While Roth conversions are often talked about in retirement planning, they aren't the right strategy for everyone.

For retirees with modest savings and no pension, leaving traditional accounts untouched until it's time to start RMDs can work well. But retirees with pensions face an entirely different tax reality.

In a recent article, Joe F. Schmitz, a CFP® and CEO of Peak Retirement Planning, explains why Roth conversions are so important for retirees with pensions. Schmitz is a regular contributor to Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation.

Check out these five questions to test your knowledge about Roth conversions, pensions and taxes.

Good luck! (Don't worry if you miss an answer: You can follow the links below the quiz to brush up on your knowledge.)

Related Content From Adviser Intel

• Why a Roth Conversion Is Wrong for Most People But Often Right for Pension Holders
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully
• If You're Converting to a Roth IRA, Don't Do It Like This
• 5 Reasons Roth Conversions and Pensions Work Well Together
• 7 Times to Dip Into Your Roth IRA if You Have a Pension (and When to Leave It Alone)

Roth conversions have become one of the hottest topics in retirement planning. Browse financial headlines long enough, and you'll likely encounter conflicting advice.

Some experts argue that everyone should convert their traditional IRA to a Roth. Others insist it's a costly mistake. The truth is far more nuanced.

As a CERTIFIED FINANCIAL PLANNER® and CEO of Peak Retirement Planning, I can tell you that for most Americans, a Roth conversion probably isn't necessary. However, retirees with pensions often live by a different set of tax rules (I wrote a book for those with pensions, The 2% Club, that you can request for free here.)

Their guaranteed income can create tax challenges that don't apply to the average retiree, making Roth conversions worth a much closer look.

Before deciding whether a Roth conversion belongs in your retirement strategy, it's important to understand the factors that actually determine whether the math makes sense. You can learn more about this in my YouTube video:

The only question that really matters

Many investors focus on whether they can afford to pay the taxes on a Roth conversion today. While that's certainly part of the equation, it isn't the deciding factor. The more important question is this: Will your total tax rate be lower today than it will be later?

That "total tax rate" extends beyond your federal income tax bracket. A Roth conversion can also influence:

• State income taxes
• Medicare IRMAA surcharges
• Social Security taxation
• Capital gains taxes
• Estate planning outcomes

When viewed together, your true tax cost could look very different than your federal bracket alone suggests.

Why most people don't need a Roth conversion

For many retirees, taxable income will naturally decline when they stop working. Someone who retires with modest retirement savings, no pension and Social Security as their primary income source usually remains in relatively low tax brackets throughout retirement.

In those situations, paying taxes today through a Roth conversion could result in paying more tax than necessary.

Roth conversions are frequently overpromoted, as they can be powerful, but they aren't universally beneficial.

Pension holders face a different tax reality

Rather than seeing their income in retirement decline, retirees with pensions often have multiple sources of guaranteed retirement income arriving simultaneously:

• Pension payments
• Social Security benefits
• Required minimum distributions (RMDs) from traditional retirement accounts

Each source adds taxable income, and together they can keep retirees in higher tax brackets for decades.

For households that have accumulated substantial balances in tax-deferred accounts, such as 401(k)s, IRAs, TSPs or 403(b)s, RMDs can make the situation even more challenging as they grow over time.

That's why many pension recipients find themselves paying as much, if not more, in taxes during retirement than they did while working.

Today's tax environment creates planning opportunities

Another consideration is today's tax landscape: Current tax laws provide relatively favorable tax rates and expanded standard deductions compared with historical norms.

While no one can predict future legislation, many economists expect government revenue needs to increase over time because of rising national debt and the long-term funding challenges facing programs such as Medicare and Social Security.

If future tax rates eventually rise, converting portions of traditional retirement accounts while rates remain relatively low could produce meaningful lifetime tax savings. The objective isn't simply to pay taxes sooner, but to pay them when they're expected to be lower than they otherwise would be.

Don't look only at your tax bracket

One of the biggest mistakes retirees make is evaluating Roth conversions using only the federal tax tables. Your retirement tax picture is much more interconnected.

Increasing taxable income through a Roth conversion could:

• Cause more of your Social Security benefits to become taxable
• Push you into a higher Medicare IRMAA bracket, increasing Medicare Part B and Part D premiums
• Raise your capital gains tax rate
• Increase state income taxes

This is why comprehensive tax planning frequently produces better results than simply converting up to the top of a particular tax bracket.

The widow's penalty can create future tax problems

Married couples regularly overlook one significant future risk: When one spouse dies, the surviving spouse generally transitions from married filing jointly to single tax status. At that time:

• Tax brackets and IRMAA thresholds shrink
• The standard deduction lowers
• One Social Security benefit typically disappears
• The surviving spouse often continues receiving pension income and RMDs

The result can be substantially higher taxes for the surviving spouse. Completing Roth conversions while both spouses are alive allows couples to take advantage of the wider married tax brackets before this transition occurs.

Your children's tax situations matter, too

If leaving money to your children is one of your goals, their future tax bracket deserves consideration as well.

Under current law, most non-spouse beneficiaries must empty inherited retirement accounts within 10 years. A child inheriting a large traditional IRA might be required to recognize hundreds of thousands of dollars of taxable income during that period, potentially pushing them into significantly higher tax brackets.

On the other hand, if your children are likely to remain in relatively low tax brackets, leaving them traditional retirement assets instead of paying higher taxes through Roth conversions today could prove more efficient.

Estate planning isn't one-size-fits-all, and understanding your heirs' financial circumstances is an important part of the analysis.

Tax diversification provides flexibility

Many retirees have accumulated the vast majority of their wealth inside tax-deferred retirement accounts, and that creates a challenge. Every dollar withdrawn becomes taxable income, leaving retirees with limited flexibility when tax laws or personal circumstances change.

Building assets across multiple account types — including traditional retirement accounts, Roth accounts and taxable brokerage accounts — creates what many planners call tax diversification.

Having multiple "tax buckets" allows retirees to decide where retirement income comes from each year, making it easier to adapt to changing tax laws, Medicare thresholds or unexpected expenses.

Where you live can affect the timing

State taxes can also influence whether a Roth conversion makes sense. Someone planning to relocate from a high-income-tax state to one with no state income tax could benefit from delaying Roth conversions until after the move.

Conversely, someone expecting to move into a higher-tax state might decide to accelerate conversions before relocating.

State taxes generally receive less attention in planning than federal taxes, but they can meaningfully affect lifetime tax costs.

A common Roth conversion myth

One objection frequently raised against Roth conversions is that paying taxes today means losing years of investment growth. That argument overlooks an important concept: Taxes on a traditional IRA already represent a future liability.

Paying that liability earlier doesn't necessarily reduce long-term wealth if tax rates remain unchanged — it simply satisfies the government's share sooner.

Where Roth conversions can create additional value is by reducing future RMDs, potentially lowering Medicare premiums, limiting Social Security taxation, providing greater withdrawal flexibility and protecting against higher future tax rates.

The comparison isn't simply about investment growth — it's about maximizing what you keep after taxes over the course of retirement.

The bottom line

Roth conversions aren't appropriate for everyone. In fact, many retirees with modest savings and no pensions might be better off leaving their traditional retirement accounts untouched.

Pension holders, however, ordinarily face a different reality. Guaranteed income, RMDs and long retirement horizons can create tax burdens that make proactive planning far more valuable.

Rather than asking whether Roth conversions are "good" or "bad," ask a better question: Will paying taxes today likely cost less than paying them later?

For retirees with pensions and substantial retirement savings, the answer is often worth exploring through a comprehensive, long-term tax strategy that considers not only income taxes but also Medicare premiums, Social Security taxation, estate planning and future tax flexibility.

Because when it comes to retirement, it's not just about how much you've saved — it's about how much you'll ultimately keep.

Related Content

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• 13 Things to Know About How Your Pension Affects Your Taxes in Retirement
• Many Retirees With a Pension and $1 Million-Plus Do These 7 Things (and Regret It Later)
• 10 Retirement Fixes You Can Implement Today to Strengthen Your Financial Plan
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully

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 have millions saved in your 401(k) and IRA, that feels like a win, and it is. But there's one way a large balance quietly works against you: The more money sitting in tax-deferred accounts, the more likely the IRS is to tax the maximum allowable portion of your Social Security check.

That happens by default, unless you plan around it.

Most people who reach this point spent decades doing everything right: Saving consistently, maxing out their 401(k), following the advice they were given. That advice was built for accumulation, not for the withdrawal phase.

This is often called the Social Security tax torpedo. It shows up the same way in almost every retirement plan I, as the founder of MOKAN Wealth Management, review for the first time. It's not a mistake. It's what happens when there's no planning for the tax impact of retirement withdrawals.

How the IRS decides what gets taxed

The IRS uses a number called provisional income to decide how much of your Social Security check gets taxed: Your regular income, plus any tax-free interest, plus half of your Social Security benefit.

Once that number crosses certain levels, your Social Security starts getting taxed, and those levels have never been adjusted for inflation.

Married couples filing jointly start owing tax at $32,000 of provisional income. Above $44,000, up to 85% is taxable. Single filers cross at $25,000 and $34,000.

Frozen since the 1980s and 1990s, these thresholds mean a couple with a modest combined income can land at the maximum simply because the numbers are so outdated.

In retirement, income piles on top of itself:

• Your IRA withdrawal gets taxed
• Your Social Security gets taxed on top of that
• Medicare premiums climb along with both

If almost all your savings sit in a traditional IRA or 401(k), every dollar you pull out to pay the bills is fully taxable, and adding half your Social Security on top pushes most retirees past every threshold in year one, often by a wide margin.

Nobody made a bad decision. They just never built a different kind of account to draw from.

The one exception is a Roth IRA. Money pulled from a Roth doesn't count toward provisional income, doesn't show up on your tax return and doesn't raise Medicare premiums. It's the one source of retirement income the IRS leaves alone.

The three buckets every retirement needs

Think of your savings in three buckets:

• Money you've already paid tax on (a brokerage account, where you owe tax only on the growth)
• Money you haven't paid tax on yet (a traditional IRA or 401(k), where every dollar withdrawn is taxed as ordinary income and where most people hold nearly all their savings)
• Money you'll never pay tax on again (a Roth IRA, which grows and comes out tax-free and is invisible to the IRS)

When almost everything sits in the second bucket, every dollar you withdraw pushes more of your Social Security into the taxable zone.

Tax diversification means having enough in each bucket to choose which dollars to spend each year based on what creates the smallest tax bill.

Roth conversions: Moving money to the third bucket

The most reliable way to build the tax-free bucket is through a Roth conversion: Moving money from your traditional IRA into a Roth IRA and paying income tax on the converted amount that year.

After that, the money and all its future growth come out completely tax-free and never count toward provisional income again.

The window to do this well is shorter than most people think. It typically opens in the years just before or after retirement, before Social Security starts and before required minimum distributions (RMDs) force taxable income onto your tax return. Income is usually at its lowest point during that stretch, which means lower rates on any conversion done then.

Three approaches work well in practice:

• Filling your tax bracket by converting just enough each year to use up room in your current bracket
• Converting larger amounts over a shorter window when a balance is too large for small annual conversions to move the needle in time
• Converting more aggressively when the market is down, since the same number of shares costs less in tax

The biggest mistake is waiting. RMDs force taxable income onto your return at age 73 or 75 whether you need it or not — on a balance that's kept growing with the tax bill still attached.

A before-and-after example

John and Karen, both 60, have $1.8 million combined in traditional IRAs, $200,000 in a brokerage account and almost nothing in a Roth. They plan to retire at 63 and need about $150,000 a year to live on. Their combined Social Security benefit is roughly $70,000 at full retirement age, or about $53,000 if they claim benefits early at 63.

On the default path, they retire and claim at 63, then pull the remaining $97,000 they need straight from the IRA. Provisional income comes out to roughly $123,000, well past the $44,000 ceiling: The 85% maximum, or roughly $45,000 of taxable Social Security, stacked on top of the $97,000 IRA withdrawal.

On the coordinated path, starting at 60 while they're still working, they convert a portion of the IRA to Roth each year, paying the tax from income and the brokerage account so the full converted amount keeps growing tax-free.

They keep converting through their mid-60s and wait until 67 to claim Social Security, when the benefit reaches its full $70,000. By then, the Roth is large enough to cover roughly $40,000 of annual spending tax-free, with the remaining $40,000 from the IRA.

Provisional income lands around $75,000 instead of $123,000: Still above the ceiling, but with substantially less Social Security taxed and a large share of spending arriving with no tax bill.

Same retirement date, same lifestyle spending, a meaningfully different tax outcome for the rest of their retirement. The only difference was starting at 60 instead of waiting until the options had narrowed.

What to do now

Most people don't choose to pay the maximum tax on their Social Security. It happens because they didn't plan for it, which also means it's predictable enough to fix.

Run your own provisional income number. Figure out how much room is left in your current bracket. Then start moving money into the Roth bucket, even a few years before retirement. The window narrows every year you wait.

The Social Security Administration's benefit estimator and IRS Publication 915 are good starting points for running your own numbers.

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• I'm an Investment Adviser: This Is the Tax Diversification Strategy You Need for Your Retirement Income

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.

Every financial plan you'll ever see puts heavy emphasis on getting money into retirement accounts.

Contribute early, get the match, max out the IRA and let it compound. That part of the advice is sound, and most disciplined savers follow it well.

What gets far less attention is what happens after the money is in there. For some retirees who did everything right and accumulated a large IRA balance, that account can quietly turn into a complicated tax problem for themselves, a surviving spouse and, eventually, their kids.

The culprit is required minimum distributions (RMDs). Once RMDs start, at age 73 or 75 depending on your birth year, that money adds to taxable income whether you need it or not, on top of whatever else you're already reporting. That's the part most retirees eventually hear about, usually from an accountant and usually a year or two too late.

What almost nobody discusses is where that balance goes after the RMD math is finished for the year.

A large IRA won't create a tax bill only for the original owner. It can create a bigger one for the spouse who is left filing alone and a different one for the kids who inherit what's left when they're in their peak earning years.

One account, three tax bills, three different taxpayers.

John and Jane did everything right

John and Jane are 64. They maxed out their 401(k)s for three decades, didn't touch the money early and rolled everything into IRAs at retirement. Between them, they're sitting on $2.3 million in traditional IRA balances, a paid-off house and modest investment income each year.

Fast-forward to age 75, when their RMDs begin. Assuming reasonable growth and no withdrawals, that $2.3 million could be $3 million or more, generating an RMD of roughly $122,000 in the first year.

Add combined Social Security of about $65,000 and an additional $45,000 of investment income, and they're looking at $232,000 to report on their tax return. It's far more than they need, and none of it is optional.

That $232,000 lands on John and Jane's return, and it's the most straightforward of the three tax bills this balance is about to generate.

The widow's penalty

The problem doesn't stop with John and Jane filing jointly. Assume John passes first, which is statistically likely. Jane's income marginally changes. She still collects the survivor Social Security benefit, still owns the investment account and still has to take RMDs on essentially the same IRA balance.

What changes is her filing status. She moves from joint brackets to single brackets, which are roughly half as wide through most of the income range. Her standard deduction shrinks by close to half as well, pushing more income into taxable territory.

Income that used to be taxed at 12% or 22% when John was alive is now landing at 24% or 32%, even though her income hasn't moved.

Many couples model their household income. Very few model what that same income looks like once one spouse is filing alone. For a couple with John and Jane's numbers, the bracket and deduction squeeze alone can mean $10,000 to $15,000 more in tax every year, for the rest of her life.

This is what is referred to as the widow's penalty and could cost the taxpayer additional tax for decades.

The beneficiary problem

Push the timeline out further. Jane eventually leaves the remaining IRA to their two children, and by then, it's worth roughly $3 million combined, about $1.5 million to each child.

Under rules in place since the SECURE Act, most nonspouse individuals must empty an inherited IRA within 10 years of the original owner's death. Withdrawals don't have to be even, but if the original owner was already taking RMDs, annual withdrawals are typically required throughout that window, too.

For a child who's in their peak earning years, that inherited IRA doesn't always arrive as a windfall. It arrives as $150,000 or more of additional taxable income, stacked directly on top of a salary, a bonus and whatever else they've already got going on. A meaningful chunk of that inheritance can go straight to the IRS.

John and Jane spent 30 years deferring tax on that money, and their children may pay more on it than John and Jane ever would have.

Why this matters now

Two recent changes make this the right moment to make the projection.

First, RMD ages have moved. The SECURE 2.0 Act pushed the starting age to 73, moving again to 75 in 2033. That gives people born after 1959 a longer runway before distributions are forced and more years to plan around it.

Second, the One Big Beautiful Bill Act made the current tax brackets permanent instead of letting them expire at the end of 2025. For years, planners hedged Roth conversion advice with "rates might go up, might go down." That uncertainty has diminished.

Neither change fixes the underlying problem: A large traditional IRA is still going to generate a large RMD. But both make it easier to plan while there is still room to act.

The planning runway

John and Jane have an advantage most people overlook: They're 64, retired, and neither Social Security nor RMDs have started. That runway is valuable, but it won't last.

They could consider a Roth conversion. Every dollar converted gets taxed at today's rate, while their income is relatively low, instead of at a future rate stacked on top of Social Security, RMDs and investment income. A smaller traditional IRA can mean smaller future RMDs, less pressure on a surviving spouse's tax return and less taxable income passed to children.

Another move is a qualified charitable distribution, or QCD, once they turn 70½. IRA owners can send money directly from the IRA to a qualified charity — up to $111,000 per person in 2026 — and that amount counts toward the RMD without showing up as taxable income.

For the charitably inclined, it's one of the few ways to satisfy an RMD and lower a tax bill at once.

Neither move is automatically right for everyone, not even for John and Jane. The goal isn't converting for its own sake, it's optimizing the tax bill across a lifetime, and Roth conversions and QCDs are tools for that, not the whole strategy.

What matters more than picking a tactic is running the numbers every few years, since today's right answer may not be right in five years.

The real problem isn't the balance

There's nothing wrong with having a large IRA. It means the saving worked. The problem is assuming that planning is finished once the account is funded.

Left alone, a large traditional IRA sets off a chain reaction:

• Bigger RMDs than you need
• A tax increase left for the surviving spouse
• A tax bill handed to your kids on money you spent 30 years deferring

None of it is inevitable, but all of it takes years of lead time to fix.

The best time to deal with a large IRA is before the RMDs force the issue, not after.

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• Why a Down Market is the Best Time for a Roth IRA Conversion
• Will Taxes Shred Your 401(k) or IRA During Your Retirement? It's Very Likely

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.

One core investing principle never fails: the less you pay in fees, the more of your return you keep. As legendary Vanguard founder John Bogle warned, "The miracle of compounding returns is overwhelmed by the tyranny of compounding costs."

While you can’t control the market, you can control what you pay. That’s part of the appeal of accounts marketed as "zero-fee" individual retirement accounts (IRAs). But a new white paper from PensionBee, an online retirement account provider, finds these accounts often charge savers in ways most will never see.

To measure the toll, PensionBee modeled the costs on a $107,000 account — roughly the median retirement savings for millennials and Gen X. Even a cost-conscious retirement saver, it found, pays 0.16% to 0.32% of their balance a year, or about $160 to $340. Under common investor behavior, such as unknowingly choosing pricier funds, that can climb to around 1.3%, or $1,400 a year.

"'Zero-fee' does not necessarily mean free," explains Romi Savova, founder and CEO of PensionBee. "It’s basically a catchy marketing term that refers to the removal of certain flat fees, like account opening fees, but it does not necessarily apply to other costs within the account."

Avoiding those costs, experts say, comes down to a little effort on your part and a clearer understanding of how your account works.

Six hidden ways "zero-fee" accounts can cost savers

First, a clarification. "Zero-fee" is not a new kind of IRA. As Marianela Collado, CFP® and financial adviser at Tobias Financial Advisors, puts it: "An IRA is an IRA is an IRA."

It’s the same account available at any financial institution or custodian that holds a saver’s money, and the label simply means a firm has waived some charges, not that the account is free to own.

Savova compares it to a trip to the grocery store. Walking in and out costs nothing, but your bill adds up depending on what lands in your basket.

Here are the six charges the paper identifies that can cost retirement savers without ever appearing on a statement.

1. Idle cash

When you open or roll over an IRA, your money arrives as cash — and it doesn’t invest itself. If you leave it sitting, the account provider often sweeps it into a low-yield account while keeping most of the interest, a practice known as a cash sweep.

It happens more than you might think. A Vanguard study found that 28% of rollover assets and 55% of direct contributions sit in cash a full year later, with nearly 30% of rollovers remaining uninvested for up to seven years.

"The biggest hidden tax in a 'zero-fee' IRA is the interest rate you don’t earn on your idle cash," says Sean Lovison, CFP® and founder of Purpose Built. Leave $10,000 parked, he notes, and you could forfeit $400 to $500 a year.

The fix can be as simple as choosing your investments once the money lands. "Set a calendar reminder for 48 hours after funding an IRA and actually select an investment," advises Jeff Judge, CFP® and managing partner of Chesapeake Financial Planners. "A target-date fund is a reasonable default if you don’t want to build a portfolio from scratch."

And if a financial adviser is steering you into cash, Lovison adds, "make sure you know why and what you are earning."

2. Securities lending

The stocks and bonds in your account can be loaned out to large institutions that pay to borrow them. While this is often routine, the account provider usually keeps most of the fee while you carry the risk. "They make money on your money," Collado explains. "As the lender, they charge a fee that they keep."

Some programs pay the customer as little as 15% of the proceeds, PensionBee’s analysis found. Its advice: understand how lending works before you opt in, and sit it out if you’re not comfortable with the risk.

3. Payment for order flow

When you buy or sell, your order may be routed through a middleman who pays your provider, leaving you with a slightly worse price than the market offers.

"That hidden execution drag adds up fast," warns Lovison, "which is why minimizing trade frequency remains important, even when the platform claims trading is 'free' — and why many providers will encourage you to make trades through gamification and faux educational materials."

