to wait that long to figure out how you’re going to manage taxes once you retire.

As you are planning for retirement, it might be a good idea to invest in a tax-free plan such as a Roth IRA. Funds in this account are made from post-tax contributions, which are contributions that are paid from an employee’s paycheck after it’s been taxed. Funds in a Roth IRA grow tax-free, but it’s important to note that the contributions made to these accounts are not tax-deductible. This carries several different advantages.

For example, these plans have no RMDs, and your withdrawals will be tax-free as long as certain requirements are met. And since you pay taxes upfront on the money you contribute, there’s no penalty if you withdraw those earnings.

This kind of plan may be a good option for people who expect their retirement tax bracket to be the same or higher than their current bracket. By paying taxes on those contributions upfront, you get the benefit of being taxed at a lower rate, which puts more money in your pocket in the long run.

Taking a tax-advantaged approach when planning for retirement is key if you want to keep more of your money in your pocket. And with proper planning, you can implement some of these strategies even if you’re decades away from retirement. With the new year well underway, this is a great opportunity to invest in your future — especially if you’re planning on retiring later this year.

The views and opinions expressed herein are those of Joel Russo and do not necessarily reflect the views of CoreCap Investments, LLC or CoreCap Advisor, LLC, its affiliates, or its employees. The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation. Investing involves risk and you may incur a profit or loss regardless of the strategy selected.

Want more guidance on retirement savings? Sign up for Kiplinger's six-week series, Invest for Retirement.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Roth IRAs (Individual Retirement Accounts) are a key part of estate planning, providing tax-free growth on both contributions and investment earnings.

Unlike 401(k) plans, Roth IRAs don’t have a rule forcing you to take required minimum distributions (RMDs) while you’re alive, allowing the account to grow intact. This enables your heirs to enjoy tax-free withdrawals for years, provided they manage distributions properly and the account is transferred correctly.

Thinking about adding a Roth IRA to your estate plan? This is what you need to know about Roth IRAs, passing along a Roth IRA to your heirs, and 10 reasons why it’s a good idea (based on current U.S. tax and benefit rules).

First, what is a Roth IRA?

A Roth IRA is an individual retirement account that you contribute to with after-tax dollars. While this might seem like a drawback at first, the main benefit is that your investments grow tax-free.

You can withdraw both your contributions and any earnings tax-free before you reach retirement age if you meet certain conditions — you must be at least age 59½ and have had the Roth account for at least five years. There are also income limitations to take into consideration.

10 reasons to leave your heirs a Roth IRA

Some people set up a Roth IRA with no intention of ever making a withdrawal. Instead, they invest in a Roth for the sole purpose of passing it to their loved ones.

Here are 10 reasons why leaving a Roth to your heirs is a good idea — both for you and your heirs.

1. Money grows tax-free

Unlike traditional IRAs, which let you deduct your contributions from your income taxes but require you to pay income taxes later in life when you make withdrawals, Roth IRAs let you grow your money tax-free.

Roths are funded with after-tax dollars. There is no age requirement for contributions, although you must be within the income limits to contribute to a Roth IRA. That means there's the potential for more money to grow in your account to pass to your heirs.

2. No required minimum distributions (RMDs)

Because you're not required to take minimum distributions (RMDs), from your Roth IRA, you can pass along more of your retirement savings to your heirs. However, this benefit is only reserved for the original account holder.

“Most non-spouse beneficiaries must liquidate an inherited Roth IRA within 10 years after the Roth owner's death,” says Patrick O'Leary, CFP®, CWS® and senior vice president and financial adviser at O'Leary Wealth Management at DA Davidson. “However, the heir has significant flexibility in the timing of the withdrawals. Funds can be withdrawn in a lump sum or over a period of years.”

But make no mistake, if you fail to comply with RMDs, your heirs might be subject to significant tax penalties.

3. Divide inherited IRAs tax-free

The tax code allows your heirs to divide an inherited IRA tax-free into separate IRAs for each of your beneficiaries. When you, as the original account owner, die, each beneficiary can establish their own inherited IRA with their share of the account funds.

This can go a long way to eliminate family conflicts that can sometimes occur with a simple will.

4. Distributions aren't subject to the 10% rule

Distributions made to heirs after the death of the original owner aren’t subject to the 10% tax penalty, no matter how young the heir is.

5. The five-year rule doesn’t apply

Although the original owner of Roth IRAs might need to hold the account for at least five years to ensure all distributions are tax-free, distributions to beneficiaries will be tax-free regardless of how long the IRA was open or how long the heirs own the Roth IRAs.

6. Tax-free inheritance

With a Roth, as long as you meet IRS requirements, you can withdraw both contributions and any earnings tax-free.

“This benefit passes on to your heirs, as well, because they won’t owe income taxes on withdrawals, allowing them to maximize the value of the inheritance,” says Todd Villarrubia at Wealth Planning Law Group.

7. Spousal benefits

Without making changes to the Roth, a spouse can inherit a Roth IRA and become its account holder. This is called a spousal transfer. No taxes are owed on withdrawals from the Roth, and no RMDs are required until they pass it to others.

8. Long-term investment

Doug Carey, president at WealthTrace explains that if a Roth IRA is set aside for heirs, the time span for its eventual use of investment principal is longer.

“This means investing in more stocks than with a traditional IRA that you plan on using for spending. By investing for a long time, the growth over time should be larger than if those investments were in bonds or cash.”

9. Avoid probate

One reason to leave a Roth IRA to your heirs is to avoid probate — the legal process that validates a person’s will in court and allows the distribution of their assets according to the terms in a will, or state law, if there is no will.

Probate costs can vary, but usually range from 3% to 7% of the estate's value, according to De Fonte Law.

With properly designated beneficiaries, your Roth IRA will be excluded from your estate in a probate process.

"Leaving a Roth IRA to beneficiaries allows for the passing of tax-advantaged wealth, says Joel Russo, LUTCF, founder and principal at NJ Retirement Planning. “It’s simply a tax-free inheritance.”

10. The possibility of no estate tax

Carey adds, “In most cases, Roth IRAs are not subject to estate taxes if they are under the federal estate tax exemption threshold. If your estate is subject to estate taxes, a Roth IRA can be a very good way to reduce estate tax liability for your heirs since it grows tax-free.”

Roth IRA rules for saving and withdrawing

A Roth allows after-tax contributions to grow tax-free until you start making withdrawals. These contributions aren’t taxed as income, but there are withdrawal rules you must follow that don’t apply to 401(k)s or traditional IRAs. Because your income was already taxed before it was invested in a Roth IRA, no tax deductions can be taken on your contributions.

Generally, any growth in your Roth account is tax-exempt. However, you could owe taxes if you don’t meet certain requirements. You might also end up paying a 10% early withdrawal penalty.

Roth IRA contributions

Roth contributions are the money you invest in an IRA. Earnings are the profits on those investments. Both your contributions and earnings grow tax-free. Contributions are also limited by tax filing status and your modified adjusted gross income (MAGI).

For 2026, You can contribute the full $7,500, or $8,600 if you're age 50 or older, if your MAGI is under $153,000 (single) or $242,000 (married filing jointly). Partial contributions phase out up to $168,000 (single) or $252,000 (joint). You’re ineligible above those thresholds.

One of the many benefits of a Roth is that you can withdraw your contributions at any time and for any reason with no tax or other penalties.