Two factors drive the cost, according to Savova: what you trade and how often. Sticking to well-known, high-volume funds and trading rarely keeps it small. For someone who buys a few funds and holds them, this is a minor concern; it mainly adds up for frequent traders.

4. Fund choice

This is the $171,000 mistake.

An actively managed fund can charge nearly nine times what a comparable index fund does — 0.98% versus 0.11% — and the two can sit side by side with nearly identical names. As the report argues, active funds have their place for some savers, but many do not know the difference.

That gap of about 0.87% a year sounds trivial, but PensionBee estimates that on a growing balance, compounded over 30 years at a 7% annual return, it can quietly cost a saver around $171,000 in lost growth.

"The most overlooked cost is the expense ratio buried inside the funds themselves," says Judge. "A platform can charge zero dollars to open an account and still bleed a client 0.5% to 1% a year through the funds it defaults them into." To avoid the trap, he advises, "Read the prospectus, not the landing page."

5. Administration and service charges

Waiving account fees doesn’t rule out charges for specific actions. For example, wire transfers, moving money to another firm or foreign-exchange conversions.

None of it should come as a surprise, Savova notes, since "financial services companies are not charities and the products they offer will always come with a cost." There may be no single "right" price for a retirement account, she adds, but savers "should seek to balance cost against the level of service, management and portfolio grade you have selected."

6. The fine print

PensionBee's analysis found that "zero-fee" sometimes applies only below a balance limit, or that a small advisory fee — often 0.25% to 0.27% – kicks in once you cross a threshold. In other cases, a "zero-fee" account sits beside a pricier full-service option, and an accidental click at sign-up routes you into the wrong one.

Given the complexity, Savova recommends putting on your detective hat. Read the fine print and investigate any obscure charges. "Just because you don’t see a cost doesn’t mean you aren’t paying for it," she says.

Paying for professional help may be the right cost

A 2019 survey found two-thirds of Americans are not confident in their knowledge of IRAs, while assets in those accounts hit a record $18 trillion in 2026, up from $5 trillion in 2010.

For all their variety, these hidden costs can share a single root: nobody to tell savers what to look for. That’s where professional help can earn its keep. A 2026 TIAA Institute report found that people who work with a financial adviser reported a 14- to 19-percentage-point edge in financial confidence and preparedness, and were far more likely to invest consistently rather than let their money sit.

Of course, professional management comes at a cost, too, but typically with more transparency. As Collado puts it: "I’d rather you know what that is than have you think you’re paying $0.00 and then actually pay 3X what’s normal."

Read More

• Is Your Financial Adviser for Retirement Worth the 1% Fee?
• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• I Thought My Retirement Was Set — Until I Answered These 3 Questions
• The '401(k)-Rich and Cash-Poor' Retirement Trap

Are you 401(k) rich but cash poor? If so, your retirement nest egg may have some dangerous fault lines.

Just as being house poor can create a cash squeeze in your prime earning years, investing the bulk of your money in a traditional retirement account can make a seemingly solid retirement plan more vulnerable.

The big risk of retiring with too little cash is a costly liquidity crunch if a large, unexpected expense hits. Not having adequate cash reserves may force you to take withdrawals from your retirement account at the worst possible time — when markets are tanking and asset prices are falling.

The case of the missing bucket

There are two major downsides to forced selling of stocks and other so-called risk assets: 1) it can trigger taxes, and 2) it can deplete your nest egg prematurely.

That's where a large cash hoard comes in. Cash, as is often said, is king — mainly because it's safe, liquid, and easy to access with zero tax consequences. Financial planners recommend putting money in three separate buckets.

• An emergency savings bucket (e.g., cash savings)
• A goals bucket (e.g., car down payment)
• A retirement bucket (e.g., long-term savings, typically invested in a tax-advantaged account that holds more volatile assets with growth potential like stocks)

Ideally, the cash bucket should be outside a traditional 401(k) so you won't have to pay taxes on any withdrawals. But in reality, many people don't have an emergency savings bucket. More than half of Americans (53%) say they don't have sufficient liquidity to cover a $1,000 emergency expense, according to Bankrate. That's where Plan B (which we'll discuss in more detail later) comes in: holding ample cash reserves for emergencies in a retirement account, where you're likely to have the bulk of your assets.

Risk 1: a bigger tax bill

Withdrawals are taxed as regular income. Distributions from traditional 401(k)s are treated as income. That means your withdrawals will get taxed at ordinary tax rates, which range from 10% to 37%. The tax you pay to the IRS also puts an extra drain on your account balance. Let's say you're in the 24% tax bracket and need to raise $45,000. To net that large lump sum, you'll need to withdraw $59,211 from your 401(k) to account for the $14,211 tax owed to Uncle Sam.

Withdrawals may push you into a higher tax bracket. The extra income generated from 401(k) withdrawals may bump you up to a higher tax bracket, increasing your tax bill. Say you're at the tippy top of the 24% bracket and you withdraw $45,000 from a traditional 401(k). All that extra income will bump you up from the 24% bracket to the 32% bracket. The tax amount on $45,000 at 32% is $14,400, which is $3,600 more than the $10,800 tax hit in the 24% bracket.

That additional income could also inadvertently result in a future increase in Medicare Part B and Part D premiums (IRMAA) if it pushes your modified adjusted gross income (MAGI) above certain income thresholds.

Another financial drawback of keeping most of your savings within a traditional 401(k) is less flexibility in managing taxes on withdrawals.

"You don't have optionality around crafting an income tax-efficient cash flow stream," says Charles Carter, managing director at Oxford Financial Group. "You're beholden to the ordinary income tax rate. The more you take out of the retirement plan, the more your ordinary income goes up, the higher your marginal tax rate. It becomes sort of a vicious cycle."

Risk 2: the growth hit and sequence of returns risk

Withdrawing money during a down market means you must sell more shares to raise the cash you need. So, you now have fewer shares in your retirement account to benefit from a market rebound. That, in turn, means you lock in losses and miss out on compound growth.

This risk, known as sequence of returns risk, is particularly damaging for retirees at the beginning of retirement, as their account balance is depleted more quickly than planned, which is hard to overcome.

"Retirees who withdraw from a retirement portfolio in a down market are unfortunately steepening the already uphill battle," says Jonathan Lee, investment adviser at U.S. Bank Private Wealth Management.

Liquidating stocks, equity funds, or other positions in your 401(k) permanently reduces the dollar amount and share count in your account, shrinking the amount of assets that can benefit from compounding over time. For example, at a 7% average annual return, $10,000 withdrawn 20 years before it would have been needed represents $28,697 in lost appreciation.

"We don't know what the market is going to do in two days, two months, or two years," says Jason Grover, a financial planning specialist at Grover Financial Services. "What we don't want to do is be forced to sell positions to generate cash that we need to pay our everyday bills." That cash protection, Grover adds, allows the retiree to stay invested and benefit from an eventual market recovery.

Where to keep your cash buffer

Ideally, you have set up an emergency fund outside of your 401(k). Financial advisers recommend retirees keep one to three years of expenses in a cash account, preferably in a high-interest savings account they can access without incurring penalties or taxes.

Grover recommends retirees set aside a cash reserve totaling at least two years of living expenses. "Anything less than that is irresponsible," says Grover. "For a client who is taking $5,000 a month (or $60,000 a year) from their 401(k), I'm going to have $120,000 minimum in cash," says Grover.

You should also pay close attention to "asset location" as you save for retirement. That strategy refers to having a mix of investment buckets with different tax treatments such as taxable brokerage accounts, tax-free Roth accounts, and traditional retirement accounts. However, a sound plan also requires proper "asset allocation" — including an ample cash buffer to ride out market downturns.

If you don't have an emergency fund and most of your savings sit inside a tax-deferred (traditional) retirement account, you can still take action. You should build a cash hoard inside your traditional 401(k), even though any withdrawals will be taxed as ordinary income. Having a cash allocation in your 401(k) gives you an all-important liquidity option that's not negatively impacted by short-term market movements.

"If your 401(k) is your sole bucket for cash flow, it would be risky, if not foolish, to not have a sufficient cash reserve sitting there ready and waiting," says Carter.

Actionable ways to replenish cash savings

Rebalance your 401(k) portfolio. If the lion's share of your assets is in a traditional retirement plan, a short-term fix is to rebalance your portfolio periodically to bolster your cash bucket in your 401(k), Carter advises. Ideally, opportunistically sell stocks when the portfolio's equity weighting has swelled beyond financial plan targets — and when markets are up. "Those are opportunities to strategically raise cash," says Carter.

Consider Roth IRA conversions. Roth accounts allow tax-free withdrawals and are a valuable tool for managing cash in retirement. However, Roth conversions are a taxable event, so work with your financial adviser and run the numbers to see whether you can convert savings held in traditional IRAs or 401(k)s to a Roth account.

Buy a short-term Treasury and hold it to maturity. If you have an adequate emergency fund now but plan on burning through the money in the next two years, you can replenish your bucket for year three and beyond by purchasing a short-term U.S. Treasury bond of, say, three years' duration, says Grover. "Hold the bonds to maturity," said Grover. By holding to maturity, you'll lock in the current yield of roughly 4.25% and know the money will be there when you need it in a few years.

Commit to a savings plan to build a rainy-day fund. A long-term solution to a cash shortage is to start building an emergency fund outside your 401(k), advises Carter. Rejigger your budget and start setting aside money in a high-yield savings account or a taxable brokerage account. "Take a thoughtful, intentional, and diligent approach to saving," says Carter. Building an ample emergency fund this way won't happen overnight. It could take a few years.

Read More

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After several decades as a serial entrepreneur — launching computer magazines in the ’80s and hobby magazines in the ’90s, then running conferences for publishers for two subsequent decades — Carl Landau retired in 2019 at age 64. "I finally felt fatigue," says Landau, who lives in Sacramento, Calif. "I always had so much enthusiasm for it all and realized that I had been doing this for a long time."

That first year of retirement, though, proved challenging. Landau and his wife planned a trip to Portugal for March 2020 — the month and year the world practically shut down thanks to the COVID-19 pandemic. With travel canceled and life on pause, Landau did what entrepreneurs do: He launched a new venture, creating a wry, weekly podcast looking at life and identity post-career that he called I Used to Be Somebody.

Within months, the project had morphed into a second career. "I realized I had built another full-time job," says Landau, adding that he found he had little time to pursue his passion for pickleball, one of the activities he’d most looked forward to in retirement.

So Landau recalibrated again. He scaled back production of the podcast and a companion newsletter to once a month, and he now averages some 12 hours a week at work. The rest of his time is reserved for socializing and recreation (pickleball!). Looking back, he recommends that newbie retirees bake flexibility into their plans to accommodate shifting priorities and unexpected experiences.

"There are going to be ups and downs, particularly if you worked really hard for 40 years and all of a sudden you’re not doing that," he says.

Landau’s story is less a cautionary tale than a template for what comes next, as millions of newly minted retirees are now learning. The post-career years, especially in the beginning, are an ongoing experiment. "No matter how prepared for retirement people are, they are unprepared," says certified financial planner Ross Levin, cofounder of Accredited Investors Inc., a wealth management firm in Edina, Minn.

The impact of "Peak 65"

Thanks to the aging of the massive baby boom generation, the ranks of first-time retirees looking for financial security and purpose in the next stage of life are historically large right now.

Between 2024 and 2027, a record number of Americans will turn 65 or will have already celebrated that milestone birthday, including 4.1 million this year and about the same number next year — a cohort known as Peak 65. All boomers will be at least 65 by 2030.

Many of these freshman retirees understandably face the transition to their next chapter with some trepidation. The percentage of workers who feel confident that they have enough money to live comfortably in retirement fell by 6 percentage points from 2025 to 2026, to 61%, according to a recent survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research.

Among the concerns stoking worries about finances in retirement were inflation, debt, healthcare costs and housing expenses, as well as doubts about the future financial viability of Social Security and Medicare.

Adding to the anxiety: Many near-retirees haven’t spent much time planning for what they will actually do once they’ve put a full-time career behind them. That’s the key takeaway from a 2025 survey by the Financial Planning Association and the Journal of Financial Planning. About half of the financial planners surveyed said their clients were financially prepared to stop working, but only 11% said the people they advise were emotionally prepared for the lifestyle adjustments that retirement entails.

If you’re looking ahead to retiring soon or have recently embarked on the retirement journey, you want to make sure you have both parts of the process covered. Experts recommend these steps to ease the transition from full-time work and to ensure that you flourish in this next chapter.

Rethinking what retirement looks like

Part of the challenge you face as a new retiree is that the definition of this stage of life is changing, as people generally live longer and in better health than previous generations. Yes, the word retirement still typically signifies the end of a long career. But individual paths diverge wildly from there these days.

The classic vision of retirement as full-time leisure and relaxation remains an option. Increasingly, though, many retirees take on part-time jobs, gig work or even encore careers. Some become passionate volunteers or dedicated hobbyists; others go back to school. Some embrace an active role as grandparents or become caregivers to aging loved ones. Often, retirees pursue a mix of these roles that evolves with age.

What’s right for you? The beauty of a long retirement is that you don’t have to figure it all out from the jump or stick with a single vision. It helps, experts say, to view the first year of retirement as a period for gathering information that will help smooth the transition to this next chapter and build a strong foundation — financially, socially and emotionally — for a comfortable, meaningful retirement.

"The first year is a test year," says CFP Lazetta Rainey Braxton, founder of the Real Wealth Coterie, a wealth management firm in New Haven, Conn.

The key, experts say, is to be willing to experiment and to seek out pursuits that offer purpose, keep your body and brain active, and help you maintain social connections. You also need a good idea of how much you can safely spend to make those things happen.

In other words, you need both a purpose plan and a financial plan at the beginning of your first year of retirement. That allows for smarter decision-making and flexibility, helping you adapt as experiences and new data inform your views and the inevitable curveballs come your way.

"If you’re thriving, it’s because you have a personalized vision for what retirement means to you," says Lisa Stornaielo, cofounder of The Future of You, a Boston-based consultancy that helps individuals and corporations navigate the transition to retirement. "Your finances are an important piece.

But what we’ve found is just as important is that people are very clear not only on what they’re retiring from but also on what they’re retiring to, and there’s an intentionality around that."

Treating your first months as a sabbatical

Of course, you’ll need time at first to decompress, exercise, read, and tackle long-delayed home projects or similar tasks. There is immense value in giving yourself permission to relax and enjoy new experiences.

Think of those first few months as the equivalent of taking a sabbatical — a necessary window to recharge mental and physical energies while creating psychological distance from a lifelong work identity.

A sabbatical is temporary; retirement is not. The profound shift in navigating the transition between the working world and retirement comes down to sheer time.

Leaving a full-time career suddenly frees up roughly 2,500 hours each year, calculates executive coach Joe Casey in Win the Retirement Game: How to Outsmart the 9 Forces Trying to Steal Your Joy. "People enter retirement at different ages and with various levels of resources," he writes. "But all new retirees are time-rich."

The core question to ask yourself: How will you invest that newfound wealth of time? What is your purpose? What matters to you? "I encourage people to write some sort of business plan," Landau says. "It doesn’t have to be elaborate. Just list your goals, what you really enjoy doing and the things you don’t like."

Adapting your plan as life happens

Any entrepreneur will tell you that a solid business plan not only increases the odds of success but also accounts for the fact that the blueprint will change multiple times. Take the experience of Joy Norquist, 70, and Ron Wawrzon, 69, who retired — she from a career in insurance compliance, he from working as an operations manager for a small manufacturing company — in 2021 and 2022, respectively.

The Saint Paul, Minn., couple both have pensions, retirement savings and a long-term relationship with a financial planner. They planned to move to Chicago, where Wawrzon is from, but life intervened. Wawrzon faced a health setback (he’s fine now), and Norquist’s mother required months of intensive care following a serious fall. Those initial plans for retirement went on hold.

Meanwhile, the couple discovered part of their post-retirement rhythm almost by accident. One afternoon, for fun, they went to an open house for a condo in a high-rise building in downtown Saint Paul, and they fell in love with the view. The couple moved to the building two years ago. They joined a local walking club, they participate in a weekly study group at a local tavern, and they enjoy movie nights with neighbors and other activities.

Norquist’s mother passed away in late 2024, and the couple spent much of last year dealing with her estate. Now that’s mostly done, but Chicago may no longer beckon and Norquist and Wawrzon are taking their time to decide what comes next for them in retirement. But they view the future with optimism. "We feel like we haven’t really launched yet," Norquist says. "We’re figuring out the rest of our lives from here."

Build your core strategy

As you shift from earning and saving money to spending the fruits of your labor, retirement triggers a cascade of financial decisions, from where to live and how you’ll pay for healthcare to when to start taking Social Security benefits and how much you can safely withdraw from retirement accounts.

Yet only one in four Americans in their sixties has a formal, written financial strategy for retirement, according to a 2025 report from the Transamerica Center for Retirement Studies.

If you’re among them, now is the moment to create a plan — or revisit and update the one you already have. You need realistic data on expenses (needs and wants), liabilities, tax rates and healthcare costs to figure out where you stand and what options make the most sense for your circumstances.

You can work with an adviser (find one at napfa.org, letsmakeaplan.org or garrettplanningnetwork.com) or do it yourself using planning software, such as Boldin (free for the basic version; $12 a month for advanced features) or WealthTrace ($229 a year, standard; $289 a year, deluxe).

Maximize your Social Security payout

Among the most critical decisions to ponder in year one: when to claim Social Security benefits. The earliest you can apply is age 62 and the latest is age 70; the longer you wait, the bigger the monthly payout will be.

For instance, boomers celebrating their 65th birthday this year who wait to file until they hit their full retirement age of 67 — that is, the age at which they’re entitled to 100% of their benefits — will get a monthly benefit that is roughly 43% bigger than if they’d claimed at 62, according to the Social Security Administration. Wait until age 70, and that monthly benefit will be 77% higher than the payout at 62.

Because you can’t outlive your Social Security benefit and the payout is adjusted annually for inflation, the standard advice is to hold off filing for as long as possible — at least until your full retirement age. However, there can be good reasons to claim earlier — if, say, your health is poor, or you’d otherwise need to withdraw too much from savings to pay fixed expenses.

An adviser can help determine the optimal time to claim for your situation, or you can tap online resources for assistance, such as Open Social Security, a free strategy calculator, or planning software such as MaxiFi ($109 a year, standard plan; $149, premier). (For more guidance, see "Perfect Timing: When to Claim Social Security," April.)

Master your portfolio withdrawal strategy

You’ll also need to tackle the puzzle of how much money you can safely withdraw from your retirement portfolio. One common guideline is the 4% rule, developed by retirement researcher William Bengen in the mid ’90s.

It suggests taking out 4% in the first year of retirement (it assumes the portfolio is split roughly 50-50 between stocks and bonds), then adjusting subsequent withdrawals annually for inflation. Historically, Bengen calculated that strategy would ensure you would never run out of money, even in the worst-case scenario for financial markets.

Although the 4% rule is a simple and convenient metric, experience has shown that strictly adhering to it often leads retirees to withdraw less than they can afford to spend, potentially stopping them from enjoying this chapter of life to the fullest. Many experts, including Bengen himself, have revised the initial withdrawal rate upward to the 4.5%-to-6% range.

In his 2025 book A Richer Retirement, for instance, Bengen suggested 4.7% would be a better starting point for withdrawals, and he changed his model portfolio to hold as much as 65% of long-term savings in stocks.

Likewise, CFP Rainey Braxton typically recommends that you withdraw up to 5% the first year — ideally somewhere between 4% and 5% — and possibly a little more, depending on what she calls "the nuance and art of knowing the client’s circumstances."

A popular alternate approach is the bucket strategy, initially developed by CFP and wealth manager Harold Evensky, chair of the Coral Gables, Fla., financial planning firm Evensky & Katz. As Evensky said in a Morningstar interview last year, the strategy was "designed so the client wouldn’t get panicked if the market was falling apart because [they’d know] where the grocery money was coming from."

The basic idea is to set aside enough cash to cover, say, one or several years of living expenses, when combined with Social Security and any other guaranteed sources of income, such as a pension.

Money that you won’t need for several years is then invested in a diversified portfolio of fixed-income securities and equities, which offer the prospect of higher long-term returns but at greater short-term risk. The cash cushion offers peace of mind that you’ll get through the inevitable market slumps without needing to sell depreciated stock or bonds.

Despite the differences between the two strategies, the central takeaway is the same: Spending plans should be dynamic. In essence, the first year of retirement provides a trial run to implement a fluid strategy, allowing you to track your actual lifestyle costs while remaining flexible enough to make adjustments if market or economic conditions or personal priorities shift.

"People think they need to have it all figured out right away," says Andrea Eaton, a CFP at Cornerstone Wealth Advisors in Edina, Minn. "It takes a year to figure out your actual cash needs. It really is a guesstimate initially, and that can be changed up or down. It simply takes time getting used to taking money out versus putting money in."

Discovering your post-career purpose

Newbie retirees often feel unmoored when they are no longer defined by their job and the need to make a living. So it’s important to build a new sense of purpose for your retirement years and have good reasons for getting up in the morning.

"You should be working on what your life will look like before you even retire," Eaton advises. "What is your greater purpose? How are you getting involved in your community? What gives your life meaning beyond working for an income?"

How do you find that purpose now? Stornaielo, who spent 21 years at Fidelity in human resources and executive coaching, warns against getting too caught up in pretentious visions about purpose. She recalls a three-day retreat focused on purpose that she attended while still at Fidelity. The retreat was very serious and high-minded. At the end of it she declared her purpose was to be "the yeast in the bread of life," she laughs. "Whatever that means."

Her purpose mantra now is far simpler and grounded: "Helping people achieve their potential." Also helpful, she says, is not to think of your retirement as the end part of your life. "Don’t get hung up on how much time is left. [The focus should be] what I can do today to feel like I’m making the most of my time."

Finding meaning through community, learning, and giving

For Laura and Ben Cooper, giving back to their community is what’s providing that feeling and sense of purpose in retirement. Laura, 78, a former law professor at the University of Minnesota, became a volunteer teacher in a citizenship program in the Twin Cities when she first retired in 2018.

Along with Ben, 79, a former mathematics professor at Augsburg College in Minneapolis, they’ve since branched out to support a variety of causes that include local arts organizations, environmental groups, nonprofits focused on refugee rights, and their local library system. Freed from the busyness of active careers and raising their now-grown son, they were able to ask themselves, says Laura, "What do we really care about?"

The Coopers manage much of their giving through a donor-advised fund, a tax-advantaged charitable-giving vehicle that works like a personal investment account for philanthropy.

Added benefits of their philanthropic work, they’ve found, are the sense of community and opportunities for continued learning it has given them. They’ve joined outings with Nature Conservancy scientists, attended private theater rehearsals to hear from actors and directors, and learned from experts about international human rights. "Learning is absolutely vital, and we have pretty diverse interests," says Laura.

Conversations with family, friends and acquaintances are a rich resource for thinking about purpose. One technique is to pay close attention to the tasks, conversations and projects that leave you energized rather than drained. Introspection helps, too.

Think back to other major life transitions and see what consistent core values carried you through those shifts. Volunteering, mentoring, taking a course or learning a new skill are activities that also offer useful information.

And some resources can help. Among the books that might provide both inspiration and practical suggestions are: Who Do You Want to Be When You Grow Old? The Path of Purposeful Aging, by Richard Leider and David Shapiro; The Big Shift: Navigating the New Stage Beyond Midlife, by Marc Freedman; and The Second Mountain: The Quest for a Moral Life, by David Brooks.

Evaluating year one to recalibrate year two

At the end of your first year of retirement, Eaton suggests conducting a personal audit.

Ask yourself, What activities brought you the most joy and fulfillment? Which were a waste of time? Are you feeling lonely? Do you need to inject more intentional social interactions, clubs or group hobbies into your life? How is your budget holding up against the reality of retirement? Do you need to scale your spending up or down based on your actual first-year cash flow?

The answers to those questions will help you shape year two of retirement, which in turn will help guide year three. Retirement is iterative by nature — a series of continuous recalibrations. You want to be continuously asking yourself, says Eaton, "What didn’t go well? And how do I want next year to be?"

Know this: Your first year probably won’t look exactly as you imagined it would before you stopped working full-time, and that is perfectly fine. Year one isn’t supposed to be the final draft of your retirement; it is simply the initial run of a grand experiment.

Build a personalized plan with confidence

Retirement is full of important financial decisions, from creating a sustainable withdrawal strategy to deciding when to claim Social Security. A financial planner can help you build a personalized plan with confidence.

Use the Bankrate tool below to connect with a vetted financial planner who can help you create a retirement income strategy that fits your goals:

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 retirees, managing taxes becomes just as important as managing investments. The way income is withdrawn in retirement can have a meaningful impact on how much of that income ultimately stays in your pocket.

While tax laws are complex, certain provisions can create valuable opportunities when used thoughtfully.

One such opportunity, sometimes informally referred to as the Big Beautiful Bill, offers a potential tax benefit for retirees who meet specific income thresholds.

Understanding how it works, and how withdrawals are structured each year, can make a noticeable difference in after-tax income. As a financial adviser and owner of New Smyrna Beach Retirement Solutions with more than a decade and a half in the financial industry, I can help with that.

What is the Big Beautiful Bill?

The Big Beautiful Bill is a colloquial term used to describe the One Big Beautiful Bill Act (OBBBA), a tax law that, among other things, allows eligible retirees to claim an additional deduction when their taxable retirement income stays at or below $150,000 per year.

For individuals age 65 and older, this bonus deduction can help reduce taxable income and lower overall tax liability.

On the surface, the rule appears simple. Stay under the income threshold and qualify for the deduction. In practice, however, many retirees exceed income limits unintentionally because they do not fully understand how different income sources are taxed or how withdrawals interact with one another.

Pensions, Social Security benefits, required minimum distributions (RMDs) and investment withdrawals can all contribute to taxable income in different ways. Some income is fully taxable, some partially taxable and some not taxable at all.

Without a clear strategy, it is easy for income to creep higher than expected.

Why withdrawal strategy matters

In retirement, income often comes from multiple sources. Traditional IRAs and 401(k)s are generally taxable when withdrawals are taken. Roth IRAs may provide tax-free income if certain requirements are met. Taxable investment accounts can generate income through interest, dividends and capital gains.

The key to taking advantage of income-based tax deductions is deciding how much to withdraw from each type of account in a given year. Drawing too heavily from tax-deferred accounts may push income above the threshold, while a more balanced approach could help keep taxable income within qualifying limits.

This is where coordination matters. By intentionally selecting the portion of income that comes from taxable, tax-deferred and tax-free sources, retirees may be able to manage their income level more effectively and preserve eligibility for valuable deductions.

This does not mean one account type is always better than another. It means coordination matters.

When withdrawals are planned intentionally, retirees may have more control over their taxable income and greater flexibility to adapt as tax rules and personal circumstances change.

Know what actually counts as taxable income

A practical first step is gaining clarity around what income is fully taxable, partially taxable or not taxable at all. Many retirees assume that income equals cash received, but the tax code treats different sources differently.

Understanding how Social Security benefits are taxed, how RMDs affect income and how capital gains are calculated can help prevent surprises. This awareness creates a foundation for better decision-making before withdrawals are taken.

Map out income before the year begins

Rather than reacting at tax time, retirees may benefit from projecting income at the start of each year. Estimating how much income is needed to support spending allows withdrawals to be structured more intentionally.

This forward-looking approach can highlight potential issues early. For example, it may reveal that a full RMD combined with other income sources would exceed the $150,000 threshold for the bonus deduction for older people. Seeing that in advance creates opportunities to adjust.

Use account diversification to your advantage

Retirees who have savings spread across taxable, tax-deferred and tax-free accounts often have more flexibility. If one source would push income too high, another may help fill the gap without increasing taxable income as much.

This might involve taking smaller withdrawals from traditional accounts in certain years, supplementing income from Roth accounts or being mindful of capital gains in taxable accounts.

Over time, this type of coordination can help preserve eligibility for deductions and reduce unnecessary taxes.

Pay attention to timing

Timing matters in retirement income planning. Some retirees experience lower taxable income in the early years of retirement before RMDs begin. These years can offer planning opportunities.

Others may face income spikes due to large withdrawals, one-time expenses or changes in investment income.

Recognizing when income is likely to rise or fall can help guide withdrawal decisions and avoid crossing important thresholds unintentionally.

A strategy that requires annual attention

Unlike some financial decisions that can be made once and left alone, income planning is ongoing. Tax brackets change, RMDs increase, and personal needs evolve.

Because of this, strategies designed to capture income-based deductions should be reviewed annually. Even small adjustments can make a difference. A slightly different mix of withdrawals, taken at the right time, may help preserve tax benefits that would otherwise be lost.

Regular reviews also help retirees adapt to changes in tax law and market conditions without making reactive decisions under pressure.

The bottom line

The OBBBA's provisions are examples of how thoughtful income planning can support a more tax-efficient retirement. While the bonus deduction for older people may seem modest, the cumulative impact of managing withdrawals carefully over many years can be meaningful.

For retirees, the broader lesson is clear. How income is structured often matters just as much as how much income is received.

Taking proactive steps to understand income sources, coordinate withdrawals and review strategies regularly can help ensure that available tax benefits are not overlooked and that retirement savings are used as efficiently as possible.

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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.

Proposed legislation targeting "mega" retirement accounts has put high-net-worth IRAs and 401(k)s back in Washington's crosshairs.

The bill would force wealthy account holders to take mandatory distributions and block new contributions — a response to data showing some investors have accumulated multi-million-dollar balances through early-stage private equity and startups.

But while similar proposals have stalled in the past, this bill may reflect a broader policy trend. The legislative effort coincides with recent U.S. Department of the Treasury measures targeting other "aggressive planning" strategies like Section 351 ETF exchanges.

So whether this specific measure advances through Congress or not, the debate highlights key considerations for long-term tax, liquidity, and asset-location planning.

Here's what high-earning IRA account holders need to know in 2026.

Newly proposed limit cap on IRAs and 401(k)s

Sen. Ron Wyden (D-Ore.) and Rep. Richard E. Neal (D-Mass.) recently introduced legislation to cap IRA and 401(k) balances for high-net-worth accounts.

But the proposed restrictions don't apply to everyone with a large account balance. Instead, to trigger mandatory withdrawals and contribution bans, a taxpayer must meet two criteria in the same tax year:

• High-income floor: Modified adjusted gross income (MAGI) over $400,000 for single filers (or $450,000 for married couples filing jointly).
• Total asset cap: Combined retirement balances exceeding $10 million across all traditional IRAs, Roth IRAs, and defined contribution plans (like 401(k)s and 403(b)s).

If passed, the legislation would bar any individuals meeting both rules from making further contributions to their tax-advantaged retirement savings accounts for that year.

Additionally, forced withdrawals of the aggregate excess would be required (more on that below).

The two-tiered forced withdrawal rule

For high earners with over $10 million in affected accounts, the proposal requires accelerated withdrawals from tax-advantaged accounts. Yet the withdrawal rules are slightly different depending on how much you have saved for retirement.

Traditional IRAs and 401(k)s are normally subject to required minimum distributions (RMDs) beginning at age 73 or 75, under the SECURE 2.0 Act. By requiring a 50% payout of the aggregate excess over $10 million, this proposal creates a much steeper payout schedule that applies regardless of age.

Additionally, while Roth accounts are funded with after-tax dollars and allow tax-free withdrawals without lifetime RMDs, the bill targets high-net-worth Roth IRAs by requiring excess funds to be transferred to standard taxable accounts (if an account is worth $20 million or more).

Once forced money leaves a Roth, it enters a regular brokerage or bank account. From that day forward, any dividends, interest, or capital gains generated by those funds are subject to annual federal and, where applicable, state income taxes.

Why it's proposed (and why it faces resistance)

Wyden and Neal introduced their mega-IRA cap legislation in conjunction with Joint Committee of Taxation (JCT) data showing that over 32,000 Americans hold more than $10 million in tax-advantaged accounts.

Notably, the data presented a core group of about 200 individuals who hold an average of $409 million each — largely through early-stage private equity or startup investments placed inside self-directed IRAs, as reported by The Wall Street Journal.

"Tax-preferred retirement accounts are not supposed to be a loophole for the ultra-rich to shelter immense fortunes," Wyden stated in a press release. "They’re a lifeline for working Americans who may not otherwise have a dignified retirement.”

However, this is not the first attempt at a cap. A similar provision was included in early drafts of the Biden-era Build Back Better Act before lawmakers removed it from the final bill.

The primary pushback came from the financial services industry, including groups like the Retirement Industry Trust Association (RITA) and alternative asset custodians.

Critics claimed that forcing rapid distributions on private equity, startup stock, or real estate assets would force account holders to sell non-public assets at fire-sale prices just to satisfy cash distribution mandates.

Congressional Republicans and conservative think tanks, like The Heritage Foundation, also opposed these measures. They claimed that forcing new distribution rules onto existing balances would unfairly penalize investors who followed the law as originally written.

What high-net-worth investors should watch in 2026

While the debate over this specific bill continues, the renewed discussion signals that mega-retirement accounts remain in the legislative limelight. High earners and savers can use these proposed rules as a "stress test" for their long-term estate and tax plans:

• Diversify across account types. Holding all your wealth in a single tax-deferred vehicle can create legislative risk, or, at the very least, increase your total lifetime tax burden. Spreading assets across traditional, Roth, and taxable brokerage accounts gives you flexibility to manage your adjusted gross income (AGI) if distribution rules or federal tax brackets shift.
• Build liquidity alongside private assets. Self-directed IRAs containing private equity, startup stock, or real estate face liquidity risks when required distributions apply. Maintaining liquid buffers, like public equities or cash equivalents, may help prevent forced sales of illiquid assets during regulatory changes or normal RMD years.
• Keep alternative asset valuations audit-ready. IRAs holding private stock or real estate may draw increased IRS scrutiny because misvalued assets can trigger accidental "self-dealing" or other prohibited transactions. Thus, keeping annual, independent appraisal records could help your portfolio stay compliant if valuation enforcement tightens.

For high earners, watching Washington is wise, but you don't have to wait for a final vote on a key piece of legislation. A flexible tax plan built on true asset diversification remains one of the single best protections against an ever-shifting tax code.

Read More

• 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)
• SECURE 2.0: New Retirement Savings Changes to Know
• 2026 IRA and 401(k) Contribution Limits
• 5 Retirement Tax Traps to Watch This Year

People with retirement savings in a traditional IRA or 401(k) often experience a moment of panic when their balances grow and they realize they'll soon be on the hook for required minimum distributions (RMDs). RMDs can not only create a tax headache but also have additional consequences, such as raising retirees' income to the point where higher Medicare costs apply.

That's what makes Roth conversions so appealing. By moving money from a traditional IRA or 401(k) into a Roth IRA, you can enjoy tax-free gains in that account, take tax-free withdrawals, and avoid RMDs completely.

That is the scenario facing a 69-year-old engineer with a full-time salary earning $140,000 a year, a case recently considered by financial experts. With RMDs looming at age 73, there's a narrow four-year window to move money into a Roth IRA before mandatory withdrawals begin. And while that conversion may be smooth sailing if you're sitting on a $200,000 or $300,000 balance, converting a $1.2 million account is a whole other story.

The problem is that Roth conversions are a taxable event. If you convert one-fourth of your $1.2 million account per year over four years and continue collecting a $140,000 salary, your near-term tax bill could be huge. And you could end up costing yourself a lot more money in Medicare premiums if that conversion results in income-related monthly adjustment amounts (IRMAAs), or higher IRMAAs than what you're facing now.

That doesn't mean you don't have options, though. Here's how to pull off a Roth conversion under these circumstances.

Focus on tax brackets, not dollar amounts

If you're looking to convert a $1.2 million account before RMDs set in, you may be inclined to move $300,000 per year to achieve that goal. James Comblo, partner at Prosperity Capital Advisors, cautions that this approach may not work out in your favor.

"I would not divide $1.2 million by four and assume $300,000 a year is the answer," Comblo says. "Where I usually start with clients is by looking at how much room is available in each tax bracket. Filing status changes the entire calculation."

As Comblo explains, at a $140,000 salary, a single taxpayer is already in the 24% federal tax bracket before converting a single dollar. A married couple filing jointly, however, could land in the 12% bracket if they have enough available deductions.

In other words, depending on filing status, "the same salary can create two completely different conversion budgets and outcomes," Comblo says.

Running the numbers, we see that for a single tax-filer, adding a $300,000 conversion would push a meaningful amount of income into the 35% tax bracket. For a married couple, Comblo explains, most of that same conversion would fall into the 22% and 24% brackets. Only a small portion would reach 32%.

Social Security could complicate things

If you're 69 years old and earning $140,000 a year, you may not need Social Security. But the delayed retirement credits awarded to filers who hold off on taking benefits past full retirement age stop accruing at age 70. As such, that's typically considered the latest age to file for Social Security.

Comblo cautions that once Social Security starts, your taxable income increases, making it harder to stay within lower tax brackets during a Roth conversion.

"A Roth conversion can also cause more of the Social Security benefit to become taxable. The two decisions affect each other," he says.

A conversion could impact Medicare costs

Another issue with making a Roth conversion that is too large in any given year, says Comblo, is that it increases modified adjusted gross income.

"Medicare looks back two years when calculating Part B and Part D surcharges," Comblo explains. "A large conversion at age 69 could raise Medicare premiums at age 71."

IRMAAs aren't necessarily a reason to avoid Roth conversions, Comblo says. However, he advises, "It does mean the extra premiums need to be included in the calculation."

Re-evaluating the RMD "crunch"

Another thing Comblo cautions against is assuming leaving money in a traditional retirement account creates a crisis.

"A $1.2 million IRA at age 73 would produce a first-year RMD of roughly $45,000 under the current IRS life-expectancy factor," he explains. The taxes you pay on your RMDs may be lower than the taxes you'd pay on conversions.

Comblo also points out that starting RMDs at 73 does not end the Roth conversion window.

"The RMD has to come out first, and it cannot be converted," he says. "Once the required amount has been distributed, additional dollars can still be converted to a Roth. The planning becomes more complicated after 73, but the opportunity does not disappear."

Leveraging legacy goals

A Roth conversion may not be totally necessary in the situation above. From a tax perspective, leaving the money where it is could result in lower taxes.

In fact, Robert Jeter, CFP, founder and financial planner at Back Bay Financial Planning & Investments, LLC, says, "It's likely that they are in peak earnings of their career, and doing a Roth IRA conversion will almost certainly increase their lifetime tax bill."

But while a Roth conversion may not be the savviest move from a tax-minimization standpoint, Jeter says it could support an estate-planning goal — namely, reducing beneficiaries' tax liability.

"One of the best levers for Roth IRA conversions is talking about legacy goals as well as understanding the financial situation — specifically, the income situation of the beneficiaries," he says.

If your children, for example, inherit your Roth IRA, their distributions won't be taxable. If they inherit a traditional IRA, they'll owe taxes on their withdrawals, which they'll be forced to take so as to empty the account within 10 years. And if your heirs end up having to take those withdrawals during their peak earning years, at the family level, your total tax bill could be higher.

That, says Jeter, could make the case for a Roth conversion now despite having a large salary.

"I always categorize this as keeping money in the family," he says.

If your motivation to do a Roth conversion stems from wanting to leave a tax-free inheritance, one compromise is that your heirs could cover the conversion taxes with the understanding that more dollars would likely come back to them later, Jeter explains.

Four conversion strategies to compare

Ultimately, says Comblo, in this situation, there are four basic strategies worth looking at:

• Don't do any conversions. Let the IRA grow and take RMDs as required.
• Convert enough each year to fill the 24% tax bracket.
• Convert and use part of the 32% bracket, but only if the long-term projections support paying that rate today.
• Complete smaller conversions while collecting that $140,000 salary and do larger conversions once you're no longer working.

For each strategy, Comblo recommends comparing lifetime taxes, Medicare premiums, future RMDs, after-tax cash flow, the Roth balance at different ages, and what ultimately reaches beneficiaries, if that's important.

But ultimately, he says, "The conversion amount should come from the math, not from the size of the IRA."

Read More

• Should You Convert a Traditional IRA to a Roth after 60?
• A 'Mega Backdoor Roth' Can Save Thousands More for Retirement
• Should Fully Funded Retirees Invest Like 30-Year-Olds?
• Why a Down Market is the Best Time for a Roth IRA Conversion

Wealth Wise is Kiplinger's advice column on navigating retirement-related dilemmas. Got a question? See below for how to send it to us.

Dear Wealth Wise: My partner and I are both 75, with an approximate net worth of $1.5 million. I am retired and he is still working. When he retires, we will both have fairly generous pensions and Social Security. Right now, we have a fairly aggressive portfolio with a tenth of it invested in a momentum tech stock. We are around 60% stocks and 40% fixed income (the classic 60/40 portfolio). The fixed income is primarily held in bonds and high-interest CDs. Is our strategy too aggressive for our age? We live modestly and have no debt. I have a long-term care policy. He does not. — Comfortably Cautious

Dear Comfortably Cautious: Between your partner’s current salary and your future guaranteed income from pensions and Social Security, you are in an enviable position relative to the retirement savings and income of most people in their 70s. Given this scenario, you have the luxury of letting your $1.5 million portfolio continue working hard in the market, but with some limitations.

When you're in the process of building wealth for retirement, it's generally a good idea to invest heavily in the stock market, whether by holding individual company shares or relying on exchange-traded funds. Once you're actually retired or getting close to retirement, it's important to be more careful.

This doesn't mean you need to dump your stocks altogether. But retirees are commonly advised to limit their stock holdings to protect against market volatility. Let's see what the experts have to say.

A portfolio that's 60% stocks is generally reasonable

It's important to maintain a reasonably robust stock allocation in your portfolio during retirement so your money is able to grow and, ideally, outpace inflation.

Nathaniel Tilton, private wealth adviser and owner of Tilton Wealth Management, says this investment mix can certainly be reasonable.

"The key question," he says, "is whether your portfolio is designed to support your lifestyle or to maximize growth. At this stage, it should primarily do the former."

Matthew Gaffey, President at Corbett Road Wealth Management, says a 60% portfolio may not be too aggressive for some retirees. But it really depends on the specifics of your situation.

"If the majority or all of your expenses are covered by your pensions and Social Security, it's highly likely that you're not too aggressive and could potentially even take on more risk if creating a legacy was of higher importance and you chose to do so," he says.

However, Gaffey cautions, "If the pensions and Social Security are only covering a fraction of your projected spending, it would be critical to examine your withdrawal rate relative to the remainder of your portfolio to determine an appropriate level of risk."

Finally, given that your partner is still working, you are presumably not drawing down the investment portfolio. That also points to your ability to take on more investment risk.

Concentration risk is an issue

While a 60% stock allocation in retirement doesn't automatically scream trouble, Tilton says you may be taking on undue risk with your specific approach.

"The biggest concern isn’t your overall allocation. It’s the concentration risk. Having 10% of your portfolio in a single momentum-driven tech stock introduces a level of volatility that’s typically unnecessary at this stage of life," he says.

As Tilton explains, a sharp decline in that single position could have an outsized impact, even if the rest of the portfolio is well-constructed.

"I’d suggest gradually reducing concentrated positions, maintaining a diversified allocation, and ensuring your fixed income is structured not just for yield, but for liquidity and flexibility," he says.

Keep in mind that selling off 10% of a $1.5 million portfolio ($150,000) in a highly appreciated stock could trigger a huge capital gains tax bill. Consult a tax adviser for a strategy to unwind this holding efficiently.