However, these distributions might be subject to income taxes and a 10% penalty if you make withdrawals before the age of 59½, according to the IRS. You must also have held the account for at least five years. The five-year rule applies regardless of the age at which you open the account.

Roth IRA-qualified distributions

Qualified distributions are both tax- and penalty-free. A Roth IRA distribution is considered qualified by the IRS if:

• Your Roth meets the five-year rule
• You make no withdrawals until you're 59½
• Distributions are only taken due to a permanent disability
• Distributions were made by a beneficiary or your estate after your death

Roth IRA non-qualified distributions

If your withdrawals don’t meet the IRS guidelines for qualified withdrawals in 2026, they're considered non-qualified withdrawals, and you'll pay taxes on earnings at your income tax rate, plus an additional 10% penalty for non-qualified withdrawals.

However, you can avoid the 10% early-withdrawal penalty on Roth IRA earnings (even if under 59½ or the five-year rule isn’t met) in these IRS-approved exceptions:

• You're a first-time home buyer: Up to $10,000 lifetime for you, spouse, child, grandchild or parent.
• You have qualified higher education expenses: Tuition, fees, books, supplies for you, spouse, child or grandchild at an eligible school.
• You have a permanent disability: You’re totally and permanently disabled (medical proof required).
• By death: Paid to your beneficiary or estate after your death.
• For substantially equal periodic payments: Fixed payments for at least 5 years or until 59½ (whichever is longer).
• You have unreimbursed medical expenses: Exceeding 7.5% of your adjusted gross income (AGI).
• You're paying health insurance premiums while unemployed: If you’ve received unemployment compensation for more than 12 consecutive weeks.
• IRS levies your wages: The IRS seizes funds to pay tax debt.
• If you have a qualified reservist distribution: Active-duty military reservist called to duty for more than 180 days.
• If you give birth or adopt: Up to $5,000 per child within one year of birth or final adoption.

Leaving a legacy

Leaving a Roth IRA to heirs allows you to pass on tax-advantaged wealth to the next generation for years to come.

Make sure you designate a beneficiary or beneficiaries when you open the account, keep your designations up to date, and make changes over time if necessary.

Verify that your heirs know the rules regarding RMDs so they're not penalized. If you plan to use a trust, reach out to a financial expert knowledgeable about the rules of a Roth IRA.

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Are you considering investing in crypto in your retirement account? These days, you're not alone. The surge in interest in cryptocurrency and the changing regulatory landscape will likely have a major impact on retirement planning.

Donald Trump's presidential win marked a turning point in cryptocurrency regulation. His choice of Paul Atkins, a well-known regulatory skeptic and co-chair of the crypto lobbying group Token Alliance to lead the SEC (Securities and Exchange Commission) signals a pivot toward a more crypto-friendly framework.

Adding fuel to the fire, Trump has floated bold policy ideas. This has included the creation of a “Strategic Bitcoin Reserve” and a proposal to exempt capital gains taxes on cryptocurrency, according to The Street.

Meanwhile, Wall Street has ramped up its embrace of crypto with Bitcoin and crypto ETFs and other products. Industry giants like Fidelity, Schwab, and BlackRock are leading the charge. A major catalyst for this enthusiasm has been the rise of spot Bitcoin ETFs (exchange-traded funds), which have made it much easier to invest in crypto.

In light of these trends, cryptocurrency may become a staple in retirement accounts. While the potential for growth is attractive, investors must weigh the risks with their financial goals.

How to invest in crypto in your retirement account

There are two ways to get exposure to crypto in a retirement account.

First, there is the indirect approach. This is when you invest in a publicly traded security like a spot Bitcoin ETF. This is available with traditional IRAs, Roth IRAs and even some 401(k)s.

Next, there is the direct approach, in which you purchase cryptocurrencies within your retirement account. This involves working with a platform designed for such investments, like Alto’s CryptoIRA, which supports over 200 cryptocurrencies, including Bitcoin, Cardano and Polygon. Some providers also offer cold storage options, where your digital assets are stored offline in hardware wallets. This can provide an extra layer of security against online threats.

Direct investing requires setting up a self-directed IRA. However, not all IRA providers offer this level of flexibility for crypto investments. In addition to Alto CryptoIRA, platforms like iTrustCapital, BitcoinIRA, and Coin IRA are players in this space.

Keep in mind that you cannot fund an IRA with cryptocurrency directly. Contributions must be made in cash or rolled over from an existing retirement account.

You also need to be careful about the costs. “There are three basic costs of a crypto IRA,” said Mark Parthemer, the chief wealth strategist and Florida regional director at Glenmede. “There are setup and recurring account maintenance fees, transaction fees or commissions, and investment expenses, such as a mutual fund’s internal costs. Some crypto IRA firms have been criticized for significant fees. My advice in this area — know before you buy. Read the fine print, and compare the total fees and costs.”

The benefits of crypto

To understand the potential benefits of cryptocurrency, it’s important to know how it is structured. Cryptocurrencies are stored on a blockchain, which is a sophisticated database that records transactions in a decentralized manner. This decentralization eliminates the need for third-party verification, such as governments or financial institutions. Each block of transactions in the blockchain is linked to the previous one through a cryptographic hash. Transactions are validated using consensus mechanisms like proof-of-work or proof-of-stake, which maintain the integrity of the network and make it difficult to hack or manipulate.

Transparency. A key advantage of blockchain technology is its transparency. All transactions are visible to participants. This transparency has helped build confidence in cryptocurrencies and their applications. For instance, Bitcoin, the most well-known cryptocurrency, has reached a market value of nearly $2 trillion.

Cost. Cryptocurrencies also offer efficiency and cost advantages for monetary transactions. Being inherently digital, they bypass traditional financial systems, allowing for faster and cheaper transfers. This is especially the case for international payments.

Scarcity. Beyond transactional uses, cryptocurrencies like Bitcoin have become a popular investment asset. In 2024, Bitcoin nearly doubled in value. Bitcoin’s capped supply of 21 million coins creates scarcity, adding to its value proposition.

Diversification is another advantage. “Crypto is different from any other asset class and can reduce portfolio volatility and enhance long-term returns by spreading risk across different asset classes,” said Eric Satz, the CEO and founder at Alto.

The downsides of crypto

Any new type of asset class should come with a "buyer beware" warning, but that is especially true in this case.

Volatility. Crypto is still an emerging asset class, its origins dating from 2008 when Bitcoin was launched. Over this period, it has been a rollercoaster of volatility. In the case of Bitcoin, it has suffered eight 50% corrections, according to Caleb & Brown. Bitcoin and other cryptocurrencies rely heavily on speculation and leveraging.

The crypto market can be sensitive to swings in investor sentiment. This can be exaggerated with the relatively low amount of liquidity in the global market, at about $3.59 trillion versus $50.65 trillion for the S&P 500.

Regulatory risk. While it's true that Trump has signaled strong regulatory support for crypto, it's not in place yet and it is unclear what form it will take. There are very few 401(k) accounts currently investing in crypto, according to a report by the Government Accountability Office (GAO). However, the report notes that "federal regulatory gaps GAO identified in June 2023 remain unaddressed. As a result, certain crypto assets continue to trade in markets that do not have investor protections or comprehensive oversight."

Fraud. Crypto has also been susceptible to fraud and scams. In 2023, the FBI's Internet Crime Complaint Center received over 69,000 complaints related to cryptocurrency fraud. The losses exceeded $5.6 billion, up 45% from the previous year.