Your reaction to volatility makes a difference, too

Gaffey cautions that too much portfolio risk could be a dangerous thing, more so because of your potential reaction than a short-term portfolio decline.

"For many," he says, "a different mindset sets in after their normal working paychecks stop. … It was easy to ride out market volatility when they were working. … After they flip the retirement switch, suddenly the money they've saved for years becomes more real to them, and they become more sensitive to the potential impact that every price movement in the market could have."

The danger, Gaffey explains, is "the investor overestimating their risk tolerance in an up market, followed by a risk adjustment and overreaction to market volatility."

In other words, if you don't actually have as high a risk tolerance as you think you do, you may be tempted to liquidate assets out of fear when the stock market takes a dive. That could result in permanent portfolio losses that are tough to recover from, so it's important to be mentally prepared for a temporary decline in portfolio value.

Make sure you're looking at the big picture

A portfolio like this isn't overly concerning to Christopher Walsh, financial advisor at Capital Choice Financial Group.

"If you’re both getting pensions and Social Security and living modestly with no debt, you likely aren't going to need to touch that $1.5 million for day-to-day living," he says. "In that case, the market can do its thing, and a little aggression isn't likely to hurt you."

A potentially bigger issue, says Walsh, is where that $1.5 million is being held. If it's in qualified accounts subject to required minimum distributions (RMDs), such as traditional IRAs or 401(k)s, Walsh explains, Medicare surcharges known as IRMAAs could become a real issue.

"The tax conversation is way more important here than the asset allocation conversation," Walsh says.

The other thing that jumps out to Walsh is the long-term care gap.

"Traditional long-term care coverage at that age is going to be difficult and expensive," says Walsh, referring to the fact that only one of you has a policy. However, he says, "If you have non-qualified assets, there are asset-based long-term care options worth looking at. The RMDs are actually going to push money into non-qualified territory over time anyway, so that's worth a real conversation."

You're not in bad shape, but the plan needs some tweaks

All told, you can relax (for the most part)! You're in a reasonably strong place when it comes to retirement income. But a few modifications to your plan and investments may be warranted.

"Overall, you’re in a good position, but a bit more emphasis on simplicity, diversification, and risk management would go a long way," says Tilton.

Walsh agrees.

"The investments aren't what I'd lose sleep over here," he says. "The taxes and the long-term care gap are the things that could actually hurt you."

Addressing those key factors could put you in an even more solid position as you glide into this next stage of life.

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 writers and experts in this advice column 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 adviser regarding any questions you may have in relation to the matters discussed in this article.

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Watching your retirement portfolio take a hit is painful, but it offers an unexpected gift: a discount on your future tax bill. Converting to a Roth IRA during a down market lets you pay taxes on depressed share prices now, turning market losses into years of tax-free growth.

Kiplinger's investing experts expect the second half of 2026 to remain strong. At the same time, there are signs that some asset classes or industries (such as AI) may struggle, which could provide an opportunity for savvy investors to convert holdings that see a significant drop.

The benefits of doing a Roth conversion in a down market

Since the amount you pay in taxes on a Roth conversion is based on the dollar amount you convert, a lower account balance means you’ll pay less to the IRS.

"The tax payment on the conversion is going to be smaller since the account value is lower," says Ben Rizzuto, wealth strategist with the Specialist Consulting Group at Janus Henderson Investors.

When moving a specific position, a smaller account balance doesn't mean the number of shares you convert to a Roth will be lower. In a down market, the value of the stock, mutual fund, or exchange-traded fund (ETF) may be depressed — but you'll still be able to convert the same number of shares.

How a Roth conversion in a down market works

Let's say you planned on converting a traditional IRA balance of $100,000. But the asset you own in the retirement account, say, an AI memory chip maker, suffers a 20% drop, reducing your balance to $80,000. The big decline in the stock price means you'll be able to convert all of your shares to a Roth IRA while only recognizing $80,000 in taxable income.

The depressed shares you convert to a Roth will benefit from an eventual market recovery inside the tax-free Roth wrapper. The upside? The future growth of those converted shares benefits from a longer runway to compound without IRS taxation, compared with a traditional IRA, which is taxed as ordinary income in retirement.

The best time to do a Roth conversion is in a year when not one but two financial forces are working in your favor.

The first, as discussed above, is a market pullback (a drop of 5% to 9.99% from a high), a correction (a 10% to 19.99% drop) or a bear market (a decline of 20% or more). Or, even if the market remains strong, you may be able to take advantage of a price drop in an industry or asset class.

The second is when your taxable income is lower than normal. In years when you report less income, you can convert more dollars to a Roth at a lower tax rate.

"That's a double benefit," says Steven Conners, founder and president of Conners Wealth Management. You end up converting fewer dollars and get taxed at lower rates.

How to decide if this Roth conversion strategy makes sense for you

Financial advisers, however, stress that a big market drop isn't the only factor a retirement saver should consider before doing a Roth conversion. Timing a Roth conversion based on market conditions is akin to trying to time a stock's purchase or sale.

The biggest factor by far when deciding whether to do a Roth conversion is the overall tax impact. Saving some money on taxes by doing a conversion during a down market doesn't necessarily mean doing the conversion is a slam dunk, financial pros say. You must look at the bigger tax picture you face in any given tax year.

A Roth conversion makes the most sense if your current income tax rate is lower than it will be in retirement. The idea is to pay a lower tax rate on the conversion now and pay zero taxes on withdrawals in the future when your tax rate is expected to be higher.

So, if you think your tax rate may be lower in retirement than it is now, you may want to hold off on a conversion even if a down market makes it a more attractive option, says Rizzuto.

Another factor to consider is whether converting a larger dollar amount to a Roth in a down market could result in an income increase large enough to bump you up to a higher — and more costly — tax bracket. That's something you want to avoid, especially if the conversion amount puts you at risk of going from the 22% or 24% tax bracket to the 32% bracket.

"You need to think about how much of a traditional IRA you are going to convert, and whether that conversion will bump you up into a higher tax bracket," says Rizzuto.

One way to dodge a higher tax bracket is to convert only a portion of your traditional IRA in a single tax year. Convert just enough dollars to stay below the higher bracket's threshold, then repeat the process over time. "The conversion can be done piecemeal," says Rizzuto

Once you've determined that the tax aspect of the conversion works in your favor, taking advantage of a down market to do the conversion makes an awful lot of sense, adds Conners.

That's especially true if you own a hard-hit tech stock or other company whose business model and future growth outlook remain intact. As explained above, moving a mispriced asset that’s likely to bounce back into a tax-free Roth account is likely to benefit you over the long haul.

"With a Roth, all your withdrawals will be tax-free, so you're better off from a conversion with a starting point when tech stocks are down 15% to 25% from their highs," says Conners. "That's a much safer spot to buy into something (i.e., a Roth) that's going to give you tax-free benefits down the line."

What to watch out for when following this strategy

Avoid Roth conversions that bump you up into a higher tax bracket. "Talk to your accountant and ask, ‘How much of my traditional IRA can I convert without bumping up my tax bracket?'" says Conners.

Make sure you have free cash to pay the tax bill. You don't want to sell assets from your IRA to pay the tax bill on the conversion, as it reduces the number of shares you can convert into a Roth and benefit from tax-free withdrawals. The goal of a Roth conversion is to move as many shares as possible under the tax-free umbrella to benefit from long-term growth. Remember that using IRA funds to pay the tax bill triggers an additional 10% early withdrawal penalty if the account holder is under 59½.

Avoid generating too much income and paying a Medicare penalty. A Roth IRA conversion increases your taxable income for that year, which can raise your premium two years later due to IRMAA (Income-Related Monthly Adjustment Amount) surcharges on Parts B and D if your modified adjusted gross income (MAGI) tops an income threshold ($109,000 for single filers and $218,000 for joint filers). For this calculation, the IRS looks back at income from two years ago. So, 2026 MAGI will impact 2028 Medicare premiums.

The bottom line? A down market doesn't necessarily mean it's always a good time to do a Roth conversion. But if the tax piece works in your favor, a bear market in stocks is a great time to move traditional retirement assets into a Roth account.

Read More on Roth Conversions and Retirement Investing

• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• How to Turn a $1 Million Nest Egg Into a Lifetime Income Machine
• Understanding Roth Conversions: Quiz
• 3 Questions to Ask Before Deciding if a Roth Conversion Is Right for You

When we talk about retirement, the conversation usually focuses largely on building a nest egg.

With employers moving away from offering pensions and average life expectancies increasing, saving for retirement has fallen on the employee.

As a result, industry professionals consistently encourage workers to maximize contributions to their IRAs or 401(k)s.

While asset accumulation is important, and fundamental to affording retirement, financial planning doesn't stop once you leave the workforce, because saving for retirement and living in retirement are different and require separate approaches.

New hurdles for retirees

When entering retirement, many retirees face new hurdles when it comes to tax planning, healthcare expenses, account withdrawals and making their savings last. When you're working, retirement planning is often centered around saving.

For example, financial professionals might help you identify your risk tolerance, guide you through long-term investments and many employers offer a retirement plan with a matching program as an incentive to contribute.

If savings fall behind while you're still working, it can be fixed by increasing contributions, delaying retirement or working a side gig, if your schedule allows.

In retirement, circumstances are different. Rather than actively earning income, which can come with raises and bonuses, retirees must rely largely on their savings, which are likely fixed.

This phase of life is also when federal programs, such as Social Security and Medicare, become prevalent, raising questions about when to claim benefits, what Medicare options to pick and how to withdraw money from those retirement accounts without triggering access taxes or becoming penalized.

Rather than focusing solely on growth, retirees must figure out how to turn their savings into a reliable source of income that lasts.

A big mistake

One of the biggest mistakes I see retirees make is assuming the investment strategy that helped them build their nest egg will work the same once it's time to live on it. When you're working, market volatility is easier to recover from because you're actively earning income, and you have the time to recover from downturns.

However, once your portfolio becomes your main source of income, you might need to make withdrawals regardless of where the market stands. For some, this could mean selling investments at a lower value to meet income needs.

Over time, this can strain your savings, potentially depleting your portfolio prematurely.

Generating income from your investments involves much more than taking out money when you need it. Traditional IRAs, Roth IRAs, brokerage accounts, Social Security benefits and pensions, if you have one, are all taxed differently.

Without a coordinated withdrawal strategy, you could unintentionally pay more in taxes or miss opportunities to make savings work more efficiently.

One coordinated strategy

Instead of viewing retirement accounts as separate buckets of money, a retirement income plan allows you to manage withdrawals, taxes and income needs under one coordinated strategy.

Unfortunately, many people wait until they're in retirement to start thinking about their retirement income strategy.

In addition to prioritizing growth, the time leading up to retirement can also be used to start planning for how those assets will be used.

Estimating future income needs, reviewing healthcare costs, coordinating retirement accounts and understanding how they'll work together in retirement will make the transition much easier when that time comes.

Saving for retirement is crucial, but the financial planning doesn't end once your golden years begin. The transition from earning income to living off retirement savings requires a different mindset and a new approach.

Developing a retirement income plan that addresses how income will be generated, how withdrawals will be taxed and how your savings will support future spending needs can help ensure the nest egg you've spent decades building serves you throughout 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.

For decades, you've saved in tax-deferred retirement accounts, watching your balance compound untaxed. Then you turn 73, and the IRS comes calling.

Required minimum distributions (RMDs) force you to begin withdrawing and paying taxes on those savings — whether you need the money or not.

What many retirees don't realize until it's too late is that RMDs don't just create a tax bill. They trigger a cascade of consequences that can raise Medicare premiums, subject Social Security to taxation, push you into higher brackets and affect your estate planning.

Understanding these traps before your first RMD can save you thousands over your retirement.

1. The Medicare premium surcharge trap

One of the most common surprises hits retirees in their monthly Medicare bills. Part B and Part D premiums are income-based, with higher earners paying more through income-related monthly adjustment amounts (IRMAAs).

The trap: IRMAA is based on your modified adjusted gross income (MAGI) from two years prior, so a large RMD in 2025 raises your premiums in 2027.

For 2026, surcharges begin at $218,000 for joint filers. At the highest tier, Part B premiums reach $689.90 per month per person, versus the standard $202.90.

A $1 million account generates an RMD of roughly $37,736 at age 73. If that pushes you just over an IRMAA threshold, you could pay an extra $2,000 to $5,000 a year in premiums — money that never shows up on your tax return but flows directly from your RMD.

2. The Social Security taxation trap

Up to 85% of your Social Security benefits can become taxable depending on your combined income (adjusted gross income, tax-exempt interest and half of your benefits). The thresholds are surprisingly low: $32,000 for joint filers and $25,000 for single filers.

Large RMDs push many retirees over these thresholds, turning tax-free Social Security income into taxable income. Consider a couple with $40,000 in Social Security and $30,000 in pension income.

Without RMDs, they might owe minimal tax, but add a $50,000 RMD and suddenly $34,000 of their Social Security becomes taxable (85% of $40,000), sharply raising their bill.

The math gets worse because the effect is marginal. In the phase-in range, every additional dollar of income makes 85 cents of Social Security taxable.

3. The tax bracket cascade

RMDs don't just add to your taxable income — they can push you into higher tax brackets, where each additional dollar is taxed at a higher rate. The 2026 federal brackets create several danger zones where modest RMDs trigger significant tax increases.

For married couples filing jointly, the jump from the 12% to 22% bracket occurs at $100,800 of taxable income. The next jump to 24% happens at $211,400. These thresholds are inflation-adjusted annually, but RMD amounts grow faster as you age and your life expectancy decreases on the IRS tables.

The hidden trap: Many retirees assume they'll be in a lower bracket in retirement. But combine RMDs with Social Security, pensions and perhaps part-time or investment income, and your marginal rate can exceed what it was in your working years.

4. The net investment income tax trap

Once your MAGI exceeds $250,000 (joint) or $200,000 (single), you face the 3.8% net investment income tax (NIIT) on interest, dividends and capital gains.

The indirect trap: RMDs don't count as net investment income themselves, but they raise your MAGI. If that pushes you over the NIIT threshold, your investment income becomes subject to the extra 3.8% tax.

For retirees with substantial taxable accounts, this can add thousands to the annual bill.

5. The charitable deduction trap

Many retirees donate to charity and assume they can deduct it. But the 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction to $31,500 for joint filers in 2025, making itemizing unnecessary for most households.

The trap: if you take the standard deduction, your charitable contributions provide zero tax benefit, while your RMD increases your taxable income. The solution is a qualified charitable distribution (QCD), but many retirees don't learn about it until after they've already taken their RMD and made separate gifts, missing the chance to lower their taxable income.

QCDs let retirees 70½ and older transfer up to $111,000 annually, directly from an IRA to charity. The distribution counts toward your RMD but doesn't appear in taxable income, effectively making your giving tax-deductible even if you take the standard deduction.

6. The state tax trap

While the federal consequences of RMDs are widely discussed, state treatment varies dramatically. Some states fully exempt retirement distributions, others tax them at ordinary income rates, and a few have special provisions.

In high-tax states, RMDs can trigger substantial bills. California's top rate is 12.3% (plus a 1% surcharge over $1 million), and New York's reaches 10.9%. A $100,000 RMD could generate $10,000 or more in state taxes alone.

The trap: Retirees who move to low- or no-income-tax states, such as Florida, Texas and Nevada, can avoid this. Those who delay the move may pay substantial state taxes on RMDs for years.

7. The widow's penalty

When one spouse dies, the survivor faces a particularly painful RMD trap. Joint filers enjoy wider brackets and higher standard deductions than single filers. After the year of death, the survivor must file as single, with brackets roughly half the width of joint ones.

Yet the RMD continues at nearly the same level, based on the account balance and the survivor's age, not filing status. This combination often pushes widows and widowers into significantly higher brackets, a phenomenon planners call the "widow's penalty."

How to minimize RMD tax traps

While you can't avoid RMDs entirely once you reach the required age, several strategies can reduce their tax impact.

Roth conversions before RMDs begin. Converting traditional IRA funds to Roth IRAs in your 60s and early 70s lets you control the timing and amount of taxable income. Roth IRAs have no RMDs during the owner's lifetime, and qualified withdrawals are tax-free.

Strategic timing of other income. Delay Social Security or spread capital gains across multiple years to create lower-income years for Roth conversions or to minimize the impact of early RMDs.

Qualified charitable distributions. Use QCDs to satisfy RMD requirements while reducing taxable income if you're charitably inclined.

Asset location planning. Keep tax-efficient investments (index funds, municipal bonds) in taxable accounts and high-income holdings (REITs, bonds) in Roth accounts where possible.

The key is planning ahead. By the time you face your first RMD, many of the most effective strategies are off the table. Working with a financial adviser in your 60s to model scenarios can help you avoid these hidden traps before they cost you.

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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.

Retirement has a lot of moving parts, and planning for them can be overwhelming.

Taxes, investments, Social Security, estate planning, healthcare and income strategies all compete for attention, and many retirees end up postponing important decisions because they aren't sure where to start.

As a CERTIFIED FINANCIAL PLANNER® and CEO of Peak Retirement Planning, I can tell you that the good news is that not every improvement requires a complete overhaul of your financial plan.

In fact, some of the most impactful retirement moves can be implemented relatively quickly.

While no single strategy is a silver bullet, taking action on a handful of key areas today could improve tax efficiency, simplify your finances and create more flexibility later in retirement.

Below are 10 retirement fixes worth considering.

1. Review whether Roth conversions make sense

For many retirees and pre-retirees, Roth conversions remain one of the most powerful tax-planning opportunities available (I talk about Roth conversions more in depth in my bestselling book I Hate Taxes, which you can request for free here).

The basic Roth conversion concept is straightforward: Move money from a traditional IRA into a Roth IRA, pay taxes on the converted amount today and enjoy tax-free withdrawals in the future.

This strategy can be especially attractive for retirees who expect a higher future taxable income from pensions, required minimum distributions (RMDs) and Social Security. By paying taxes now, while rates remain historically low, you could reduce future tax burdens and create greater flexibility later.

That said, Roth conversions are rarely as simple as they appear. They can affect Medicare premiums, Social Security taxation and other aspects of your tax return.

Before making a move, it's important to run the numbers and look at them carefully.

2. Take advantage of available charitable tax benefits

Many retirees are charitable by nature, yet they often miss opportunities to maximize the tax benefits of their giving. Recent tax law changes have expanded charitable deduction opportunities for some taxpayers, even those who don't itemize deductions.

A little organization today could result in significant tax savings when it's time to file.

3. Improve your tax location strategy

Most investors focus heavily on asset allocation. Far fewer pay attention to asset location.

Asset allocation determines what you own, but asset location determines where you own it.

For example, growth-oriented investments might be more valuable inside Roth accounts because future appreciation could be tax-free.

Meanwhile, more conservative holdings could be appropriate inside tax-deferred retirement accounts.

Two investors can own identical portfolios yet experience very different tax outcomes depending on how their investments are positioned across account types.

Reviewing account placement might not require changing your investments at all, but it can have a meaningful impact over time.

4. Maximize retirement account contributions

Many workers increase their salaries over time but forget to increase their retirement contributions. If you're still employed, review your current contribution levels to workplace plans, IRAs and health savings accounts (HSAs).

Contribution limits often increase, and individuals age 50 and older may qualify for additional catch-up contributions.

A small adjustment to your payroll deductions today could translate into thousands of additional dollars for retirement down the road.

5. Reevaluate where excess cash is sitting

Many retirees and near-retirees accumulate large balances in savings accounts or taxable brokerage accounts while underutilizing tax-advantaged retirement vehicles.

If you have excess cash and are eligible to contribute to retirement accounts, consider whether those dollars could be working harder in a Roth IRA, Roth 401(k), traditional IRA or HSA.

In many cases, repositioning existing assets can improve long-term tax efficiency without changing your overall investment strategy.

6. Become more tax-efficient in taxable accounts

For investors with substantial brokerage accounts, tax management can be just as important as investment management.

One opportunity many people overlook is tax-loss harvesting, which involves realizing investment losses to offset gains or reducing taxable income. Over time, these tax savings can add up significantly.

Investors with larger taxable portfolios could also benefit from strategies such as direct indexing, which can provide additional opportunities to harvest losses while maintaining market exposure.

Even modest improvements in tax efficiency can create significant long-term value.

7. Audit your mutual funds

Many investors continue to hold mutual funds purchased years ago without reviewing whether those holdings remain appropriate. Some mutual funds carry higher internal expenses than comparable ETFs or index funds, and others may generate taxable distributions that create unexpected consequences in brokerage accounts.

Conducting a mutual fund audit doesn't necessarily mean replacing every holding.

However, reviewing expenses, tax efficiency and performance relative to alternatives can help identify opportunities for improvement.

8. Update your estate planning documents

This might be the least exciting item on the list, but it could be among the most important.

Wills, trusts, powers of attorney and healthcare directives are foundational components of a retirement plan, and yet, most Americans either don't have these documents or haven't reviewed them in years.

Life changes. Laws change. Family circumstances change. If your estate plan hasn't been updated recently, now may be the time to revisit it.

Equally important, make sure beneficiary designations on retirement accounts and insurance policies align with your overall plan and goals.

9. Simplify and consolidate accounts

Many retirees accumulate accounts over decades of employment. A former 401(k) here. An IRA there. A brokerage account somewhere else. Before long, keeping track of everything becomes unnecessarily complicated.

Consolidation might not improve investment returns, but it can make your finances easier to track.

It could also simplify tax reporting, improve organization and reduce confusion for spouses or heirs if something happens to you.

Sometimes the greatest benefit isn't financial performance; it's peace of mind.

10. Don't forget to enjoy the money

This final fix may be the most challenging one for diligent savers. Many successful retirees spent 30 or 40 years accumulating wealth and have developed strong saving habits, avoided lifestyle inflation and consistently prioritized financial security.

The challenge is that those same habits can make it difficult to spend money in retirement. Retirees still need a plan to avoid overspending, but many aren't in danger of running out of money; they're in danger of never fully enjoying what they've worked so hard to build.

Whether it's traveling with family, helping children and grandchildren, supporting charitable causes or simply creating memorable experiences, retirement isn't just about preserving assets; it's about using those assets to support the life you want to live.

After all, while running out of money is a legitimate concern, running out of time might be the greater risk.

The most successful retirement plans balance both sides of the equation: They protect your future while giving you permission to enjoy the present.

Related Content

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• This Changes Your Social Security Decision (Especially if You're in the 2% Club)
• Should You Take the Survivor Option on Your Pension?
• Do You Need $1 Million-Plus to Retire if You Have a Pension?
• Many Retirees With a Pension and $1 Million-Plus Do These 7 Things (and Regret It Later)

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 April, Americans, or someone they hire, work through income tax forms, fill in totals from their financial records and send the results to the IRS.

The goal is usually simple: Pay as little to the federal government as legally possible so you can keep more of your hard-earned money.

But what if paying more in taxes today could leave you with more money tomorrow? What if voluntarily paying additional taxes now could reduce the amount you and your family pay over your lifetime?

Opportunities like these are rarely discovered while filling out tax forms in April. Effective tax planning must be part of a broader retirement strategy that considers income sources, future tax rates, healthcare costs, estate planning goals and the rules governing retirement accounts.

Many people use Roth conversions to reduce their lifetime tax burden. While the objective is often to pay less tax over the long run, the process often results in paying more tax in the short run, but that may be exactly what your long-term financial plan needs.

In other words, you intentionally elect to pay more tax today in exchange for the potential of a smaller tax bill later.

When implemented correctly, a Roth conversion allows you to pay taxes on your terms, at a rate you find acceptable, rather than taking a chance on future tax laws and rates at a time of the IRS' choosing. If implemented incorrectly, however, it may cost you more than you expected.

The silent partner

Imagine going into a business partnership where you provide all the capital, do all the work, take all the risk and spend years building something valuable. Then, when the time finally comes to enjoy the rewards, your partner suddenly appears and tells you how much of the business belongs to them.

No rational person would willingly enter into that kind of arrangement. Yet people all across America do something very similar through tax-deferred retirement accounts.

They contribute the money. They assume the investment risk. They watch their balance climb over decades and mentally count that balance as part of their retirement nest egg. The problem is that they don't know how much belongs to them until they begin taking withdrawals. At that moment, the IRS steps in and determines how much it gets to keep.

This is where a Roth account comes into the picture. Money placed in a Roth account grows tax-free, and qualified withdrawals in retirement are generally free from federal income tax because the taxes were paid before the money entered the account.

Many investors consider converting a portion of their tax-deferred accounts into a Roth account. The process is relatively straightforward: Money is transferred from a tax-deferred account into a Roth account.

However, when you make the conversion, you must pay income tax on the amount being converted.

At first glance, that may sound counterproductive. Why would anyone voluntarily create a larger tax bill? The answer is simple: You may be exchanging a known tax bill today for a potentially larger and less predictable tax bill in the future.

Roth assets can also create meaningful tax advantages for beneficiaries who may inherit those accounts.

When should you convert?

While Roth conversions may benefit many people preparing for retirement, it is not always advisable to convert all of the funds held in tax-deferred accounts. Maintaining tax diversification can be just as important as maintaining a diversified investment portfolio, yet it is often overlooked in traditional retirement planning.

Using the tax code efficiently later in life may require a blend of income sources, including taxable income, long-term capital gains, dividend income and Roth income.

I have seen situations where aggressively converting every available dollar to a Roth account has cost a retired couple nearly as much as if they had never converted at all. They lost opportunities to strategically fill lower tax brackets later in retirement and paid substantially more than necessary.

This highlights an important point: A Roth conversion is not the goal. The goal is to create the most efficient retirement income strategy possible. The rules surrounding Roth conversions can be complex, but the decision should be evaluated within the context of your overall retirement strategy.

At R.D. Smothers (RDS) Wealth, we encourage clients to begin by estimating their expected income for the year and determining how much room they have available within their current tax bracket.

Lower-income years can present some of the best opportunities for Roth conversions because they allow you to convert more assets while potentially remaining in a favorable tax bracket.

Taxes are only one piece of the equation. A well-designed Roth conversion strategy should also account for Medicare premium surcharges, commonly known as IRMAA, future healthcare expenses, estate planning objectives and the income needs of both you and your beneficiaries.

How much should you convert? Understanding the tax fountain and your 'Opportunity Zone'

This brings me to an important point about understanding your own unique relationship with the tax code. After all, the tax code is how your silent partner ultimately determines how much of your money you get to keep and how much they get to take.

Many retirees spend decades building wealth without fully understanding how that partnership works. Failing to understand the tax code will likely cost you at some point in retirement, whether through unnecessary taxes, Medicare surcharges, inefficient withdrawals or missed planning opportunities.

What makes this even more challenging is that the tax code you retire under may not be the same tax code you die under. I often tell clients that the tax code is written in pencil, not ink. Congress can change it, modify it or rewrite portions of it at any time. That's why successful tax planning requires ongoing adjustments as your circumstances and the tax laws evolve.

If you want to use Roth conversions to help manage your future tax burden, understanding tax brackets is essential. Before you can determine whether a Roth conversion makes sense, you need to understand how much of a conversion may be appropriate.

At RDS Wealth, we often refer to this as identifying your "Opportunity Zone." This is the portion of the tax code where additional income can potentially be recognized at rates that may be favorable relative to what you might pay in the future.

The U.S. tax code contains seven federal income tax brackets, ranging from 10% to 37%. Many people assume that if they fall into the 22% tax bracket, all of their income is taxed at 22%. That's not the case. Each bracket applies only to a specific portion of your income.

For example, in 2026, a married couple filing jointly receives a standard deduction of $32,200. Let's say the same couple has a gross income of $165,000 and no other deductions or credits. Their taxable income would be $132,800. They are squarely in the 22% tax bracket, but they will not pay 22% federal income tax on all of their money.

They will pay 22% federal income tax on only about $32,000 of their taxable income. When we look at this through the lens of Roth conversion planning, something interesting begins to emerge.

One way to grasp how the brackets work is to imagine them as a multitiered fountain. Each year, you pour all of your income into the top of the fountain.

The first tier to fill is the deduction bucket. No tax is paid on any income that lands in this bucket. Once that bucket is full, income spills into the 10% tier. Every dollar that lands there is taxed at 10%. The water then overflows into the 12% tier, then the 22% tier and eventually into higher tiers as more income is added.

In the example of the married couple earning $165,000, their income fills the lower tiers and then partially fills the 22% tier. Because they have not yet reached the top of that bracket, a portion of the 22% tier remains empty.

The empty space remaining in that tier is what we call the Opportunity Zone. It's the amount of income you may be able to recognize before spilling over into the next tax bracket.

In this example, the Opportunity Zone represents more than $78,000 of available space. That doesn't mean this couple should convert the entire amount, but it does mean they have room available to recognize additional income at a known tax rate rather than waiting until later when tax rates may be higher.

This is where Roth conversion planning becomes so powerful. If appropriate for your situation, you may be able to convert enough money to fill the remainder of that tier without spilling into the next bracket.

In doing so, you knowingly pay tax on those dollars today, move them into a Roth account and potentially allow future growth to occur in a tax-free environment.

The fact that you paid tax on the conversion means your tax bill may be higher this year than it otherwise would have been. However, if executed properly, that higher tax bill today may result in substantially lower taxes over the lifetime of the account.

Again, the goal of a Roth conversion is to pay a known and acceptable rate of tax while strategically reducing the future claim your silent partner has on your retirement assets.

The goal is not to eliminate taxes. The goal is to choose when you pay them. The families who often benefit most from Roth conversions are those who proactively manage their tax brackets rather than allowing future tax laws and required distributions to blindly manage it for them.

Ronnie Blair 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.

Building wealth isn't about your age, income or whether you drive a luxury car. It's about making intentional decisions with your money that can help set you up for long-term financial success.

Curious what your spending and saving habits say about you? Take this quick seven-question quiz to discover your stealth wealth personality and find out what kind of saver and spender you are.

Building wealth doesn't happen overnight, but having the right plan can make all the difference.

Use the tool below, powered by Bankrate, to connect with a financial adviser who can help you build a personalized strategy to reach your financial goals.

More on Building Wealth:

• The Wealth-Building Roadmap That Works at Any Age
• Passive Income: How the Ultra-Wealthy Build Wealth While They Sleep
• These 5 Rules Separate the Rich From Everyone Else
• How to Manage Money Like a Millionaire (Even If You’re Not One Yet)
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• Average Net Worth by Age: How Do You Measure Up?

If you saved $2.5 million in your traditional 401(k) or IRA, you're probably wondering how much you'll need to withdraw due to required minimum distributions (RMDs) and the impact they'll have on your retirement benefits.

They're required of everyone with a traditional 401(k) and IRA once they turn 73. It's a way for the Internal Revenue Service to get paid for all the tax-free contributions you made to your retirement account during your working years.

But those RMDs can have ramifications if they're large enough. They can push you into a higher income bracket, increase your Medicare premiums or force you to pay taxes on a portion of your Social Security benefits. You also must withdraw money that you might not need.

If you take out too much, it means less money to spend later or leave to your heirs. Take out too little, and you could be on the hook for as much as 25% in penalties. If that sounds like a lot, consider that penalties were as high as 50% before the passage of Secure 2.0. A penalty drops to 10% if you correct your RMD mistake within two years.

Here's a look at what RMDs you'll owe from ages 73 to 85 if you have $2.5 million saved. (We also looked at what you'll owe in RMDs when you have $1 million and $5 million saved.)

Calculating your RMDs

When it comes to calculating your RMDs, it's a straightforward formula that most financial advisers follow.

Account Balance/Life Expectancy Factor = RMD

Your account balance is determined as of December 31 of the previous year, while your life expectancy factor is drawn from the IRS Uniform Lifetime Table (PDF), which is the go-to chart that the vast majority of retirees are required to use, regardless of their actual health status.

Keep in mind that your RMDs aren't static and will change as you age. The older you get, the lower your life expectancy factor is and the more you have to pay in RMDs.

Because the government assumes that as you age, you have less time left to spend your wealth, it forces you to withdraw a larger percentage of your remaining savings with each passing year.

Lower your RMDs with Roth conversions

One tax-smart way to lower your RMDs is with a Roth conversion. This involves moving money from a traditional pre-tax account — such as an IRA, 401(K), 403(b), or 457(b) — into a Roth IRA, paying taxes on the transition in exchange for tax-free growth. Roth IRAs have no RMDs and allow tax-free withdrawals after five years and age 59½.

The catch? You owe ordinary income tax on the converted amount, which can push you into a higher tax bracket. To avoid this, you can spread your conversions over several years, converting only enough to reach the top of your current bracket.

If you are 73 or older, do this…

• Take your annual RMD first, as the IRS does not allow you to convert RMD funds into a Roth account.
• Convert remaining traditional IRA funds up to the top of your current tax bracket to shrink the size of your future RMD obligations. You should do this annually to shrink your RMDs.
• Pay the conversion tax bill using cash from a non-retirement account to maximize the amount of money left growing tax-free inside the Roth.

If you are under 73, do this…

• Maximize your conversions now, completing them before RMDs kick in.
• Target the low-income years between your retirement date and when your RMDs start for the conversions.
• Keep in mind that starting in 2033, if you were born in 1960 or later, your RMD age will be 75, giving you even more time for Roth conversions.

RMDs don't have to be a headache

You don't have to fear RMDs, regardless of the amount you have saved. While you can't avoid them completely, you can lower the annual amount.

The first step is knowing how much you need to withdraw. Armed with that information, you can plan strategies to lower your tax bill, such as converting money to a Roth IRA.

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Roth conversions have recently become one of the most popular retirement tax planning strategies. Financial headlines often promote them as a way to create tax-free income, reduce future required minimum distributions (RMDs) and leave a more tax-efficient legacy to heirs.

For many retirees, those benefits are real.

But Roth conversions aren't a one-size-fits-all solution. In fact, as a CERTIFIED FINANCIAL PLANNER® and CEO of Peak Retirement Planning, I can tell you that converting retirement assets at the wrong time can result in paying more taxes than necessary and reduce your long-term wealth.

The key question isn't whether Roth conversions are good or bad; it's whether paying taxes today will save you on taxes in the future (I wrote a bestselling book all about taxes — you can request a free copy here).

Below are six situations where retirees may want to think twice before converting.

1. You don't have a pension

One of the biggest factors in determining whether a Roth conversion makes sense is your expected future tax bracket. For retirees without a pension, their future taxable income is often lower than it was during their working years, as many rely primarily on Social Security and modest withdrawals from retirement accounts.

As a result, they could remain in relatively low tax brackets throughout retirement.

Today's tax code also includes a generous standard deduction (up to $32,200 for 2026). For some retirees, that deduction might shelter most or even all of their taxable income.

If you expect to stay in a lower tax bracket for life, voluntarily accelerating taxes through a Roth conversion might not provide as much benefit.

By contrast, retirees with substantial pensions often face a different reality. Pension income can create a permanent tax floor that follows them throughout retirement, making Roth conversions far more attractive in certain cases.

2. You have less than $500,000 in tax-deferred accounts

Your account size matters. When evaluating Roth conversions, it's important to consider future RMDs. Starting at age 73 (or 75 for many younger retirees), the IRS requires withdrawals from traditional IRAs and other tax-deferred retirement accounts.

However, smaller account balances produce smaller RMDs.

For example, a retiree with $500,000 in a traditional IRA might have an initial RMD of roughly $20,000. Combined with the standard deduction and other available tax benefits, that withdrawal could have little impact on their overall tax situation.

If your retirement savings aren't large enough to create a meaningful future tax burden, converting assets today could mean paying taxes earlier than necessary without generating significant long-term savings.

3. Your tax rate today is higher than it will be in retirement

At its core, a Roth conversion is a tax-rate arbitrage decision. You're choosing to pay taxes now because you believe you'll pay the same or even a higher rate later. This strategy falls apart if the opposite is true.

Consider someone in their peak earning years who is currently in the 32% federal tax bracket. If they have no pension and moderate retirement savings, they may eventually find themselves in the 12%, 22% or even lower brackets after they retire.

In that scenario, converting assets while working could mean prepaying taxes at a significantly higher rate than what would have been owed later.

Before converting, retirees should estimate their likely retirement income rather than assuming their future tax rate will automatically be higher.

4. You're planning to retire early

One reason not to do Roth conversions today is that you could have a better opportunity later. Early retirement often creates what planners call a "tax window": A period after earned income stops but before Social Security, pensions and RMDs begin.

For example, someone retiring at age 58 might have several years when taxable income drops dramatically. During those years, they can often perform Roth conversions in much lower tax brackets than they could while working.

This window can be particularly valuable because it could allow retirees to:

• Convert assets before Social Security becomes taxable
• Avoid increasing Medicare premiums tied to higher income
• Fill lower tax brackets more efficiently
• Reduce future RMDs

Rather than converting aggressively during high-income working years, some retirees may benefit from waiting until these lower-income years arrive.

5. Your children might be in lower tax brackets than you

Many Roth conversion discussions focus on leaving tax-free assets to heirs. This can be an advantageous legacy planning strategy, but it isn't always the right answer.

Today's inherited IRA rules generally require most non-spouse beneficiaries to empty inherited retirement accounts within 10 years. Because of this rule, many parents assume they should convert everything to Roth accounts, but there are considerations to think about.

The better question is: What tax bracket will your children be in when they inherit the money?

If your children have higher incomes than you, significant retirement savings of their own or expect to remain employed during those 10 years, Roth conversions may make more sense because each of these could result in your children paying more taxes down the road than you would have paid.

But if they're likely to be in lower tax brackets than you, allowing them to inherit traditional IRA assets could result in a lower tax bill being paid across generations.

Legacy planning shouldn't focus only on your tax rate, but should also account for the tax situation of the people who will ultimately receive the assets.

6. You're single today but expect to marry

Tax brackets are not static. A single retiree who expects to get married in the near future could gain access to larger tax brackets and a higher standard deduction through married-filing-jointly status.

In some situations, waiting until after marriage to perform Roth conversions can create additional flexibility and allow larger conversions at lower effective tax rates.

This isn't a common planning strategy, but it's one that can be overlooked when evaluating conversion opportunities.

Bonus consideration: You're moving to a lower-tax state

State taxes can significantly influence the math behind a Roth conversion. Someone working in a high-tax state, such as California, may pay an additional 7% to 10% or more in state income taxes on converted dollars.

If that same person plans to retire in Florida, Tennessee or another state with no income tax, waiting would likely generate sizable tax savings.

In some cases, the difference between converting before and after a move can amount to tens of thousands of dollars.

The bottom line

Roth conversions can be an incredibly effective tool, especially for retirees with pensions, large tax-deferred balances and concerns about future taxes. But the goal isn't to convert simply because Roth accounts sound attractive. The goal is to minimize your lifetime taxes.

Related Content

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• 5 Reasons Roth Conversions and Pensions Work Well Together
• This Changes Your Social Security Decision (Especially if You're in the 2% Club)
• 7 Times to Dip Into Your Roth IRA if You Have a Pension (and When to Leave It Alone)
• 3 Questions to Ask Before Deciding if a Roth Conversion Is Right for You

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.

Most people have never heard of a "mega backdoor Roth" — and that could prove costly, as it can allow some retirement savers with strong cash flow to save more money each year in a tax-free Roth account.

The mega backdoor Roth is a retirement savings strategy that lets some workers — typically high earners who can save more — contribute more to a Roth account than the normal annual Roth IRA or Roth 401(k) deferral limits allow. "It's a way to put tens of thousands of dollars into a Roth account that you wouldn't otherwise be eligible to do," says Tim Steffen, director of advanced planning at Baird.

This strategy is only available to savers in employer-sponsored retirement plans that include key features that permit it. The catch? Not all 401(k) plans are set up to enable savers to take advantage of a mega backdoor Roth.

A mega backdoor Roth is a two-step process

Whether you are eligible for a mega backdoor Roth depends on the specifics of your workplace retirement plan.

"To do a mega backdoor Roth, an employer has to offer two things to their employees," says Steffen.

First, they must allow the saver to make after-tax contributions to the 401(k) plan. This type of contribution allows you to save more than your plan's annual contribution limit for pre-tax or Roth 401(k) contributions.

Second, the employer must have a Roth 401(k) option that allows the saver to make an in-plan Roth conversion or to take in-service withdrawals to facilitate a rollover to a Roth IRA.

"If your employer doesn't allow both of those things, it's a moot point — you're not allowed to do a mega backdoor Roth," says Christian DiRusso, senior financial adviser at Altfest Personal Wealth Management.

Just one in four (24.1%) workplace 401(k) plans administered by Fidelity Investments give savers the ability to make after-tax contributions to the plan, according to the 1Q26 Fidelity retirement analysis. And only half (50.7%) of plans offer in-plan Roth conversions.

Know the contribution limits

So how does the strategy work? Savers in 401(k) and 403(b) plans who have already maxed out their regular contributions can make additional "after-tax" non-Roth contributions to their employer plan and then move, or convert, those dollars into a Roth 401(k) account offered by the employer via an in-plan Roth rollover or a Roth IRA rollover.

While most savers know their basic annual 401(k) contribution limits, many don't realize that the IRS allows far higher total limits when employer matches and after-tax contributions are factored in. Here is a summary of those 2026 limits:

• Under 50: $24,500 regular limit and $72,000 total limit
• Ages 50–59: $32,500 regular limit (with $8,000 catch-up) and $80,000 total limit
• Ages 60–63: $35,750 regular limit (with $11,250 catch-up) and $83,250 total limit

In 2026, for example, the total an individual under 50 can sock away in a workplace plan is $72,000, according to the IRS 415 annual limit rule. Savers 50 and up can contribute up to $80,000, and those 60, 61, 62 or 63 have a total limit of $83,250.

How a mega backdoor Roth works in practice

Here's a simple example of how the strategy works. Say a worker under 50 maxes out her $24,500 401(k) contribution limit and receives a $5,500 matching contribution from her employer. Her total contribution is $30,000, which allows her to contribute an additional $42,000 in after-tax pay to her 401(k), bringing her total contributions to the allowable limit of $72,000. That extra $42,000 in after-tax savings would then be either moved to the employer's Roth 401(k) plan or rolled over into a Roth IRA.

Wall Street dubs it a "mega" backdoor Roth because a regular backdoor Roth, which starts with making a nondeductible traditional IRA contribution and ends with a Roth conversion, has much lower contribution limits than the mega backdoor Roth. The 2026 max for standard IRAs is $7,500 for savers younger than 50 and $8,600 for those 50 and older, which pales in comparison to the $72,000 and $80,000 respective maximum contributions for a mega backdoor Roth.

Keep an eye out for taxes

Be aware of taxes on the conversion, however. "Whether you convert to a Roth IRA or Roth 401(k), you will need to pay taxes on any earnings included in the conversion (you will not generally need to pay taxes on after-tax contributions you convert, as those amounts have already been taxed)," according to Fidelity Investments.

To avoid taxes, convert after-tax contributions to a Roth account as quickly as possible.

Once those after-tax dollars are moved into a Roth account, they accrue all the benefits of a Roth: tax-free growth, tax-free withdrawals, and no required minimum distributions (RMDs), says Tara Lawson, wealth strategist at U.S. Bank Private Wealth Management.

Who should consider a mega backdoor Roth

High earners. This strategy heavily favors high earners who are locked out of regular Roth IRAs due to income limits but who still want to maximize their tax-free savings. It also works for those who have maxed out their ordinary workplace plan, or who simply want to save more in a Roth. "It's a good strategy for people who have extra money to save," says Lawson. "If you're going to do these after-tax contributions, it's going to be over and above your normal contributions to your 401(k)."