Disruption. Another issue is the potential disruption of new technologies. After all, innovations — say those powered by AI or even quantum computing — may make blockchain systems obsolete. This could devastate the valuations of existing cryptocurrencies.

Environmental risk. Cryptocurrencies that rely on proof-of-work mining require massive amounts of computing power, all of which must be fed electricity and cooled. While many investors may be aware of the large energy consumption involved, few know of the water impact. Each Bitcoin transaction requires about as much water as one backyard swimming pool.

Bottom line

Given the risks, it’s important to be prudent with crypto. Research from BlackRock considers up to 2% of a portfolio invested in Bitcoin as “reasonable.”

“If it went to zero and you were in BlackRock’s range for allocation, you likely would not permanently harm your portfolio outcome,” said Brian Spinelli, a CFP and co-chief investment officer at Halbert Hargrove. “The stocks alone may have days where they move the portfolio around by more than 1%. If your stock allocation is all S&P 500, you have more dependency on Nvidia’s outcome right now than you would with a small allocation to Bitcoin.”

Still, your retirement portfolio may need to last a long time, and 2% might even be too much to speculate on crypto. Before those shiny coins tempt you, seek out a financial adviser for guidance.

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If you are trying to decide between an IRA vs. 401(k), count yourself lucky. Not everyone's employer offers 401(k)s, and many working people feel too cash-strapped to contribute to a retirement account. And that's a shame — because these popular accounts act as powerful, tax-advantaged ways to save toward retirement. Given common concerns about the Social Security trust fund, which is projected to run out of money as early as 2033, IRAs and 401(k)s are even more crucial for a secure retirement.

While they share many characteristics, there are also key distinctions to be aware of when comparing an IRA vs. 401(k). For example, many 401(k) plans offer an employer match up to a certain amount, while IRAs lack this feature. If you understand these similarities and differences, you can compare them to determine the best way to save based on your circumstances and goals.

IRA vs. 401(k) — or both?

Here's the good news: you don’t have to choose between an IRA or a 401(k). It’s perfectly fine to use both. After comparing the features of each plan, you may elect to save a portion of your paycheck in a 401(k) but contribute additional money to an IRA. Or you may decide to contribute the maximum amount to each.

Do you have access to a plan?

The first difference lies in who may be eligible for each type of plan.

401(k)s are employer-provided. To open a 401(k), you need to work for an employer that sponsors one and qualify for participation based on their criteria. Generally, if you are at least 21 and have worked with that employer for at least a year, then you qualify.

IRA stands for an individual retirement account. That “individual” part means you can open one independently, unrelated to your employer. However, you can only contribute to an IRA with earned income, such as wages, salaries, tips, bonuses, commissions, and self-employment income.

If you are married, consider opening a spousal IRA if you or your spouse qualifies.

If you are self-employed, you still have choices. For example, you might opt for a SEP IRA or a solo 401(k).

Contribution limits

Every year, the IRS sets contribution limits for IRA and 401(k) accounts, usually with some changes to account for inflation.

IRAs. You can contribute a maximum of $7,000 in 2025. Catch-up contributions for taxpayers 50 and older are limited to $1,000, for a total contribution of $8,000. These numbers are unchanged from 2024.

401(k)s. Eligible savers can contribute $23,500 to these accounts in 2025, up from $23,000 in 2024. Savers between 50 and 59, or over 63, may make catch-up contributions of $7,500 2025 for a total contribution limit of $31,500 in 2025.

There's exciting news for those aged 60-63 in 2025. The "super catch-up" provision allows them to contribute an additional $11,250 instead of $7,500 allowing then to contribute $34,750 in total for 2025.

Matching contributions

Employers can also contribute to your 401(k) account through matching contributions, and many do. This additional money provides a powerful boost to your savings; with careful planning, you might even become a 401(k) millionaire. So, when available, it is usually best to prioritize saving in your 401(k) until you receive every matching dollar you can. Each employer has their own matching formula, but all follow the same general format in which they match a portion of your contributions up to a maximum percentage of your salary.

For example, your employer may provide a 50% match up to 10% of your salary. Assume you make $100,000. For every dollar you contribute up to $10,000, your employer will contribute an additional 50 cents. So you could receive an extra $5,000 per year just for saving. After 25 years, that would amount to an additional $365,000, assuming your account earns 8% annually.

There's no match option with an IRA. However, two fintech firms are offering to match IRA contributions. Robinhood promises to match 1% of IRA contributions for regular customers and up to 3% for those who pay an additional annual fee as "Gold" members. SoFi offers a 1% match for IRA rollovers and contributions. However, before you open an IRA with these companies, ensure they have the investments you'd like to put in your IRA and check for fees and limitations. You may be better able to build IRA wealth through smart investment choices than a match.

Tax deductions

One of the main advantages of retirement accounts is the tax benefits they provide. This includes the ability to deduct your contributions and defer paying income tax until withdrawal.

However, if your employer offers a retirement plan, you may not be able to deduct your IRA contributions depending on your income (as determined by your modified adjusted gross income (MAGI) and filing status.

You can always get the tax benefit of your traditional 401(k) contributions regardless of your income. Income tax rates are progressive, so higher earners benefit more from deductions. Consider your income and deductibility of contributions if you are covered by a 401k.

Roth IRA vs Roth 401(k): Income Limits

Another income limit that can hinder your IRA savings is the Roth IRA income limit. Roth IRAs have the potential to be very valuable, but you can only contribute to a Roth IRA if your income falls below certain thresholds.

However, many 401(k) plans also provide Roth options. Your income does not affect your Roth 401(k) contributions. As long as you work for an employer that offers one, you can contribute to a Roth 401(k) regardless of how much money you make.

Early withdrawals

If you withdraw from a tax-deferred retirement account (traditional IRAs or 401Ks) before you reach 59-½, you usually are subject to a 10% penalty on top of regular income tax. However, with a traditional 401(k), you may be able to take advantage of the rule of 55. If written into your plan’s documents, it provides an exception to the early withdrawal penalty if you retire at 55 or later. This rule does not apply to IRA withdrawals.

You may withdraw penalty-free from Roth IRA and 401(k) accounts if you withdraw from the amount you contributed, not on investment gains. This extra layer of flexibility means you can fall back on a Roth account in an emergency.

The rules for early withdrawal from IRAs and 401(k)s are complex. If you are tempted to go this route, run your plan by a financial planner or tax adviser to ensure you won't be penalized.

Investment options

Your investment choices inside a 401(k) will be limited, typically to a specific list of mutual funds. Depending on the choices available, you may not be able to create the portfolio you’d like within a 401(k). With an IRA you’ll often have access to a much wider range of investments to include stocks, bonds, mutual funds, and ETFs. You can also add Treasury bonds, bills and notes to an IRA.

Read More About Retirement Savings

• Roth 401(k) vs. 401(k): Which Is Right for You?
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• Average IRA Balance by Age
• Average 401(k) Balance by Age

Do you have money saved for retirement? If you’re like most Americans preparing for retirement, you will answer “yes.” However, you may not know what types of accounts those savings are held in or their tax implications upon retirement.

You may also not have considered the best order in which to withdraw assets from different accounts in retirement — what financial planners call the “sequence of distributions.”

Leveraging an intentional and appropriate sequence of distribution is key to minimizing your taxes and preserving your assets in retirement. In this article, I’ll introduce you to the different types of assets you may have in your retirement accounts and give you some pointers on how to align your withdrawals with your income needs, your overall financial and legacy goals — all while preserving those assets and minimizing your taxes.

Sources of retirement income and their tax treatment

There are a number of sources of retirement income you may be able to draw on in retirement. Understanding what these are — and how they are treated by the tax code from an income perspective — is crucial when deciding on a sequence of distributions.

• Traditional tax-deferred retirement accounts. These include traditional IRAs, 401(k)s and 403(b)s. Because you get a tax deduction when you contribute to these accounts, taxes are due when you withdraw money in retirement. Your savings continue to grow on a tax-deferred basis until withdrawal. Upon withdrawal, they’ll be taxed at your ordinary income tax rate.
• Roth retirement accounts. These include Roth IRAs, Roth 401(k)s and Roth 403(b)s. Because you do not get a tax deduction when you contribute, you can withdraw money in retirement tax-free.
• Taxable accounts. These include brokerage, financial services, bank and credit union accounts that you can use for investment. These are accounts that aren’t available for any special tax treatment from the IRS. Taxes are due on any interest, dividends and capital gains you receive from these accounts.
• Health savings accounts (HSAs). This is the only triple-tax-deferred account you can potentially use for retirement savings and income withdrawals. You receive a tax deduction when you contribute to an HSA, your savings grow on a tax-deferred basis, and withdrawals are tax-free in retirement as long as they are used to pay health care expenses.

Why the sequence of distribution matters

When you and your spouse (if you have one) have multiple retirement accounts, drawing from them in the wrong order has the potential to increase your tax bill and decrease the size of your nest egg.

In general, withdrawals from taxable savings, Roth retirement accounts and HSAs (if used for medical expenses such as Medicare premiums) will have a more positive impact on your tax situation because withdrawals from those accounts aren’t taxable. Withdrawals from tax-deferred retirement accounts, including withdrawing money for the purpose of Roth conversions, generally are more likely to increase your tax bill because those withdrawals are taxed at ordinary income rates.

Case study: Monica's retirement strategy

Here’s a hypothetical case study that illustrates the importance of an appropriate and intentional sequence of distributions in retirement.

Monica, who is single, recently retired at age 66. She was covering her current expenses by taking withdrawals from her traditional IRAs. At the same time, she was converting as much money as she could to a Roth. These moves had the potential to bump her up to the 24% tax bracket, which would have not only increased her federal taxes but also imposed a higher rate on those tax payments.

What Monica hadn’t considered was that she was getting hit with extremely high monthly Medicare premiums, which are tied to income. The more Monica withdrew from her traditional IRA and the more she converted to her Roth IRA, the higher her income went — increasing her Medicare premiums:

Monica's adjusted strategy

Monica adjusted her withdrawals to first withdraw money for her income needs from her taxable account ($300,000) and Roth IRA ($500,000) before tapping into her traditional IRA. This adjustment reduced her Medicare premiums:

Note: Medicare premiums are based on the income reported two years prior. So Monica’s 2024 and 2025 premiums are based on her income in 2022 and 2023, respectively.

Monica’s premiums will go up once she reaches age 73, which is when she will have to take required minimum distributions (RMDs). But until then, she will benefit from lower Medicare premiums. This case study takes into account the fact that Monica was not focused on providing a tax-free legacy — anyone in that situation may want to organize their distributions differently.*

A final word

Every retiree's financial situation is unique, so it's important to tailor your withdrawal strategy to fit your specific needs and goals. By understanding the tax implications of each account type and planning your withdrawals thoughtfully, you can minimize taxes and help preserve your nest egg. A well-informed approach to your retirement income can make a significant difference in your overall financial health and legacy.

* The scenario shown herein is for illustrative purposes only and based on hypothetical assumptions; the use of alternate assumptions could produce significantly different results.

Amy Buttell contributed to this article.

This article was written and presents the views of our contributing advisor, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Licensed Insurance Professional. This information has been provided by an Investment Adviser Representative. The statements and opinions expressed are those of the author and are subject to change at any time. Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Millions of spouses leave the workforce every year to care for children or aging parents, a move that can jeopardize retirement security. But if one partner is working, a spousal IRA can help close the gap.

As long as one spouse has earned income and the couple files a joint tax return, the working spouse can contribute to an IRA in the nonworking spouse’s name. That makes a spousal IRA an ideal retirement-savings tool for spouses who plan to pause their careers, says Madison Sharick, a certified financial planner in Pittsburgh.

In instances in which one spouse has no taxable income, the working spouse can contribute up to the annual contribution limit to a spousal IRA; in 2025, it’s $7,000, or $8,000 for those who are 50 or older. The total contribution to a spousal IRA can’t exceed the taxable income reported on the couple’s joint federal tax return. The account is owned by the nonworking spouse, regardless of who contributes to the account, and is his or hers to keep, even if the marriage ends in divorce.

Depending on how long you have to save, contributing to a spousal IRA could make a big difference in the owner’s retirement security. An analysis by T. Rowe Price found that an annual contribution of $7,000 a year would be worth more than $307,056 in 20 years, assuming an average annual return of 7%. The IRS adjusts IRA contribution limits every year to account for inflation, so your total could be larger if you contribute the maximum to the IRA.

Tax effects and income limits

In addition to boosting the nonworking spouse’s savings, contributions to a spousal IRA can reduce the couple’s tax bill by allowing them to save more for retirement on a tax-advantaged basis, says Jeff McDermott, a CFP in Saint Johns, Fla. Like regular IRAs, spousal IRAs come in two flavors: traditional and Roth. Contributions to a traditional spousal IRA are pretax; withdrawals are taxed as ordinary income, and they’re subject to a 10% penalty if the owner withdraws funds before age 59½. Traditional IRAs are also subject to required minimum distributions (RMDs), which currently kick in at age 73.

Contributions to a spousal Roth IRA are made with after-tax dollars, but withdrawals of earnings and contributions are tax-free as long as the IRA owner is 59-½ or older and has owned the Roth for at least five years. And you don’t have to take RMDs from a Roth. However, as is the case with regular Roth IRAs, spousal Roth IRAs are subject to income limits on contributions. For 2025, married couples with modified adjusted gross income (MAGI) of less than $236,000 can make the full contribution to a spousal Roth IRA. Couples with MAGI of at least $236,000 and less than $246,000 can make a reduced contribution, while couples with MAGI of $246,000 or more are ineligible to contribute to a Roth.

You can open a spousal IRA with a brokerage firm, just as you would with a regular IRA, and allocate the funds to a variety of investments, depending on your age and tolerance for risk. Ideally, though, you should coordinate investments in a spousal IRA with other retirement plans, such as the working spouse’s 401(k) and traditional or Roth IRA.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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An auto-IRA may be just what your retirement portfolio needs if you qualify. With the decline of defined benefit pension plans in recent decades, retirement savers must take an active role to ensure their financial security later in life, likely with Individual Retirement Accounts (IRAs). Social Security alone is unlikely to fill that need with an average benefit of just over $1,900 per month, so workers need to save throughout their careers.

Workplace retirement savings programs like 401(k)s and 403(b)s provide an excellent way to set aside money for retirement, offering tax benefits and, in many cases, matching employer contributions. Americans are roughly 15 times more likely to save for retirement when their workplace offers a plan and 20 times more likely to save if contributions are automatic, according to an AARP study.

However, almost half of all U.S. workers lack access to workplace retirement plans. Even among those that have access, many never enroll. That leaves many workers without adequate retirement savings. Auto-IRAs are one possible solution to this problem.