Executives. It's a commonly used strategy for corporate executives, CEOs, and small business owners whose 401(k) plans allow for it, personal finance pros say.

Windfall recipients. The mega backdoor Roth strategy could also be a useful tool if you receive a large bonus or a cash windfall outside of work, such as an inheritance, that allows you to forgo a larger portion of your salary and instead put it toward retirement.

Future high-tax retirees. Getting more retirement savings into the tax-free Roth bucket is particularly beneficial for savers who expect to be in a higher tax bracket in retirement than they are now.

Pros and cons of a mega backdoor Roth

Tax diversification. Executing a mega backdoor Roth boosts the tax diversification of retirement accounts, which gives retirees more flexibility when making withdrawals. It's good to have a bucket of Roth money you can tap tax-free, a bucket of traditional 401(k) dollars that gives you a tax deduction in your peak earnings years, and a bucket of taxable brokerage account funds that are taxed at lower long-term capital gains rates ranging from 0% to 20%.

"Tax diversification is certainly an added benefit of the mega backdoor Roth," says DiRusso.

Cash flow issues. However, DiRusso says the strategy is less attractive for lower earners who may run into cash flow problems by committing too much of their pay to fund retirement savings or people who need access to their money in a few years for, say, a down payment on a home, and don't want their money tied up in a tax-deferred retirement account.

"I recommend the strategy to anyone operating with a big cash flow surplus," says DiRusso. "As long [as a mega backdoor Roth] aligns with their long-term goals and they have the cash to support it, it's something we would advise on doing."

Complexity. You may face hefty tax penalties if you fail to follow the proper steps of a mega backdoor. Work with a financial planner or tax expert to avoid pitfalls.

Should you consider a mega backdoor Roth?

If you're interested in doing a mega backdoor Roth, step one is to check whether it is allowed under your 401(k) plan, financial advisers say.

Remember, this powerful tool is only available to people whose 401(k) plans allow it. But if you get the green light and have extra cash to put to work in a Roth account, it's a winning retirement savings strategy.

Read More About Roth Conversions

• Should You Convert a Traditional IRA to a Roth after 60?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Quiz: Understanding Roth Conversions

For decades, private equity has generally been confined to pension funds, university endowments and the ultra-wealthy, but that's beginning to change. Without much publicity, private equity is starting to find its way into 401(k) plans — not as a fund you can easily select, but embedded inside target-date funds and other diversified portfolios that millions of workers already use.

For retirement savers, this raises an important question: If private equity is showing up in your 401(k), how does it affect you, and what should you be paying attention to?

You may already own it (without realizing it)

Most workers won't see "private equity" listed anywhere on their 401(k) menu. Instead, exposure is being added behind the scenes, typically within target-date funds, the all-in-one portfolios that automatically adjust risk as you approach retirement.

If your plan uses a custom target-date fund or a more complex investment structure, there's a chance a small portion of your account is already allocated to private markets. That's not necessarily a problem, but it does mean your retirement portfolio may be changing in ways that aren't immediately obvious.

Why it's being added

The argument for including private equity is straightforward: Potentially higher long-term returns and better diversification.

Private companies don't trade on public markets, so their performance doesn't always move in lockstep with stocks. In theory, that can help smooth out returns over time, especially for younger investors with decades before retirement.

Large institutional investors have relied on private markets for years. Now, some plan sponsors are trying to replicate that approach inside 401(k)s. But there's a key difference: Institutions have long-time horizons, large pools of capital, and teams dedicated to managing complexity, while individual retirement savers typically do not.

The trade-offs most people miss

The biggest risk isn't that private equity is inherently bad. It's that it introduces trade-offs many investors don't fully see, including:

Less transparency. Unlike publicly traded stocks, private investments aren't priced daily by the market. Their value is estimated periodically, which can make performance appear smoother than it really is. That can be misleading. A portfolio that looks stable on paper may simply be slower to reflect underlying changes.

Higher fees (sometimes much higher). Private equity has traditionally come with significantly higher costs than index funds or standard mutual funds. Even when bundled into a 401(k) structure, those fees don't disappear — they're just less visible. Over time, higher fees can meaningfully reduce your retirement balance, especially if the performance doesn't justify the added cost.

Limited liquidity — beneath the surface. You can still move money in and out of your 401(k) as usual. But behind the scenes, private investments are less liquid, meaning they can't be quickly bought or sold. To manage this, funds limit how much private equity they hold. Still, in periods of market stress, liquidity constraints can create complications that don't exist with traditional investments.

Complexity layered into "simple" funds. Target-date funds are often marketed as set-it-and-forget-it solutions. Adding private equity makes them more complex — sometimes significantly so. That doesn't mean they're inappropriate. But it does mean the simple option may not be as simple as it appears.

Who stands to benefit — and who should be careful

Private equity exposure may make more sense for certain investors than others.

If you're early in your career, consistently contributing to your 401(k) and unlikely to need access to your funds for decades, a small allocation to private markets may not materially change your risk — and could potentially enhance long-term returns.

But if you're closer to retirement, the calculus shifts. At that stage, transparency, liquidity and cost control tend to matter more than incremental return potential. Even modest increases in fees or unexpected constraints can have a larger impact when your time horizon is shorter.

What to look for in your plan

You don't need to become an expert in private equity. But you should understand how your 401(k) is evolving. Here are a few suggestions:

• Check what's inside your target-date fund. Look beyond the name. Review the fund's fact sheet or prospectus to see whether it includes "private markets," "alternatives," or similar language.
• Pay attention to total fees, not just the headline number. If your plan has introduced more complex investments, ask whether overall costs have increased and how those costs compare to simpler alternatives.
• Understand how performance is reported. If returns seem unusually smooth compared to the broader market, that may reflect how private assets are valued and not necessarily lower risk.
• Consider your time horizon. If you're within five to 10 years of retirement, you may want to think carefully about how much complexity and illiquidity you're comfortable with, even indirectly.
• Ask questions. Plan sponsors and HR departments may not proactively highlight these changes, but they should be able to explain them.

A shift worth watching and not ignoring

Private equity in 401(k)s is still in its early stages. Adoption remains limited, and many employers are proceeding cautiously. But the trend is worth paying attention to.

For years, the biggest risks in retirement plans were obvious: Not saving enough, taking on too much risk, or paying excessive fees. Those risks haven't gone away, but they are now being joined by a more subtle one — complexity creeping into portfolios that were designed to be simple.

For most investors, the right response isn't to overreact or opt out entirely. It's to stay informed. The biggest impact on your retirement savings often doesn't come from a single investment decision; it comes from understanding how all the moving pieces fit together, especially when they start to change behind the scenes.

Related Content

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• Private Capital Wants In on Your Retirement Account
• The Private Assets Held in Public Companies
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• Average 401(k) Match: Do You Work for a Generous Company?

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.

Accumulating a large balance in a traditional retirement account is a great thing in theory — until the reality of required minimum distributions (RMDs) sets in. Suddenly, the freedom that comes with having a gigantic nest egg becomes a potential tax liability that could come with hidden consequences, like Medicare IRMAAs that drive your costs up substantially.

Let's take the example of a 63-year-old couple living in New York State (in a suburb of NYC) who are sitting on $4.2 million. They want to convert a good chunk of that sum to a Roth IRA. From there, they'll enjoy tax-deferred growth on that money, tax-free withdrawals, and importantly, no RMDs.

But New York is one of the least tax-friendly states to do a Roth conversion. With state tax rates ranging from 4% to 10.9%, converting even half of a $4.2 million retirement account balance could cost this couple a substantial amount.

The 'Florida Flip' — annual conversions in a no-tax state

The potential solution? The "Florida Flip." Move to Florida for about 12 years to avoid state taxes on the conversion.

For the couple in our example, converting a 4.2 million nest egg over 12 years could yield significant savings when done strategically. Over 12 years, they would convert $350,000 annually (though they may qualify for a New York tax break, more on that below). That extra taxable income could result in an annual state tax bill in the tens of thousands in New York.

The Florida plan could shave off about $250,000 in state taxes over 12 years, depending on the couple's tax tier. So it's certainly a good idea in theory. But proper execution is everything.

You need to truly make a clean break from your home state

There's a reason Florida tends to attract retirees beyond just the weather. It's one of the few U.S. states with no income tax. That makes it a good place to do a Roth conversion. But you need to do it carefully, since New York is likely to pursue conversion taxes it thinks it's owed.

"Aggressive state tax pursuit is concentrated in high-tax states, because the flow of lost revenue each year is so massive," explains John Moran, CFP at Domain Money. "New York runs one of the most active residency auditing programs in the country, both because of the high taxes departing residents take with them and the sheer quantity of retirees leaving in pursuit of lower tax rates."

For this reason, Moran says, if you're going to pursue this strategy, you must make a truly clean break.

"The risk for this couple is New York questioning their departure, not Florida questioning their arrival," he says.

Leaving New York isn't enough

You might assume that all you need to do to initiate a "clean" Roth conversion in Florida is pack your bags. But Moran says there's a lot more to it.

"Simply moving to another state and updating their license does not automatically close the door on New York coming for their [tax money]," Moran says. "If they keep a home in New York and spend enough days in the state, New York can treat them as statutory residents and tax the conversion anyway, so both the number of days spent in the state and the use of any retained property matter."

Steven McGowan, Managing Director and Wealth Advisor at Rothschild Wealth Partners, further explains, "The standard defense is a clean factual record you are responsible for tracking — fewer than 184 days in New York [per year], updated driver's license, voter registration, bank and brokerage addresses, and a detailed day-by-day location log backed by receipts and travel records. Seriously."

Moran says the key is to show that you've really cut ties with New York. In addition to spending the majority of your time in Florida, you need to show that you're actively establishing a life there. That means finding doctors based in Florida, joining a gym, and doing other such things that send the message that this is truly your new home.

Moran also says that if New York questions your residency, "The burden of proof in a residency audit falls on the taxpayer, which makes recordkeeping vital." So make sure to document how much time you're spending in New York versus Florida, at least for the first year or two following your move.

Another important point McGowan raises is that you should establish residency in Florida before moving any money into a Roth IRA.

"Relocate first, document everything, establish Florida domicile clearly, check your models again, and then and only then convert," he says. McGowan also suggests having a tax attorney and a financial planner review everything together before a single dollar moves.

Make sure a Roth conversion actually fits into your plans

Relocating to Florida could be a good way to save money on Roth conversion taxes. But McGowan says that before you uproot your life, you should run the numbers carefully.

"A conversion this size creates a significant ordinary income spike that can affect Medicare premiums, Social Security taxation, and other income-based phaseouts. That math needs to be modeled carefully," he cautions.

McGowan says it's also important to ensure you're pursuing a Roth conversion for the right reasons.

"Are you trying to create more tax flexibility in retirement, reduce future RMDs, simplify estate planning, or pass wealth more efficiently to heirs? Because the federal tax cost is still very real, no matter where you live," he says.

Since you're dealing with a very large nest egg, converting just $200,000 to $300,000 a year could place you in a higher tax bracket.

Granted, if you let a $4.2 million nest egg grow another 12 years, your RMDs plus other retirement income could place you in a high enough bracket that it's worth converting now. But it pays to work with a tax professional or financial adviser to run the numbers.

And also, don't be surprised if your 12-year conversion leaves you paying more for Medicare. Depending on your total income, IRMAAs may be unavoidable for at least some of those years. (Note that Medicare uses a two-year lookback period to calculate IRMAAs.)

Finally, to make your Roth conversion as efficient as possible, it's best to plan to pay the taxes from a taxable brokerage account or savings/checking account. That way, you can leave the entire converted balance inside your Roth IRA to grow tax-free.

Understand the costs of moving to Florida

Giving yourself 12 years in Florida to convert some or all of a $4.2 million portfolio is a great strategy for minimizing the federal tax burden, since you'll conceivably only be moving a portion of your total balance over each year. But one final thing you'll need to do is make sure you understand the costs associated with moving to Florida.

With a median property tax bill of $6,542, New York is one of the most expensive states for homeowners. Our imaginary couple living just outside New York City would no doubt pay much higher state and local taxes. Florida, on the other hand, is one of the most expensive states for homeowners' insurance. Plus, in Florida, you could face hefty HOA fees that add to your monthly costs.

Granted, if you own a home in or near New York City and you're planning to sell it ahead of your Florida move, you may be able to pocket enough proceeds to cover the cost of a new place with money left over to pay for insurance, HOA fees, and other expenses that come with living in Florida. But do the math before making that move. You don't want to end up in a situation where what you save in taxes on your conversion, you lose to other expenses.

Another thing to think about is the 12-year Florida plan. If you're buying and selling various homes within a relatively short stretch of time, you're looking at real estate agent fees, moving costs, and other expenses. Some retirees reduce their final home purchase costs using the "half-back" approach: they move to Florida for several years, then settle halfway back to New York or New England to be closer to family while enjoying lower real estate prices.

Also note that if you're 59½ or older, you may qualify for New York State's $20,000 per-person retirement income exclusion. As a couple, you could potentially exempt $40,000 of income per year. In our scenario, the 63-year-old couple would pay state taxes on $310,000 of their annual Roth conversion rather than $350,000.

Granted, Florida's lack of an income tax may result in significantly greater net tax savings overall. But you should know what benefits you're giving up by leaving New York.

And some of those benefits may not be financial. If your family and social network are based in New York, there's an emotional cost to giving those up. So really take a look at the big picture before gearing up to pack your bags.

All told, you can potentially save money on a large conversion by moving to a no-income-tax state if you run the numbers and they work in your favor. But that's a big "if." And if you're going to make the move, make certain it's a truly clean break so your home state doesn't try to come after you for extra money

Read More

• 3 Questions to Ask Before Deciding if a Roth Conversion Is Right for You
• The Rise of the 'Half-Back' Retiree: Why a Perfect Florida Condo Isn't Enough
• How to Dodge the 'Medicare Tax' Before You Retire
• Why Do People Retire to Florida? 9 Things You Must Know

Fear gets a bad reputation in retirement planning.

We’re told not to be afraid of market volatility, not to panic when stocks fall, not to let inflation, health care costs, taxes, or Social Security headlines hijack our long-term plans.

That is good advice — up to a point.

But after decades of writing about retirement and now working as a retirement coach, I’ve come to believe that not all fear is harmful. Some fear is useful. Some fear is protective. Some fear is a signal that your financial life, family life, or future lifestyle deserves more attention. I call it "healthy fear."

The goal is not to become fearless; it’s to learn the difference between fear that paralyzes you and fear that prepares you.

Retirement is one of the few major life transitions in which people are asked to make a series of large, emotional and often irreversible decisions at almost the same time.

When should I stop working? Can I afford to spend more? Should I downsize? Should I help my children now or leave money later? What happens if one spouse needs care? What if the market falls early in retirement? What if I live to 95?

Those are not irrational questions. They are the questions serious people ask when the paycheck is about to stop.

The fear beneath the numbers

The most familiar retirement fear is running out of money. For many people, it remains powerful even when the math suggests they are likely to be fine.

Jason Dall’Acqua, founder and financial adviser at Crest Wealth Advisors in Annapolis, Md., works with many clients who have accumulated significant assets. Yet the fear of running out of money still shows up regularly.

Sometimes that fear is rooted in actual planning risk. Sometimes it comes from something deeper: a childhood where money was tight, parents never spent freely, a business setback, a divorce, a market crash, or decades of being rewarded for saving rather than spending.

Many successful retirees became successful because they were cautious. They lived below their means. They saved steadily. They avoided debt. They did not buy everything they could afford.

Then retirement asks them to reverse decades of behavior. Now the question is not "How much can I save?" It's "How much can I safely spend?"

That can be harder than it sounds.

Dall’Acqua says part of the work is helping clients see what their money can do while they are still healthy enough to enjoy it. A client may be able to afford a large family vacation, meaningful charitable gifts, or financial help for children and grandchildren. But they still may need reassurance that the plan can support those decisions.

That is where a healthy fear becomes useful. It does not say, "Never spend." It says, "Let’s understand what is sustainable."

Fight fear with facts and action

Mary Ware, managing partner and senior wealth adviser at Carnegie Private Wealth in Charlotte, N.C., puts it this way: "I try to help clients fight fear with facts and action."

Sitting in worry rarely helps. But turning worry into a planning conversation can, Ware says.

If you fear long-term care costs, start by learning what care actually costs in your area. What would in-home care cost? Assisted living? Memory care? A continuing care retirement community? How would you pay for it? From portfolio assets? Home equity? Insurance? Family support? Some combination?

If you fear burdening your children, don’t just worry privately, says Ware. Talk with them. Tell them what you want, what you are planning and what you do or do not expect from them.

If you fear market volatility, don’t move everything to cash. Ask whether your portfolio has enough liquidity to support several years of spending without forcing you to sell long-term investments during a downturn.

A little fear can lead to better questions. Better questions can lead to better planning.

Healthy fears: The 6 fears worth listening to

Some retirement fears deserve attention because they point to real planning gaps.

• Fear of outliving your money may prompt a better cash-flow plan, more realistic spending assumptions, a smarter Social Security claiming strategy or a more durable withdrawal plan.
• Fear of health care costs may prompt you to review Medicare choices annually, price long-term care options, update health care proxies and talk honestly with your spouse or adult children.
• Fear of inflation may remind you that "safe" assets are not always stable if they fail to keep up with rising costs.
• Fear of cognitive decline may push you to simplify accounts, name trusted contacts, update powers of attorney and make sure both spouses understand the household finances.
• Fear of family conflict may lead to clearer estate documents, better beneficiary designations and more transparent conversations about inheritance, charitable giving and expectations.
• Fear of losing purpose may push you to build a life before you leave a career — one with relationships, structure, health, community and reasons to get up in the morning.
  

These fears do not need to dominate your life. But they should not be ignored.

Don't let fear make the decision

The danger comes when fear stops being a signal and becomes the decision-maker.

That is when retirees go too conservative too early, hoard cash, delay retirement unnecessarily, refuse to spend, avoid family conversations, or stay in a house that no longer fits their health or lifestyle needs.

I understand the appeal of cash. It feels safe. It does not send alarming headlines to your phone. It does not drop 20% in a bear market. But too much cash can create a quieter risk: the slow loss of purchasing power.

The same is true with refusing to spend or the so-called "spending guilt." Some retirees are so focused on preserving assets that they miss the season of life when travel, family experiences, hobbies and generosity may be most meaningful.

"You can worry so much about outliving your money that you forget to enjoy your life right now," says Ware.

That does not mean spending recklessly. It means remembering that retirement planning is not only about avoiding bad outcomes. It is also about enabling good ones.

The retirement fears that arrive later

Some fears do not fully appear until after retirement begins.

At first, there may be relief. No commute. No boss. No meetings. No Sunday-night dread.

As a retirement coach, I ask clients to ponder the quieter questions. Why do I feel guilty spending money? Why do I miss being needed? Why do market headlines bother me more now? Why is my spouse adjusting differently from me? Why does every major decision — moving, helping the kids, buying a second home, joining a community — feel so permanent?

This is where retirement planning becomes more human than mathematical. A spreadsheet can tell you whether you can afford a trip. It cannot tell you whether you are emotionally ready to spend the money.

A Monte Carlo analysis can estimate the probability that your assets may last. It cannot tell you whether your adult children understand your wishes if your health changes.

A tax projection can show whether a Roth conversion makes sense. It cannot tell you whether you and your spouse have the same vision for the next 20 years.

That is why healthy fear should lead to better planning and communication, not just portfolio changes.

What healthy fear can do

When retirees take their fears seriously early enough, good things can happen. They may build a more resilient portfolio. They may create a cash reserve that helps them sleep during market volatility. They may update estate documents before a crisis. They may buy or reject insurance with clearer eyes. They may start giving money during their life instead of waiting to leave an inheritance. They may have the family meeting they have been avoiding.

They may also make better lifestyle decisions about whether to downsize, move closer to family, or take that major trip before turning 75 while they are still healthy.

These are not just financial decisions. They are life decisions with financial consequences.

Fear, in the right dose, can help you pay attention. The key is to ask: What is this fear trying to tell me?

If the answer is, "Sell everything and hide," take a breath.

But if the answer is, "Update your plan, talk to your family and financial adviser, understand your risks, protect your spouse and start living more intentionally," then maybe that fear is not your enemy.

Maybe it is one of the tools that helps you retire better.

Related Content

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• How to Turn Your Retirement Dreams into Reality (Despite Your Fears)
• Retirees are Loading Up On Stocks: Is That Wise or Risky?

Even the best-laid retirement withdrawal plans can’t foresee every expense that crops up. When you need extra cash for unforeseen costs, knowing where to turn can be paralyzing. After all, every financial move comes with tax implications that ripple well into your future.

Should you sell stocks in your brokerage account, or flip the family lake house? Is it time to finally get rid of the boat you keep meaning to take out, or should you drain a Roth IRA instead?

"When you need cash in retirement, it requires a balancing act," says Patrick Marcinko, a financial advisor at Bogart Wealth. "Don't rush. There's a timeline and a deadline, but you really need to take an objective look at all your assets and what the tax implications are."

In a perfect world, you’d have a cash reserve carved out for the unexpected. But if you don't, some assets are far better to tap than others. From brokerage accounts to lifestyle vehicles, here is a look at which assets to sell first when you need extra money.

1. Investments in your brokerage account

When withdrawing money in retirement, Marcinko says retirees must be mindful of the potential tax hit, which is why a taxable brokerage account is typically a better first choice than a traditional 401(K) or IRA. Long-term capital gains tax rates, which top out at 20% for the highest earners, are substantially lower than ordinary income tax rates, which apply to traditional retirement account withdrawals.

Taking money from the wrong bucket can easily push you into a higher bracket, triggering higher Medicare premiums and even taxes on your Social Security benefits. To avoid this, try to minimize capital gains by employing strategies like tax-loss harvesting and avoiding selling your most highly appreciated assets, says Patrick Shope, Certified Wealth Strategist and founder of Shope + Associates. It's better to pick and choose to ensure you aren't creating a bigger tax event than necessary.