What are auto-IRAs?

Auto-IRAs are not a new type of IRA per se. Instead, they are traditional IRAs and Roth IRAs offered through state automatic enrollment programs. In states that have them, these programs require certain employers who do not offer a retirement plan to enroll eligible employees into a state-run automatic IRA.

Employers open auto-IRAs for eligible workers, and each employee's account is funded through payroll deductions. This makes it easier for workers to contribute since they don’t have to spend time transferring money to an IRA each pay period. Most plans' default contributions are between 3% and 5% of the employee’s salary. Participants may increase or decrease their contribution percentage or opt out of the plan altogether.

Which states offer auto-IRAs?

To enroll in an automatic IRA, you first need to live in a state that is currently operating an active Auto-IRA program. As of today, this includes eleven states:

• California
• Connecticut
• Colorado
• Deleware
• Illinois
• Maine
• Maryland
• New Jersey
• Oregon
• Virginia
• Washington  (enacted but does not become active until 2027) 

Several other states, including Hawaii, Minnesota, Missouri, Nevada, New York, Rhode Island, and Vermont, are in the process of adding an auto-IRA program. Others have some form of pilot program or related effort, including the Massachusetts CORE Plan for non-profits, the New Mexico Work and Save program and others. 

Employers in these states must automatically enroll you into the auto-ira unless they already have another retirement program in place. Employers may also be exempt if have very few employees (generally under 5 to 10), have been in business less than two years or meet other exemptions. 

How do auto-IRAs work?

As the name suggests, auto-IRAs work just like any other IRA — but the program automates many steps, such as initiating enrollment and funding the account. Employees must still fill out their personal account information after their employer enrolls them in the program. As with other IRAs, contribution limits and Roth IRA income limits apply. 

Your state wants you to save for retirement, and it knows that residents are more likely to benefit from an auto-IRA program if the process is easy and many of the decisions are pre-set. That's why the state board has already selected some options for you, such as which investments to pick or how much to contribute from your salary. Participants can override these decisions and make their own investment selections or contribute a different amount. These defaults may prevent some participants who would not make their choices from missing out on the many benefits of saving, such as compound investment growth.

Should you sign up for an auto-IRA?

As with any retirement vehicle, there are pros and cons to signing up for an auto-IRA. However, it’s important to remember that automatic IRA programs are not intended to compete with or take the place of other savings plans that may provide better benefits. The hope is that they fill a gap for employees not otherwise covered by a workplace plan.

Some of the advantages of auto-IRA programs are as follows:

• Access to a retirement savings program. You get access to an employer-sponsored plan with potential tax benefits.
• Automation. Automatic enrollment makes it easier to participate and could boost worker savings.
• Building an emergency fund. Workers enrolled in automatic Roth IRAs may access these funds in an emergency.
• Cost. Auto-IRAs often have lower fees than privately-run employer retirement plans and are typically easier and less expensive for small businesses to administer.
• Ease of use. Your auto-IRA will be funded through payroll deduction, simplifying the contribution process.

Here are some of the disadvantages of auto-IRAs.

• Geographic limits to access. Auto-IRAs are not available in all states. Regardless of where you live, you may find that a SEP IRA or solo 401(k) is available to you and a better option than an auto-IRA.
• Contribution limits are lower. Compared to standard 401(k) contribution limits, auto-IRAs (like all other IRAs) won't let you save as much money. The annual limit is just $7,000 in 2024 and 2025. That's significantly less than employer-sponsored plans such as 401ks and 403bs, which allow employees to set aside up to $23,000 in 2024 and $23,500 in 2025. Remember that older workers may also qualify for catch-up contributions, allowing them to save more.
• No match. Employers cannot provide matching contributions.
• Less flexible. Auto-IRAs often provide less flexibility than IRAs that individuals open on their own.
• Customer ID issues. Some workers have had trouble signing up due to problems with verifying their identity.

A national auto-IRA program

Auto-IRAs are currently a matter of state legislation. However, the Automatic IRA Act of 2024, which was introduced in the House of Representatives in February, would create a national auto-IRA. If it passes, the law will make automatic IRAs available nationwide beginning in 2027. However, previous attempts to pass national auto-IRA legislation have failed to gather enough support and some experts predict that the Trump administration will not support it.

Don't confuse this legislation with recently passed auto-401(k) enrollment. The SECURE 2.0 Act requires most employers to offer automatic enrollment in 401(k) plans starting in 2025. While auto-401(k) enrollment should help increase the number of people saving for retirement, it won't address the lack of employer-sponsored retirement plans in the way a national auto-IRA program could.

Read More

• New Rules for Retirement Savings Taking Effect in 2025
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Everyone knows it’s important to save for retirement. And yet there are lots of people who don’t have a single dollar saved for when they stop working. Why? The reason may be as simple as they don't know where to start. If retirement is just around the corner or miles away, consider a Roth IRA in 2025.

The best reason to add a Roth IRA to your retirement plan this year is the savings on taxes, with tax-free growth potential, tax-free withdrawals, and more. Even if tax rates rise in the future, contributing to a Roth IRA now not only lets you to lock in the tax benefits at today's rates, but you can avoid higher taxes on withdrawals.

For 2025, contribution limits remain the same as in 2024, which cannot exceed $7,000 if you're under 50. If you're over 50, you get the bonus of an extra $1,000 in catch-up contributions, bringing your total to $8,000. The income phase-out range for taxpayers making contributions has increased for 2025 — singles under $150,000, married filing jointly under $236,000. But, you can't contribute more than your earned income for the year, so if you make $5,000 in 2025, you can't contribute more than $5,000.

From restrictions on income, to contribution limits, withdrawal rules and conversion options, there's a lot to mull over for 2025. But if you want to set yourself up for a comfortable retirement, it pays to know the basics, plus the pros and cons of a Roth IRA.

What is a Roth IRA?

A Roth IRA is an individual retirement account that offers you the chance to grow your contributions and earnings over time by investing after-tax dollars in a range of different securities, like stocks and bonds, exchange-traded funds (ETFs) or mutual funds. In return, withdrawals from the account are not taxed as long as you are at least 59-½, and the account has been open for five years. But on the downside, there are income limitations on contributions to a Roth IRA, no tax deduction for contributing, and the maximum contribution is relatively low compared with some other retirement accounts.

“In 2025, there will be no real changes to the Roth IRA structure other than slightly higher AGI (adjusted gross income) levels to qualify,” writes Matt Willer, Private Asset Investments Expert with Phoenix Capital Group Holdings. “Ultimately, this account type is one of the best vehicles to hold investment securities, especially ones with yield. I am a big fan of the Roth IRA.”

Key updates for 2025:

• Contribution limits: $7,000 ($8,000 if age 50+)
• Higher income limits for making contributions: Singles under $150,000, Married filing jointly under $236,000
• Tax bracket changes due to the Tax Cuts and Jobs Act (TCJA), which is due to expire in 2025, could make Roth IRAs more attractive.

What are the pros and cons of a Roth IRA? Read on.

Pros of a Roth IRA

There's a lot to like about Roth IRAs, like tax-free growth of your investments and no required minimum distributions (RMDs). But that’s only the beginning.

1. Tax-free growth and withdrawals 

With a traditional IRA, you get an upfront tax break. Your yearly contributions may be deductible and your money will grow tax-deferred, but when you withdraw your money in retirement, you will owe income taxes. With a Roth IRA, you enjoy tax-free gains in your account and tax-free withdrawals once you're 59-½ and have had your Roth for at least five years.

So it really comes down to whether you want to benefit from a tax break now with a traditional IRA or later with a Roth IRA. If you expect your tax rate to be higher when you retire, choose a Roth.

2. No required minimum distributions (RMDs)

Unlike other retirement accounts, like 401(k)s, you aren’t forced to take required minimum distributions (RMDs) with a Roth IRA. With a 401(k), you must begin withdrawing money from your account by April 1 in the year after you turn 73. If you don’t, you may face a 25% penalty. (Sometimes, that penalty will be reduced to 10%).

A Roth IRA offers the advantage of tax-free growth for as long as you want with no RMDs. That means you can pass some (or all) of your Roth IRA on to your heirs. That said, RMDs are required for inherited Roth IRAs, but distributions generally remain tax-free.

3. Your contributions, your way 

For those times when you really need the money, a Roth IRA can be the answer. That's because you can withdraw 100% of the money you’ve contributed at any time for any reason, with no taxes or penalties — as long as the money you withdraw comes from your contributions only and not your earnings.

Unlike a Roth IRA, when you withdraw money from a traditional IRA before 59-½, you'll likely face an income tax bill and a 10% early withdrawal penalty, although this rule has some exceptions. Even so, once you withdraw the money from your Roth IRA, you can't put it back into your account, so you may lose out on potential investment growth by withdrawing funds too early.

4. Flexibility in retirement

Since you already paid taxes on your contributions to your Roth IRA, as long as you meet the requirements and play by the rules, you can take your money out, tax-free. That gives you some flexibility in retirement. When you juggle your distributions from your qualified retirement accounts, like a traditional IRA or 410(k), and your Roth IRA, you may be able to control your overall income tax liability better, as long as you don’t push yourself into a higher tax bracket.

For instance, let’s say you collect your Social Security benefits, then take some money from your 401(k) until your taxable income reaches the top of your tax bracket. After that, you can take any additional money you need from your Roth IRA, which won’t count as taxable income.

5. Contribute as long as you work, within limits

As long as you’re earning a paycheck, you can contribute to your Roth IRA, regardless of age. The only rule you must live by is staying within the I.R.S. income limits.

6. Help pay for college

“A Roth IRA can be used to save for college, and some parents may feel it is a good option because they can be setting money aside for retirement and still know that they can tap into it if needed to pay for a child's qualified higher education expenses,” says Martha Kortiak Mert, Chief Operating Officer at Saving For College. “If they don't have to use the funds for college, they will still be there for them when they're ready to retire.” But a Roth IRA offers options.

As of last year, 529 plan account holders can now make tax-free and penalty-free rollovers to their Roth IRA accounts. Although doing this may be subject to certain limitations, it can be encouraging news to families who worry about having leftover funds in their 529 plan account.

Retirement assets, including Roth IRAs, are not reported on the Free Application for Federal Student Aid (FAFSA) that students fill out when applying for grants and scholarships. However, distributions from your Roth IRA to help fund college are reported as untaxed income to the student on the FAFSA. In fact, “up to 50% of student income can be counted on the FAFSA (compared to only 5.64% of a parent asset, like a 529 plan).”

Check out this survey to learn more about when to use a Roth IRA to fund your child’s education and when it may not be such a good idea.

Cons of a Roth IRA

Despite the obvious advantages, Roth IRAs have several disadvantages worth noting.

1. No immediate tax deduction for contributing

One of the greatest disadvantages to Roth IRAs is that there is no immediate tax break on contributions since you’re using after-tax dollars. So, any money you contribute to your Roth IRA isn't tax-deductible, and you don’t report contributions on your annual tax return. Instead, you pay taxes before contributions are made to a Roth IRA.

2. Income limits

Roth IRAs limit how much you can earn, meaning the amount you can contribute to the account depends on your modified adjusted gross income. If you are below the income threshold for a Roth IRA, you can contribute $7,000 in 2025 ($8,000 if you are 50 and older). If you are above a certain income, your contribution may be reduced until it is phased out completely.

3. You must wait to withdraw earnings

Although you can withdraw contributions tax-free anytime, withdrawing Roth IRA earnings is a different story. To avoid paying taxes and penalties, you must be 59-1/2 or older and also have had the account for at least five years. If the distribution is not considered a “qualified” distribution, withdrawing earnings before retirement age could incur a 10% penalty and income taxes.

4. Low contribution limits

Although you can contribute to multiple IRAs in a year, the total amount can't exceed the annual limit. This can take Roth IRAs out of the running for people who hope to save a lot of money for retirement. Compared to other retirement accounts, like 401(k)s, that allow you to contribute $23,500 in 2025, you can only contribute $7,000 ($8,000 if you're 50 or older) in your Roth IRA in 2025.

That means you will likely need other accounts to save enough for retirement. And, since Roth IRAs have lower caps on annual contributions, you might hit some limits on contributions if you’re a high-wage earner.

5. Potential tax penalties if you contribute too much

If you Inadvertently contribute too much to your Roth IRA or make ineligible contributions, you must correct the issue by your tax filing deadline to avoid any potential tax penalties. Plus, you will need to remove all excess contributions and any investment earnings, or those earnings will be reported as income on your tax return.

Suppose you noticed you contributed too much only after you filed your taxes. In that case, you can file an amended tax return to fix your mistake, but it's possible you may still be on the hook for a 6% penalty on excess contributions each year until you’ve removed that money from the account.

For more information on tax penalties for IRA over-contributions, visit the IRS website.

Bottom line

“In my opinion, Roth IRAs should be considered an intricate part to any portfolio and retirement plan,” says Ronnie Thompson, Owner and Financial Advisor at True North Advisors. “With the probability that tax rates will go up over time, A Roth IRA creates a safe haven from higher tax rates being paid on higher investment amounts in the future. Roth IRAs protect against tax erosion and allows prudent investors the ability to avoid tax losses on distributions made during higher tax environments in retirement. That, in turn, creates a higher probability that one will not run out of money in retirement.”

Is a Roth IRA for you? Check out Roth IRAs: What They Are and How They Work for everything you need to know to make an informed decision in 2025.

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If you're feeling anxious that the presidential elections could upend your retirement planning, take comfort in knowing that you are not alone. What drives the unease? Uncertainties as to which political party will wield power and potential policy changes that could impact 401(k) balances, tax bills, estate planning strategies, and retiree benefits.

Just three weeks before Election Day, angst over the 2024 election’s impact on retirement readiness is evident. Eight in 10 Americans expect the election to impact parts of their retirement plan, according to a study by investment firm Wealth Enhancement.

Pocketbook issues are a main source of voters’ apprehension. Four of 10 (42%) working Americans believe the election will have “a severe or major impact on their ability to save for retirement,” according to a Voya Financial survey. Many also fear market turmoil. Three-quarters of Americans worry that the election will cause more market volatility, according to an Allianz Life study.

So, how could the November elections affect retirement readiness? Markets tend to experience volatility around elections due to uncertainty. But the real financial impacts come from policy shifts and new laws that are enacted when there’s a power shift on Capitol Hill.

“It comes down to policies versus politics,” said Ayako Yoshioka, a portfolio consulting director at Wealth Enhancement.

Harris vs. Trump on the economy

The economic policies of Democratic nominee Kamala Harris and Republican candidate Donald Trump differ greatly.