2. High-fee and redundant funds, stocks and investments

If you're tapping a brokerage account for extra cash, start by trimming the fat. Sell off high-fee funds, redundant holdings and underperforming assets that could harm your overall portfolio over the long term.

However, be mindful of timing, says Marcinko. If you sell during a down market, you risk locking in losses. This causes sequence of returns risk, leaving your remaining portfolio with a smaller base to recoup those losses, which can cause a structural shortfall later in your retirement.

3. Concentrated stocks that have done well

Cutting back a very concentrated position may seem like a no-brainer, especially if you own big-name tech or AI stocks that have surged in value over the past few years. While it may make sense to sell the stock from a diversification perspective, you must carefully navigate the tax implications.

If the stock is held inside a traditional 401(k) or IRA, selling the asset won't cause an immediate tax event, but withdrawing the cash from the account will subject it to ordinary income tax. Even if the stock is in a Roth 401(k) or IRA, where withdrawals are tax-free, cashing out now permanently impacts the tax-free compounding advantage that would otherwise benefit you and your heirs. If you do sell a concentrated stock position in a taxable account, Shope suggests doing it gradually to minimize your annual tax liability.

4. Unused lifestyle vehicles (boats, RVs, motorcycles, and extra cars)

If you can't remember the last time you took your boat out on the water or your RV has sat in the driveway for years, it is safe to put those lifestyle vehicles up for sale. Finding a buyer won't always be a quick or easy way to get immediate cash, but it frees up significant equity.

Unused lifestyle vehicles represent unique vulnerabilities in a portfolio: they actively drain your cash flow through ongoing maintenance, storage and insurance expenses without bringing you actual joy.

Nonetheless, they aren't usually high on financial advisers' lists of what to tap first because they are illiquid, require work to sell, and can be emotionally hard to part with. "If it hasn't moved off the lot in 36 months, you have to commit to having more fun (with it) or selling it," says Marcinko.

5. Rentals or second homes

Real estate is another asset that isn't easy to sell. It carries substantial tax and family implications, especially if you originally planned to pass the property down to the next generation. However, it can also generate serious capital.

If you are considering selling real estate, the decision often comes down to whether the property brings you joy or stress. If it's the latter, then selling makes the most sense.

"If every time the phone rings you think something is wrong with the house, that's a lot of juice not worth squeezing," says Marcinko. "You want to get out of the real estate business and start living the retirement life."

Consider the big financial picture before selling

When selecting assets to sell, resist the temptation to just pick the stock with the biggest run this year or the fund with the highest expense ratio. Instead, put in the work and look at your entire financial picture, considering what the sale will mean from a tax and savings perspective, both now and in the future. Will it impact your Medicare premiums and Social Security benefits today? If you withdraw the money now, will you have enough to live on tomorrow?

"One of the biggest mistakes retirees make when they need cash in retirement is to sell whatever is the easiest to sell instead of what is the smartest," says Shope. "So much of it is around distribution planning, tax planning and Medicare planning. It's not just about having the money. It's about having the right money at the right time with the right tax situation."

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The conventional personal finance playbook for retirees with 401(k)s is to trim exposure to stocks and dial down risk as they age. But many savers over age 70 are defying that rule, packing their 401(k)s with more stocks than experts recommend, according to Fidelity Investments.

Half of Fidelity 401(k) plan participants aged 70 or older have a "higher equity allocation than suggested," more than any other age group and well above the 34% average for all ages, according to Fidelity's 1Q 2026 retirement analysis report. Similarly, nearly four of 10 401(k) savers aged 65 to 69 also have a larger helping of stocks than investment pros recommend.

Whoa, Nellie! Is retirees' love affair with stocks a ticking time bomb that threatens to blow up their nest egg if the market tumbles? Or a shrewd financial move designed to boost returns so they don't outlive their money? Or is it simply a case of taking their eye off the ball and not keeping track of what they own and failing to regularly rebalance their 401(k) holdings?

All of the above, say financial advisors. And that's mainly because every retiree's financial situation is different.

"There's really no right or wrong answer" when it comes to the proper size of a stock weighting in a retirement portfolio, says Mike Shamrell, vice president of thought leadership at Fidelity.

Adds Jared Chase, a financial adviser at Signature Estate & Investment Advisors (SEIA): "I wouldn't want to put people into a box simply based on age." A 50% stock/50% bond portfolio, for example, might not be right for everyone. The optimal asset mix, says Chase, should be based on a retiree's goals, objectives, and risk tolerance.

Shamrell stresses that a "suggested asset allocation" is just that: a suggestion.

For its study, Fidelity compared a 401(k) saver's stock allocation in their overall portfolio with the stock weighting (e.g., equity glide path) in Fidelity's age-appropriate target-date Freedom Funds.

Consider, for example, someone who retired in 2020 at age 65 who is now 70. The total stock weighting in the Fidelity Freedom 2020 Fund (which corresponds to the investor's 2020 retirement date) is 50%. So, a 70-year-old retiree who holds a higher percentage of stocks (say, 60% or 70%) than the recommended 50% weighting in Fidelity's target-date fund is seen as having "a higher equity allocation than suggested."

As the table below shows, half of those aged 70 and older hold more equity than is recommended. By contrast, only 15% of those in their late forties are overweight in equity investments.

Source: 1Q 2026 Fidelity Retirement Analysis

Shamrell says retirement savers can use the equity weightings in age-appropriate target-date funds as a "yardstick" to estimate how much stocks are in professionally managed funds that take a saver's age and risk tolerance into account.

Fidelity conducted the asset allocation analysis as part of an awareness campaign.

"We just want everybody to be aware (of how big a stock exposure they have)," said Shamrell. "The report is sort of a trigger to check their allocation. We don't want to have a situation where individuals have more stocks than they are comfortable with in the event the market goes down. We don't want people to get caught off guard and be like, 'Hey, why did my balance drop so much?'"

Why retirees are overweight stocks

There are many reasons why a retiree in their 70s may hold a bigger-than-recommended helping of stocks, financial advisors say.

Overconfidence. It's not uncommon during bull markets, when market returns are strong, for behavioral biases to impact decision-making, says James Demmert, chief investment officer at Main Street Research. Overconfidence can cause investors to let their money ride when stocks are performing well. "As bull markets mature, investors gain more confidence," says Demmert. "Optimism turns to excitement as the market continues to go up, and they start feeling really smart."

Market appreciation. The mere fact that stock prices are rising can push a stock allocation above its recommended weighting. And if an older investor is managing their own money (which Fidelity says many do) and isn't regularly rebalancing their portfolio to keep their stock and bond weightings aligned with their financial plan, those weightings can easily get out of whack. "Just the market going up can take somebody from 50% stocks to 60% stocks," says Demmert.

Less need for income. A retiree who has a large cash hoard or ample income streams, such as a pension, Social Security and annuities, to cover most or all of their monthly living expenses can use their 401(k) money bucket for longer-term goals, says Shamrell. "If they've got a large pool of savings to fall back on, they can maybe afford to be a bit more aggressive," says Shamrell. If the market is in a steep downturn, retirees whose income needs are covered can avoid selling stocks at depressed prices to generate income.

Chasing returns. Bad investment behavior can also be to blame, says Jason Grover, a financial planning specialist at Grover Financial Services. Buying stocks just because they are going up doesn't always end well. "Chasing returns and just letting things ride, and not rebalancing portfolios," amounts to bad behavior, says Grover. "Don't look at your portfolio as if the stock market never loses."

Fear of running out of money. Retirement these days can last 20 or 30 years, placing a premium on returns that outpace inflation. Stocks fit the bill, as the long-term average annual return of equities is about 10%, handily topping inflation. "A large retirement risk for many affluent households isn't volatility, it's becoming too conservative too early (in life) and failing to maintain purchasing power," says Chase.

Putting too much money in lower-yielding assets like bonds and cash makes it harder to keep up with annual cost-of-living increases, adds Chase.

The risks of retirees loading up on stocks

Suffering outsized losses. The more stocks a retiree holds, the more money they can lose if the stock market suffers a steep decline, Demmert warns. "When these really terrible markets occur, or a bubble pops, the people that can least afford the losses — retirees — are the ones that get hurt the most," says Demmert.

Selling into a falling market. Retirees who rely on the stock portion of their 401(k) for everyday income risk having to sell their equity holdings at depressed prices to pay the bills. "The real risk isn't volatility, it is being forced to sell during volatility," says Chase. Liquidating stocks in a down market can more quickly deplete a nest egg as more shares are needed to raise cash and, as a result, fewer shares are left in the retirement account to benefit from the eventual market rebound.

3 ways retirees can dial back stock exposure

Let's say you read this story and realize that your 401(k) has more stock exposure than you are comfortable with. What can you do?

Here are some easy fixes to get your equity exposure back to where you want it to be:

1. Rebalance. If your plan calls for 50% stocks and 50% bonds and your equity weighting is now 60%, sell equity holdings and put the proceeds into bonds to get back to your preferred asset mix. "We encourage people to take a look at their asset allocation and make sure that it is at a level they want it to be at," says Shamrell. If you're unsure of how big an exposure to stocks you should have at your age, you can get a general idea by looking at the stock allocations in target-date funds that coincide with your retirement date, says Shamrell. Read our comprehensive guide on How to De-Risk Your Portfolio.

2. Sell into rallies. When trimming stock exposure, take advantage of big up days or periods when the market is climbing, says Demmert. You can also set up a regular distribution schedule, such as monthly, until your allocation is back in line with your targets. "Dollar cost average out of the market," says Demmert. This selling strategy helps smooth out market volatility, so you don't get spooked into selling at a market low. "That tends to work psychologically for most people," says Demmert.

3. Always have ample cash reserves. A stock-heavy asset allocation only hurts if you need to sell stocks to raise cash in a down market. One way to avoid that is to keep at least two years' living expenses in a liquid, cash-like account that isn't affected by market swings, says Grover.

When you have ample cash reserves, you can invest more aggressively in stocks and hold more equities without the downside risk of having to sell in a down market.

"I like the fact that retirees are taking on more equity risk in their portfolio," says Grover. "Because owning the great companies of the world is what provides growth."

And growth is good, no matter if you're a 25-year-old investor, a 45-year-old investor, or a 70-year-old investor.

Read more on managing retirement savings

• Top 4 Retirement Withdrawal Strategies to Maximize Your Savings
• The Average Gen X 401(k) Balance Kind of Bites
• How to Retire at 62 and Build a Financial Bridge to a Maxed-Out Social Security Check at 70
• The Sequence of Returns Risk Could Shrink Your Retirement Nest Egg

Is your wealth manager invested in your goals or the next commission? It's an essential question every investor should ask.

Finding the right fit amid the crowded landscape of options can feel overwhelming, especially when choosing the right partner to grow your wealth. Thankfully, some of our readers have already done the heavy lifting for you.

For the Kiplinger Readers' Choice Awards, over 4,000 readers ranked the best wealth managers based on overall satisfaction, quality of advice, retirement planning services and more categories in an online survey conducted this past winter on Kiplinger.com.

Among the standouts this year, UBS Wealth Management was the overall winner for wealth managers. Here are the reasons why our readers chose UBS as the best wealth manager.

1. A personalized approach to financial planning

Some wealth managers like to employ a one-size-fits-all strategy, tailoring solutions around higher commissions than taking your needs into account.

However, UBS takes a much more personalized approach to getting to know you. It aims to learn what wealth really means to you by asking you these five questions:

1. What do you want to accomplish in life?
2. What do you want your legacy to be?
3. How do you plan to achieve your life's vision?
4. Who are the people that matter most to you?
5. What are your main concerns?

This begins the UBS Wealth Way conversation. Once you answer these questions, UBS works with you to establish direct goals that align with your answers. Doing this gives you confidence that you have a trusted partner who not only takes the time to listen to you but who also tailors solutions that match your goals and values.

2. Expert service and advice at every life stage

Some wealth managers help you set goals, and that's where their work stops unless you contact them. UBS, on the other hand, is there to take a proactive approach in helping you reach your goals, even as your life changes. The main theme among readers' comments was how exceptional the service was, and the advice they received was excellent.

Their team of wealth experts can help you craft a full suite of goals and adjust them as your life changes. Whether you're a new investor, catching up on retirement savings or receiving a wealth transfer, their team can help you make sense of your finances and plan strategies to help you reach your goals, even after they change.

In turn, you gain a trusted partner who can scale strategies as you build your wealth.

3. Research and digital tools that empower your decisions

UBS invested in digital tools to make managing your wealth convenient. Once you become a client, you can access the online portal 24/7 to monitor your accounts.

This is essential if you're a hands-on investor who wants to review your portfolio regularly, access liquidity or pull up important tax documents. Use the UBS Advice Compass for portfolio assessments and actionable recommendations.

One way UBS excels is in its research offerings. To demonstrate, the UBS Evidence Lab is a sell-side team of research experts that collects data across more than 50 countries and 5,000 companies. In turn, their experts convert this data into actionable insights, providing you with the information you need to make informed investment decisions confidently.

While UBS took the top spot in overall satisfaction, these firms also earned high marks from our readers for their exceptional services and commitment to client success:

• Morgan Stanley Wealth Management
• Raymond James
• Fidelity Wealth Management
• Vanguard Personal Advisory Services
• Bank of America/Merrill Wealth Management Services
• Fisher Investments

Ultimately, not all wealth managers are the same. When it comes to planning for your future and maximizing wealth, lean on the experts our readers recommend the most. UBS offers the tools, resources and personalized guidance that help you feel confident about the road you're on and the direction you're heading.

Eager to see how our readers ranked your wealth manager? Visit our Kiplinger Readers' Choice best wealth managers to see the full ranking and what our readers liked about each one.

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Fifty years ago, planning for your "golden years" was a relatively straightforward formula: you put in your time with one company, retired at 65 with a corporate pension, and relied on Social Security to cover the rest. Fast-forward to 2026, and the retirement landscape has completely transformed into a self-funded marathon shaped by 401(k)s, IRAs and longer lifespans.

Whether you're a baby boomer who remembers the world of 1976 or a Gen Xer navigating the modern realities of 2026, take this 10-question quiz to see just how much the financial rules of retirement have shifted over the last half-century.

More from Kiplinger on Retirement Saving:

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• Roth IRAs: What They Are and How They Work
• Roth IRA Contribution Limits for 2026
• Average IRA Balance by Age and Generation
• Social Security Basics: Things You Must Know About Claiming and Maximizing Your Social Security Benefits
• What's My Social Security Full Retirement Age (FRA)?
• Presidents and Social Security: How Presidents Have Impacted America's First Social Insurance Policy
• Does Donald Trump Claim Social Security Benefits?

If you're like most people, you work hard not only to cover everyday necessities, but also to prepare for a day when you don't have to work anymore.

Sadly, comprehensive retirement planning is a challenge for many workers. More than 56 million Americans don't have access to an employer-sponsored retirement plan like a 401(k),according to a 2024 Pew Charitable Trusts survey.

The good news is that a lack of an employer plan doesn't mean you can't retire successfully—you just need to take a different approach.

Why doesn't your employer offer retirement plans?

Many employers assume that offering a 401(k) is prohibitively expensive. The reality is much more encouraging. Retirement plans designed for startups are often charged on a per-participant basis, making them scalable and affordable.

Smaller businesses also may not realize they have access to SEP IRAs and SIMPLE IRAs. These plans come with lower administrative costs and fewer management burdens. They also allow business owners to make contributions toward their own retirement.

Even if you don't have employees, you have options. A Solo 401(k) allows you to invest in your retirement, potentially saving more than you could with an IRA alone.

Which self-funded plans are available?

Regardless of why a plan isn't offered, the more important question is how individuals can take control of their own retirement savings. The first place my mind goes is to individual retirement accounts, or IRAs.

Unlike a 401(k), which is always tied to your employer and offers a limited menu of investment options, an IRA can be opened and managed on your own, while providing considerably more investment options.

The tradeoff is that contributions are capped, limiting how much you can save each year.

Another excellent choice for self-funding is a taxable brokerage account. These accounts allow you to invest in mutual funds, stocks, bonds and other securities without the contribution limits of an IRA. You'll pay taxes on dividends and capital gains, but the flexibility and uncapped contributions can make a brokerage account a valuable complement to tax-advantaged retirement savings.

Beyond choosing the right accounts, consistency matters just as much. While working with clients, I've found it helpful to set up automatic contributions to their IRAs and brokerage accounts. This replicates the "pay yourself first" approach of a 401(k)—you are less likely to miss what you don't see.

Are there any non-retirement plan options?

Beyond traditional retirement accounts, other financial vehicles can bolster your retirement readiness. Health savings accounts (HSAs) are worth considering if you have a high-deductible health plan. HSAs offer three tax advantages:

• Contributions are tax-deductible
• Growth is tax-free
• Withdrawals for qualified expenses are tax-free

While you're young, these benefits can help offset healthcare costs, allowing you to shift funds toward retirement savings. After age 65, you can withdraw HSA funds for any purpose—although you'll pay taxes on nonmedical withdrawals. I like to think of it as a stealth retirement account.

Annuities can be another source of retirement income. This financial tool is a long-term contract with an insurance company—you pay money now in exchange for guaranteed, tax-deferred income later.

Annuities provide steady cash flow for a set period or for life. However, they are complex financial instruments with varying fee structures and features, so they require careful evaluation to ensure they align with your specific needs.

How can working with an adviser help?

Even with all these options, deciding how to combine them can be challenging, which is where partnering with a financial adviser can help. An adviser can help you navigate the full range of options and provide guidance to pick the strategies that work best for your situation.

Consulting with an adviser is especially important 10 years before your desired retirement. This decade-long window allows you to make meaningful adjustments to your savings strategy and investment allocation based on where you stand versus where you need to be.

If you're 50 or older, you can also take advantage of catch-up contributions that allow higher annual limits for both IRAs and 401(k)s.

What should you do first?

The absence of an employer-sponsored retirement plan is a challenge, not a dead end. Multiple paths can lead to a secure retirement.

For example, you could start by building an emergency fund to cover six months of expenses, then fund an IRA up to the annual limit and finally direct additional savings to a taxable brokerage account or HSA.

Whatever direction you take, the important thing is to explore your options as soon as possible to allow your money more time to grow. With the right mix of planning, discipline and guidance, preparing for retirement without a 401(k) isn't just possible, it can be powerful.

Related Content

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• Portable Retirement Plans: Switching Jobs and Keeping Your Savings Gets Easier
• I'm 54 with a $320,000 IRA and will soon be self-employed, earning $120,000 per year. How much should I save for retirement?

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.

At both the federal and state levels, efforts are underway to give workers a retirement savings boost. In one of the latest moves, President Trump signed an executive order this spring designed to enhance the options for workers who don't have access to an employer-provided retirement plan. About 56 million workers fall into this group, or nearly half of U.S. private-sector workers ages 18 to 64, according to research from AARP.

The TrumpIRA.gov, set to launch by the beginning of 2027, will connect these workers, who often include independent contractors, small-business employees, part-time workers and self-employed individuals, to low-cost IRAs from private financial institutions. Workers will be able to compare IRAs based on cost, quality and investment options.

IRAs included on the platform will have to meet certain criteria. They can't require minimum contributions or balances, for one, and their overall net expense ratio can't exceed 0.15%. The menu of investments must include such options as target-date funds, which automatically alter their asset mix to become more conservative as the saver's retirement date approaches, and funds designed to protect principal on an ongoing basis.

The Saver’s Match

The White House initiative coincides with a government matching-contribution program that also starts next year, known as the Saver's Match, through which eligible workers can get a matching government contribution to their retirement accounts.

In 2027, you must have an annual income of less than $20,500, or $41,000 for those married filing jointly, to qualify for the maximum 50% match from the government. The match gradually phases out, and single filers who earn $35,500 or more, or joint filers who earn $71,000 or more, are ineligible for it. The income thresholds are indexed to inflation in future years. The government contribution is capped at $1,000, or $2,000 for married couples.

The Saver's Match will replace the Saver's Credit, a nonrefundable tax credit that taxpayers whose income doesn't exceed certain thresholds can take when they contribute to an IRA or workplace retirement plan. The maximum credit is $1,000, or $2,000 for joint filers.

Auto-IRAs

Some states are also taking measures to help workers who lack access to employer-sponsored retirement plans by providing automatic IRAs. Through these plans, certain employers that don't offer a retirement plan can enroll their employees to have money automatically deducted from their pay and deposited into an IRA, which is run by a state-approved financial services firm.

Employers can't contribute to auto-IRAs, but the accounts are eligible for the Saver's Match program. That could significantly increase participation in state auto-IRA programs, according to Pew Research Center, which surveyed people who don't have access to an employer-sponsored retirement plan.

At first, 84% of respondents said they were likely to participate in an auto-IRA program. That figure grew to 94% after they learned about the Saver's Match. And though 16% of respondents initially said they wouldn't likely use an auto-IRA, 52% of them expressed higher interest after they learned about the match.

States that offer Auto-IRAs

The following states have implemented or are developing automatic IRA programs, through which workers without access to an employer-sponsored retirement plan can have contributions automatically deducted from their pay and deposited into an IRA.

• California
• Colorado
• Connecticut
• Delaware
• Hawaii
• Illinois
• Maine
• Maryland
• Minnesota
• Nevada
• New Jersey
• New York
• Oregon
• Rhode Island
• Vermont
• Virginia
• Washington

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

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The standard 401(k) playbook leaves high-income professionals and business owners with a planning gap that's larger than most realize. Cash balance plans, when used correctly, can help close it.

For most American workers, a 401(k) and an IRA cover the retirement bases. For successful professionals and business owners earning far above the median household income, those same vehicles may provide less retirement savings capacity and current-year tax efficiency than other qualified plan structures.

The shortfall isn't a flaw in the traditional plans but rather a planning gap — a missed opportunity to select a plan that better fits their unique circumstances.