Harris wants to increase income taxes on high-earners and corporations and raise capital gains taxes on those earning $1 million or more to 28% from 20%. The Democrat also vows to boost the middle class by pledging not to raise taxes on households earning less than $400,000, expanding child tax credits, offering down-payment assistance to first-time homebuyers, providing greater incentives for small businesses, and eliminating taxes on tips for hospitality workers.

Trump wants to fully extend his 2017 tax cuts, which expire at the end of 2025, and offer fresh tax cuts for individuals and corporations. The ex-president also wants to eliminate the tip tax. Trump also is proposing to make interest on auto loans tax deductible, end taxation of Social Security benefits, and raise the $10,000 cap on state and local tax deductions, which would benefit homeowners in high-tax states. Trump also vows to slap tariffs of 10-20% on all U.S. imports and increase tariffs on China-made goods to 60%.

These election-campaign promises, however, will be tough to deliver by either party unless there is a sweep at the ballot box, with one party capturing the White House and both chambers of Congress. If political gridlock persists, it will be more difficult for the new president to push through her or his legislative agenda.

“There’s a big gap between campaign rhetoric and what actually gets passed as law,” said Justin Waring, retirement specialist at UBS Global Wealth Management’s chief investment office.

Here are five ways the election outcome could affect your retirement.

1. Spike market volatility

Your 401(k) could face headwinds, as market turbulence often picks up around an election. But history shows election volatility is short-lived. The long-term direction of markets is driven less by politics and more by investment factors, such as corporate earnings, economic growth, interest rates, and inflation. As a result, market performance tends to smooth out over time, says Lisa Featherngill, national director of wealth planning at Comerica Wealth Management.

A presidential election year may not amount to much volatility.

The S&P 500 has posted positive returns in years one, three, and four of the four-year presidential term, with average gains of 10.2%, 17.2%, and 8.0%, respectively, according to Comerica Bank, citing Bloomberg data from 1961 through 2023. In year two of the presidential cycle, stocks suffered an average decline of 1%. 

“The market response is usually agnostic to presidential election cycles because politics is just one of many variables that drive asset prices,” said Waring. 

Gridlock and political sweeps can be good for markets.

The stock market also performs well in both unified and divided government scenarios. Gridlock is good for markets, as shown in the bar graph below. The best S&P 500 annual returns (15.7%) from 1933 to 2023 have occurred with a Democrat in the White House and a split Congress, according to Comerica.  The second-best return: a 13.7% gain with a Republican president and a divided Congress. Political sweeps are bullish, too. Republican sweeps have resulted in average annual gains of 12.9%, while stocks have risen 9.0% per annum when Democrats win the White House and control both houses of Congress. 

Tip: “Reacting to election news in the near term is ill-advised,” the Voya Financial study concluded. If your party loses, don’t let the defeat cause pessimism or fear that could cause you to stray from your investment plan, adds Waring.

2. Changes in tax policy

Tax changes may be on the horizon after the election. That’s due largely to the pending expiration of the 2017 Tax Cuts and Jobs Act (often dubbed the “Trump tax cuts”) at the end of 2025. Congress must act to renew the TCJA tax cuts; if they do nothing, tax rates will revert to the higher 2017 tax brackets.

Nearly four of 10 Americans (39%) are apprehensive about how much they will pay in taxes after the election, according to Wealth Enhancement.

“The sunset of TCJA tax cuts is a really big deal,” said Featherngill. The reason: if taxes go up, it means Americans will have fewer after-tax dollars to spend, save, or invest for retirement. For example, for couples filing jointly, the largest tax bracket difference is for taxable income between around $235,000 and $385,000. Currently, these couples are in the 24% bracket, but they would move to the 33% bracket in 2026 if the Trump tax cuts sunset, notes Featherngill.

Tip 1. Prepare for all contingencies with proactive multi-year tax and financial planning, says Featherngill. If you think tax rates will revert back to the higher 2017 rates, check to see what your tax brackets might be after 2025 versus now to see how it will impact after-tax income and cash flow. You might consider accelerating income into 2024 and 2025 to shield yourself from higher tax rates in 2026. “You want to use up these lower tax brackets while you can,” said Featherngill. 

Tip 2. Another strategy to consider if you think tax rates will rise is to convert traditional IRA dollars into a Roth IRA before 2026 to take advantage of today’s lower rates, says Yoshioka. Any dollar amounts you convert to a Roth are taxed as regular income, but the Roth gives you tax-free withdrawals in the future. It’s also prudent to diversify investment account types so you can benefit from different tax treatments, says Andrew Davis, head of macroeconomic research at Bryn Mawr Capital Management. Rather than have all your money in a traditional 401(k), it’s better to have a taxable account that gets preferential capital gains treatment, some money in regular 401(k)s and IRAs that offer upfront tax deductions, and Roth accounts that offer tax-free withdrawals. “A lot of time gets spent on asset allocation, but equally as important is asset location,” said Davis.

3. Potential changes to Social Security

Social Security, which replaces about 40% of a retiree’s annual pre-retirement earnings, is running out of money. Barring legislation to shore up Social Security, reserves that pay benefits will be depleted in 2033, according to the Center on Budget and Policy Priorities. So, after 2033, or nine years from now, Social Security would pay only about 79% of scheduled benefits using money it brings in from payroll taxes. 

The next president and Congress could shape the agenda on how to fix Social Security, which gave benefit recipients a 2.5% cost-of-living-adjustment (COLA) for 2025. According to economists, steps to fix the funding shortfall range from cutting benefits to raising the retirement age to increasing Social Security payroll taxes. 

In an online policy statement, Vice President Harris says she will strengthen Social Security for the long haul “by making millionaires and billionaires pay their fair share in taxes” and “fight to ensure Americans can count on getting the benefits they earned.” Former President Trump has said he won’t make cuts to Social Security or change the retirement age, and has proposed doing away with taxes on Social Security benefit. Trump, though, hasn’t laid out plans to how to stabilize the benefit program.

But despite the need to fortify Social Security, addressing the solvency issue is likely not on the horizon for the incoming Congress, many experts say. “It doesn’t appear to be a high priority for either party as we enter the later stages of the campaign,” said Yoshioka. 

Tip. It still doesn’t hurt to be prepared for all future scenarios, “so you’re not caught off-guard,” advises Davis. One proactive step you can take if you think benefits will eventually be cut is to boost your personal retirement savings and invest for growth.

4. Shifts in Medicare coverage

The federal health insurance program for people 65 and older also faces financial challenges. Both presidential candidates say they’ll protect Medicare and oppose cuts to benefits. Vice President Harris recently proposed an expansion of Medicare to include in-home long-term care costs. Medicare doesn’t currently cover long-term care and limits in-hope coverage. Trump, who opposes cuts to Medicare benefits, also has said in-home care is a priority. 

But change can’t be ruled out. The Biden administration, for example, was successful in 2022 in getting lower prescription prices for Medicare recipients after passing a law that gave Medicare the power to negotiate prices for expensive drugs covered by the program. 

Tip. Stay abreast of any Medicare coverage changes that could benefit or harm you financially.  

5. How estate planning might change

Probably the most significant thing for high-net-worth families to watch out for is the potential sunsetting of the estate and gift tax exemption passed in TCJA in 2017, according to Comerica Bank's Year End Report. This year, the exemption is $13.61 million per person, or $27.22 million per couple. But on Jan. 1, 2026, if the current rules expire, the exemption will drop to $7 million per person and $14 million per couple. “If that happens, it could lead to a significant increase in transfer taxes for high-net-worth families” who are leaving money to heirs, Comerica warned in its report.

Tip. Start planning for estate tax changes now.

• Harris vs. Trump on Medicare Drug Price Negotiations
• Harris' Stances on Social Security and Medicare
• Trump's Stances on Social Security and Medicare
• Should You Change Your Estate Plan Before the Election?

Changes to IRAs and 401(k)s in 2025 may help you save more for retirement, but you've got to be alert. It's always a good idea to check once a year to see if any new rules or changes are coming to Individual Retirement Accounts (IRAs) and 401(k) accounts. That means keeping track of modifications to existing rules, such as raising contribution limits or updating the requirements for withdrawing money from your retirement accounts.

So, what's on the horizon? The SECURE 2.0 Act contained several changes to retirement plans that are being phased in over several years. These rules apply to traditional IRAs, Roth IRAs and 401(k)s; familiarizing yourself with them can help you save more money for retirement and avoid penalties.

Here are six changes impacting IRAs and 401(k)s in 2025:

1. Super-sized 401(k) catch-up contributions for people aged 60 to 63

Introduced by President George W. Bush in 2001, catch-up contributions allow employees age 50 and older to make additional deposits into their tax-advantaged retirement savings accounts.

The dollar amount is adjusted for inflation, though it may not change every year. For 2025, eligible taxpayers can contribute $23,500 to their 401(k) account, up from $23,000 in 2024. The limit on catch-up contributions for 401(k)s in 2025 for taxpayers 50 and older is $7,500 — the same as it is in 2024, bringing the total contribution limit to $31,000 in 2025.

This new catch-up increases a participant’s catch-up contribution amount. Effective for the 2025 tax year, active participants aged 60 through 63 can contribute the greater of $10,000 or 150% of the 2024 catch-up contribution limit that is indexed for inflation. For 2025, the max catch-up contribution is $11,250. In 2025, the total limit for 401(k) contributions for those aged 60 to 63 is $34,750. That number includes a $23,500 contribution limit and a catch-up contribution of $11,250.

An account holder can take advantage of this additional catch-up contribution if they are between 60 and 63 by the end of the calendar year.

For a detailed look at 2025's new contribution limits for 401(k)s and IRAs, read our story here.

2. Automatic 401(k) Enrollment

In an effort to increase individual retirement savings, SECURE 2.0 requires new 401(k) plans established on or after December 29, 2022, to implement an automatic enrollment feature in 2025 unless an exception applies.

The initial automatic enrollment contribution amount must be at least 3% but not more than 10%. Each year thereafter, that amount is increased by 1 percent until it reaches at least 10%, but not more than 15%.

However, automatic enrollment does not mean mandatory participation. Employees can change the rate or can opt out by electing a zero percent (0%) contribution rate.

3. SIMPLE IRAs and catch-up contributions for people aged 60 to 63

Annual employee deferrals to SIMPLE IRAs had a limit of $16,000 in 2024 but individuals aged 50 or older are allowed to make an additional “catch-up” contribution of $3,500, for a total of $19,500. In 2025, the contribution limit increased by $500 to $16,500 — the catch-up contribution limit for those 50 and over remains the same.

Beginning in 2025, there will be an increase in the catch-up contribution limits for participants who have reached ages 60 through 63. The new catch-up contribution limit will increase to the greater of $5,000 or 150% of the regular age 50 catch-up contribution limit for SIMPLE IRA plans in 2025. Those who are 60, 61, 62, or 63 can contribute $5,250 more to SIMPLE plans for 2025. Cost of living adjustments will begin in 2026.

4. New 10-year rule for inherited IRAs takes effect

In general, for most beneficiaries, the new rules are fairly simple. If you inherited an IRA from someone who died on or after January 1, 2020, you are required to withdraw all funds in the IRA no later than December 31 of the tenth full calendar year following the death of the individual from whom you inherited the IRA.

This rule did away with the ‘stretch IRA’ strategy that allowed owners of IRAs to pass along the assets in the account from one generation to the next while taking advantage of prolonged tax-deferred growth of the assets by using a prolonged distribution period.

However, there are exceptions for inherited IRAs and the following four types of beneficiaries can still utilize the ‘stretch IRA':

• Surviving spouses
• A child of the decedent under the age of 21
• A beneficiary who is not more than 10 years younger than the decedent
• An individual who is disabled or chronically ill

If you are one of the four types of beneficiaries described above, you must still withdraw funds from the inherited IRA over your lifetime beginning in the year following the decedent’s death. A surviving spouse can transfer the inherited funds from the IRA into your own IRA and is not required to start withdrawing funds from your own IRA until you reach your “required beginning date” (“RBD”).

The tax experts at Kiplinger can help you untangle the web of rules and regulations that govern the required minimum distributions (RMDs) from inherited IRAs. Read Inherited an IRA? Five Things Every Beneficiary Should Know and IRS Ends Inherited IRA Confusion: Annual RMDs Required for Many for concise explanations of the new RMD rules.

5. Inherited IRA RMD penalties take effect

The IRS delayed the implementation of the final rules governing inherited IRA RMDs until 2025. However, the IRS has provided transitional relief for beneficiaries who did not take RMDs from their inherited IRAs in 2021 through 2024. Starting in 2025, a 25% penalty will be assessed for those who do not take their RMD.

Read IRS Delays IRA RMD Rules Again to understand which IRA accounts were exempt from the penalties and New RMD Rules: Starting Age, Penalties, Roth 401(k)s, and More to understand how to lower the penalty from 25% to 10%.

6. A retirement savings "lost and found"

Older American workers have held over 12 jobs on average in their lifetime, according to the Bureau of Labor Statistics. So, it's understandable that some people may lose track of their 401(k)s or other retirement accounts, which can add up; there are almost a trillion dollars of unclaimed retirement benefits in the U.S.

The SECURE 2.0 Act created a searchable database to help people find those lost retirement benefits accounts. This “lost and found” database is housed at the Department of Labor. The Employee Benefits Security Administration (EBSA) has the responsibility of gathering and uploading the information provided by plan administrators.

The EBSA only started accepting data on November 18, 2024. I would recommend checking back periodically for new and updated information.

You need secure Login.gov account to access the Retirement Savings Lost and Found Database. To establish an ID-proofed Login.gov account, you'll need to provide:

• Legal first and last name
• Date of birth
• Social Security number
• A mobile device
• Front and back photo of an active driver's license

2024 year-end deadlines

• 401(k) Contribution limits and deadlines. For most 401(k) plans, the deadline to contribute is December 31, 2024. This deadline also applies to participants who are 50 or older at the end of the calendar year 2024.
• IRA Conversion deadline. The deadline for converting a traditional IRA to a Roth IRA is December 31, 2024.
• Excess contributions. If you exceed the 2024 IRA contribution limit, you can withdraw excess contributions from your account by the due date of your tax return (including extensions). If you don't you must pay a 6% tax each year on the excess amounts left in your account.
• Required minimum distributions (RMDs). Remember that you face an excise tax on any RMD that you fail to take on time. You must calculate the RMD separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount from one or more of your non-Roth IRAs.

Read More

• Three Changes Coming for Social Security in 2025
• Social Security Payment Schedule for 2025
• Three Medicare Changes on the Horizon for 2025
• New RMD Rules: Starting Age, Penalties, Roth 401(k)s, and More