One potential tool for addressing that gap is the cash balance plan, which remains surprisingly underused, even among households that would benefit most.

How cash balance plans work

A cash balance plan is an IRS-qualified defined benefit pension plan, but it's designed to feel and function more like a defined contribution account. Each participant has a hypothetical "account" that grows in two ways each year:

• A pay credit (a percentage of compensation or a flat dollar amount set in the plan document)
• An interest credit (a guaranteed rate, often tied to the 30-year Treasury)

The employer makes annual, actuarially determined contributions to fund those credits, and those contributions are tax-deductible for the business.

The reason the structure is attractive is the contribution ceiling. A standard 401(k) plus profit-sharing combination caps total annual employer-plus-employee contributions in the low-to-mid five figures. A cash balance plan stacked on top of that 401(k) may allow age-weighted contributions ranging from roughly $100,000 to north of $400,000 each year for older owners and key employees depending on age, compensation, plan design and actuarial assumptions.

The older the participant, the more compressed the funding window, so the IRS permits larger annual contributions to reach a defined retirement benefit. As a result of the higher limits, the tax deferral impact may exceed that of traditional plans for certain high-income households.

Is there an income threshold where these strategies start to make sense?

There's no statutory minimum, but a practical one. We generally start exploring cash balance plans when a household has consistent, predictable taxable income above roughly $400,000, has already maxed a 401(k) and profit-sharing plan, and has cash flow that can support a meaningful pension contribution for at least three to five years.

Below that level, the design and administrative costs eat into the benefit, defeating the purpose. Above that starting level, particularly above $750,000, the potential tax savings may become substantial, and the plan's tax savings may outweigh the plan's design and administrative costs for some high-income business owners.

Why these strategies tend to be underused

If cash balance plans are this effective, why don't more eligible business owners use them? In our experience, the answer is rarely about the math but rather about who's at the table.

Many advisers and firms are organized around investment management, not plan design. A cash balance plan requires coordination among an adviser, a third-party administrator, an actuary, the business's CPA and often an ERISA attorney.

That coordination is real work and falls outside the day-to-day workflow of advisers who don't specialize in business-owner planning. The path of least resistance is to recommend a SEP-IRA or a slightly larger 401(k) match and call the conversation finished.

There's also a generational gap. Defined-benefit plans developed a reputation in the 1980s and 1990s for being inflexible, expensive to maintain and risky for the sponsor.

Modern cash-balance plans have addressed many of those issues because interest credits can be structured to match plan assets and because plans can be amended or terminated when circumstances change, but the legacy perception lingers.

Overlooked advantages and common misconceptions

The first misconception we hear is that a cash balance plan "locks up" money permanently. It doesn't. Once a participant terminates participation in the plan, balances may generally be eligible to be rolled over to an IRA, just like a 401(k), subject to plan terms and applicable distribution rules.

The plan itself can also be amended, frozen or terminated if the business's situation changes, provided the IRS rules on plan permanence are followed.

The second is that these plans are "only for huge companies." In fact, the sweet spot is the opposite. A solo physician, a four-partner law firm, a small dental practice or a consulting firm with a handful of professionals can often capture more relative benefit than a large enterprise because contributions can often be weighted toward owners while still satisfying applicable nondiscrimination requirements.

The third misconception is that cash balance plans are speculative. They are not standalone investment products. They are funded pension obligations, although plan assets are invested and subject to investment risk.

The investment portfolio is typically managed to a conservative target return that matches the interest credit, which may help reduce funding volatility for the sponsor.

Professionals consistently underestimate the benefit on the tax side. A $200,000 cash-balance contribution for an owner in a combined 45% federal and state bracket isn't a $200,000 retirement deposit.

It's potentially about $90,000 in current-year tax savings plus a $200,000 retirement deposit, depending on the taxpayer's specific circumstances.

Over a five- to 10-year funding window, the cumulative effect can materially affect retirement accumulation and long-term financial planning outcomes.

Who benefits most

The strongest candidates share three characteristics:

• High, stable income
• A closely held business or professional practice
• Owners who are typically older than the rank-and-file employees

We see this structure deployed most often in medicine and dentistry, law, engineering and architecture, accounting and consulting, independent investment management and family-held operating businesses with strong free cash flow.

Solo practitioners and 1099 professionals can also use this structure. For instance, a one-participant cash balance plan is administratively simpler and often has a dramatic impact.

At the other end, partnerships and professional corporations with multiple owners can design tiered benefit formulas that direct the bulk of contributions to the partners while still meeting coverage and nondiscrimination requirements.

How to know if it makes sense for your situation

A good first conversation answers four questions:

• What is your taxable income today, and how stable is it over a three- to five-year horizon?
• Are you already fully funding a 401(k) and a profit-sharing plan?
• What does your workforce look like? Specifically, how many non-owner employees are there? What are their ages and their compensation levels?
• What is your investment return assumption, and is it compatible with the conservative funding portfolio a cash balance plan typically requires?

Those answers, paired with a feasibility study from a qualified actuary, can often determine relatively quickly whether a cash balance plan can move the needle for your household and business. They will also tell you if it doesn't make sense, which is just as valuable, since not every high earner is a fit.

The bottom line

Cash balance plans aren't a loophole, a gimmick or a one-size-fits-all answer. They are an established, IRS-qualified planning tool that may be underused or less frequently discussed in the standard retirement planning conversation.

For the right business owner facing persistent high tax bills, they may help accelerate retirement funding and reduce current-year tax liability. They may also bring clarity to the rest of their financial plan, including estate, business succession and charitable giving.

If your income has increased beyond your retirement plan, consider consulting an adviser who specializes in implementing wealth management strategies to help mitigate the tax exposure that comes with that growth.

Cash balance plans are long-term retirement vehicles that involve investment risk, ongoing administrative and actuarial costs, and required annual funding obligations. Actual tax benefits and retirement outcomes depend on factors including investment performance, business cash flow, employee demographics, actuarial assumptions, and future tax law changes. These plans are not appropriate for every business owner or high-income professional.

Investment Advisory Services are offered through Mariner Platform Solutions (MPS), an SEC-registered investment adviser. Imperio Wealth Advisors and MPS are not affiliated entities.

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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.

Your daughter needs money for a down payment on a new house. Your son needs a loan to wipe out high-interest debt. Another child wants cash to pursue a graduate degree. As parents, it's entirely natural to want to step in and help. But if you're already retired, you need to think twice before opening your wallet. After all, you don't want to jeopardize your own financial security for the sake of theirs.

In retirement, you're living on a fixed income, which means any unplanned financial support you give your kids will come directly from your nest egg, leaving less money to fund your own lifestyle or for your estate. Even if you can comfortably afford the hit, that doesn't automatically make it the right move. Sometimes, bailing adult children out only serves to enable bad financial habits.

Mixing family and finances is always complicated. Before you sign any checks, make sure you ask yourself these three critical questions.

1. Why do they need the money?

The first question to ask is: What do they need the money for? Before you can go any further in the decision-making process, you have to determine if the reason is worthy of consideration, says John Rafferty, partner and investment advisor representative at Solomon Financial. Equally important is who is asking. Do they have a history of asking for money, and will giving it to them enable bad money habits?

If the money is for a good reason, ensure it will put them in a better situation in the future. Can your child afford the home you are giving them a down payment for? Will they incur more debt if they pay down the existing debt? Is the degree worth the ROI?

"Sometimes you think you are helping them buy a house that they can't afford, and it puts undue stress on them," says Paul Jarvis, a wealth advisor at Prime Capital Financial. "It's better to have an open and honest conversation about what the gift is meant to accomplish."

2. Can I afford it, and if not, am I willing to work or sell assets?

If you're okay with the reason your child needs money, the next question you need to ask yourself is: Can I afford it, and if not, am I willing to make sacrifices to get it?

If you can afford to help, the money will likely need to come from investments or retirement savings. Choose your funding source carefully to minimize taxes and sequence-of-returns risk. Pulling from a tax-deferred account, like a traditional IRA, will increase your taxable income, while withdrawing from a tax-free account, like a Roth IRA, means giving up years of compound growth, possibly creating a retirement shortfall.

If you can't afford it, are you willing to work part-time or take on debt to give your child money? "If I were not enabling my child, I would much rather suffer than my child," if it were an emergency, says Rafferty. "If the child is showing the propensity to ask for money, then the answers are different."

3. Will this be a gift to one child, or will I match it for the others?

Some families prefer to give equally to all their children, regardless of individual need. The thinking goes that if money is given to one kid, it should also be given to the others. If you fall into this camp, you have to ask yourself: Will this be a gift to one child only, or will I match it for the others? If the latter, how will I give them the extra money?

"Is there a way you can ensure you treat all your children the same way?" asks Rafferty. Ultimately, he notes, it is your money, so perfectly equal distribution is a choice, not a rule.

Be smart about helping

Many retirees want to help their children and have the means to do so. But before you open your wallet, think about what it means to your retirement and your kids' financial future.

Are you enabling bad financial behaviors or putting them on the path to financial freedom? Will this hinder your retirement plans or have little impact? Asking yourself those three key questions will protect your own financial security while helping, rather than hurting, the ones you love most.

Editor's note: This article is part of an ongoing series looking at three questions to ask yourself before making a major financial or lifestyle decision. The other stories in the series are: 3 Questions to Ask Before Deciding if a Roth Conversion Is Right for You, 3 Questions That Reveal If You're Actually Ready to Age in Place, 3 Questions That Determine If You're Actually Ready to Retire Early, 3 Questions to Ensure Your Retirement Nest Egg Is Inflation-Proof, 3 Questions to Ask Before Unretiring, 3 Questions That Help You Find Your Perfect Social Security Claiming Age and Go Ahead and Splurge, But Ask Yourself These 3 Questions First.

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If you've been saving in a traditional 401(k) or IRA, you've probably heard of required minimum distributions or RMDs. These are withdrawals you're required to take every year after you turn 73. It's a way for the Internal Revenue Service to get paid back for all that tax-free income you've saved over the years.

While there are strategies to avoid and reduce RMDs, for many retirees, it's just a part of life once you hit 73. But that doesn't mean it's one of those things you shouldn't give too much thought to. Your RMDs are treated as ordinary income, which means you must pay taxes on your withdrawals.

It's important to withdraw the correct amount each year. If you take out too little or forget to take RMDs altogether, you could face a penalty of as much as 25%.

If you go overboard and withdraw too much, you could face a shortfall later in your retirement, especially if the withdrawals happened during a downturn in the stock market. That's known as a sequence of return risk, and it's something retirees should try to avoid.

Calculating your RMDs

It's important to know how much your annual RMDs should be. The good news is it's easy to calculate. RMDs are determined by a straightforward formula that takes into account your account balance and life expectancy factor. Your life expectancy factor is obtained from the IRS's Uniform Life Table (PDF), which is the go-to chart that the majority of retirees are required to use, regardless of their actual health status.

The life expectancy factor takes into account actuarial data that re-estimates your remaining lifespan with every birthday you celebrate. The older you get, the lower your life expectancy is and the more you face in RMDs. The IRS doesn't want you to die without paying them back.

The formula is the following:

Account Balance/Life Expectancy Factor = RMD

A $1 million retirement balance is common among retirees in America. As of the end of 2024, Fidelity Investments found that 41% of all 401 (k) millionaires were baby boomers. Generation X — or those ages 45 to 60 — accounted for 57% of all 401(k) millionaires. If you're among them, here's how much you need to withdraw in RMDs across different ages:

Be aware of taxes

For savers, RMDs can prove particularly problematic because of the tax treatment. If you're required to withdraw $40,000 in one year because you have a $1 million IRA, that extra income could trigger a sizable tax bill.

While you can't avoid the taxes altogether, you can employ strategies to lower the burden. For instance, you can convert some of the money into a Roth IRA in low tax years. With a Roth IRA, you aren't required to take RMDs.

You can also begin taking withdrawals before age 73 to lower your total balance and prevent a bump up in your income tax bracket. A financial adviser can help you devise a strategy in which your higher growth assets are in a Roth IRA, and your conservative investments are in a traditional retirement account.

If you're charitably inclined, you can use a qualified charitable distribution to direct up to $111,000 (in 2026) of your IRA RMDs to a charity of your choice.

Planning is the best protection

You can't completely avoid RMDs, but they don't have to catch you off guard.

By projecting what your mandatory distributions will look like on a $1 million nest egg, you can make moves now to lower your overall tax hit. RMDs are a fact of life, but the amount you hand to the IRS doesn't have to be.

Editor's note: This article is part of a series that looks at RMDs by age and retirement balance. The previous story is: Got $5 Million Saved for Retirement? Here Are the Huge RMDs the IRS Makes You Take at Ages 73, 75, 80 and 85.

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While the daily news cycle can make anyone feel anxious about their nest egg, a quiet and highly strategic shift is underway within American retirement accounts. Rather than running to the sidelines or moving to cash when things get bumpy, seasoned savers are building up their balances and locking in long-term security.

The latest data from Fidelity’s Q1 2026 retirement analysis shows that today's preretirees are moving away from emotional, knee-jerk decisions and instead focusing on steady discipline and smart tax planning.

“Retirement savers started the year strong with record-high savings rates and contributions, reflecting the long-term approach they’re taking with retirement preparedness," said Sharon Brovelli, president of Workplace Investing at Fidelity Investments.

According to Fidelity's analysis, which tracks more than 54 million accounts across IRAs, 401(k)s and 403(b)s, American workers have entered an era of financial discipline. Rather than surrendering to market fluctuations, retirement account holders are locking in long-term positions and building structural financial defenses.

The sentiment vs behavior divergence

A gap has emerged between negative economic sentiment and the actual financial behavior of experienced savers. While broader economic indicators have generated widespread uncertainty, total savings rates surged to historic highs in the first quarter.

The combined employee and employer contribution rate for employer 401(k) accounts reached an unprecedented 14.4%, moving closer to Fidelity's recommended 15% target. At the same time, 403(b) workplace savings rates reached 12%.

Individual investors also expanded their independent safety nets; total IRA contributions surged 29% year-over-year, supported by a 28% increase in the number of individual accounts actively contributing. Roth accounts were the most popular, accounting for 67% of IRA contributions.

Managing what you can control to beat market drops

This steady cash inflow from contributions has created a short-term disconnect between what savers can control and immediate market returns. During the first quarter, brief market volatility caused average account balances to decline slightly on a quarter-over-quarter basis.

Specifically, the average IRA balance fell 4% from Q4 2025 to $131,380 in Q1. Workplace 401(k) accounts averaged a slightly higher $141,000, which was also down 4% from the previous quarter. Considering the longer-term trend, however, 10-year balances are up 46% for IRAs and 61% for 401(k)s, according to Fidelity.

In previous decades, shrinking balances often sparked emotional panic, prompting investors to freeze their contributions. However, in this period, investors took the opposite approach. Nearly one in five plan participants (18%) successfully increased their savings rates during this period, while asset-allocation adjustments remained near historic lows at 5.7%, down from 6.0% a year prior.

Keeping asset allocation steady regardless of market fluctuations is a strategy that has been rewarded in the long term; despite minor quarterly fluctuations, average 401(k) and 403(b) balances increased 7% and 11%, respectively, above their 2025 levels.

The shift to tax-free growth

Perhaps the most strategic behavior highlighted in the data is the massive acceleration into post-tax accounts. Roth accounts dominated the market, representing a staggering 67% of all Q1 IRA contributions. More remarkably, Roth conversion transactions escalated by 41% year-over-year.

A Roth conversion requires an investor to pay ordinary income tax on assets immediately, out of pocket, at current tax rates. Choosing to take a definitive, immediate cash-flow hit during an uncertain economic landscape suggests investors are heavily prioritizing future tax flexibility and predictability over immediate liquidity.

Automated inertia

As the data show, the primary reason contribution rates went up isn't that millions of Americans suddenly found the collective willpower to log into their accounts and manually increase their savings during a turbulent quarter. They did it because of auto-escalation features built into their workplace retirement plans.

When a system automatically bumps a worker's contribution rate by 1% every year, inertia becomes a superpower. Because it takes manual effort to log in and stop the increase, most people just let it ride.

For the portion of the data that was manual — specifically the 29% surge in IRA contributions and the 41% spike in Roth conversions — we're seeing the reality of a much more financially literate investing public.

Long-time savers have finally internalized a lesson that financial planners have been preaching for decades: Market downturns are a buying opportunity. In this case, these savers "bought" a tax-free stream of income and fewer RMDs.

Long-term vision over short-term noise

For decades, economists worried that emotional panic would always be the Achilles' heel of the individual investor. However, Fidelity’s Q1 2026 analysis reveals a different story. The latest retirement trends show that the modern pre-retiree is becoming a more resilient saver.

By maintaining a steady approach that has brought average savings rates close to the recommended 15% benchmark, investors have largely avoided the psychological traps of market volatility — at least in the first quarter.

This stability has allowed them to focus on what matters most for the next chapter: capitalizing on temporary market dips to execute strategic Roth conversions.

By accepting an upfront tax hit today, these savers are mitigating the risk of future tax hikes and building more predictable financial security for themselves and their heirs.

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If you have retirement savings in an IRA or 401(k), Uncle Sam is your partner on that money because every dollar you pull out of it is taxed.

Consider this common scenario: One spouse in a retired household passes away and the surviving spouse becomes a single taxpayer, which affects their overall tax liability, even though their income goes down.

Let's say the couple's total income was $200,000 a year. While they were married, this meant they had an effective tax bracket of about 15%.

When the husband passes away, the wife's income goes down to $180,000 because she loses the smaller of their two Social Security checks. But going forward, she will file as a single taxpayer, so she is now in the 20% tax bracket.

Additionally, if her RMDs and her income grow each year, her tax rate could keep climbing. And that doesn't even factor in future tax increases. (It's unlikely taxes will stay as low as they are now, considering our nation's debt of $39 trillion.)

Proactive tax planning could have helped protect her from the impact of higher taxes after losing her partner.

For retirees in higher tax brackets looking to help their spouse (or adult children) avoid this kind of tax trap in the future, partial Roth conversions now can help.

1. Protecting the surviving spouse

If you're a married couple, you're in a joint taxpayer bracket. And once both spouses reach age 65, you become eligible for specific additional tax benefits.

For example, with a taxable income of $148,300, you fall within the 12% tax bracket for married couples filing jointly after the deductions.

The $148,300 figure includes a $32,200 standard deduction based on your filing status. You would also receive the $3,300 additional standard deduction for both being over age 65 – this consists of $1,650 for each spouse, as determined by the One Big Beautiful Bill for taxpayers over 65. On top of this, there is an additional $12,000 bonus deduction for those over age 65 (up to a certain income limit).

However, when one spouse dies, the surviving spouse (usually the wife) jumps up to the 24% tax bracket.

If your income is higher, it's an even larger jump in taxes for the surviving spouse.

For example, if your taxable income as a married couple is $250,000 a year, you can see on the chart below that you're in the 24% tax bracket because you're "married filing jointly."

However, if the husband dies first, the surviving spouse is now a "single filer" with taxable income of $250,000. You can see she has now jumped up into the 32% tax bracket.

A Roth IRA may help protect the surviving spouse from higher taxes as a single taxpayer because you already paid the taxes while you were both alive as joint taxpayers.

2. Protecting non-spouses

When you die and leave your IRA to your children, they only have 10 years to empty your IRA completely.

Let's assume the IRA you leave to your children will earn 4% annual returns over the 10-year period after you leave it to them. This means that your children will have to take out approximately 14% of the IRA balance every year.

This would allow them to take out the 4% annual earnings along with 10% of the principal, so the entire IRA is drained over that 10-year period without a potential big tax hit in year 10.

However, this 14% annual IRA withdrawal could put your heirs in a higher tax bracket.

While a Roth conversion would mean paying income tax now, that could be a bargain compared to the potentially higher income tax brackets your heirs might have to deal with after you're gone — and any state income taxes they may also have to pay.

Additionally, if your children live in a state that has a state income tax (such as New York, which has a 10.9% top state tax bracket), they may be subject to federal income taxes and up to an additional 10.9% in state income taxes as well.

We use software called Holistiplan that helps identify the maximum amount to withdraw year by year to take advantage of today's tax brackets, and will work alongside an accountant or a tax professional.

When appropriate, we recommend our Strategic Roth Integration (SRI) plan to clients so that they can take advantage of today's income tax rates and never pay taxes on their Roth IRA again.

If you'd like to learn more, check out my new book, IRA Owners: Help Defuse Your Ticking Time-Bomb, co-authored with Steven Kao.

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.

Dear Wealth Wise: As a retired 66-year-old, I find plenty of guidance on portfolio allocation but very little on asset location — how investments should be divided among taxable accounts, traditional IRAs/401(k)s, and Roth IRAs/401(k)s.

Many experts suggest a portfolio split such as 50% stocks (mostly U.S., with some international exposure) and 50% more conservative investments, such as bonds and money market funds. But there's far less discussion about where those assets should be held to maximize after-tax returns. I feel undereducated on the topic of asset location and would like more guidance on how retirees can optimize investments across accounts with different tax characteristics.
— Where Should I Stash My Assets?

Dear "Where Should I Stash My Assets?": Asset allocation is an important part of retirement planning. And you, as a 66-year-old retiree, seem well informed about how much of your portfolio should go into aggressive holdings like stocks versus stable or income-producing assets like bonds.

But your question is one that's not raised often enough — where do the assets actually go?

Mark Sanaiha, CFP, founder and wealth advisor at Macallen Capital, says he likes to tell clients to follow a simple rule.

"Put your least tax-efficient assets where the IRS can't touch them, and your most tax-efficient assets where they're built for low taxes."

Let's dig deeper into that strategy to answer the burning question of how to find the right home for your various retirement assets.

Assets that belong in a traditional IRA or 401(k)

Traditional IRAs or 401(k)s offer the benefit of tax-free contributions and tax-deferred gains while you're in the process of building wealth. In retirement, though, they become less tax-efficient, since withdrawals are taxable and required minimum distributions (RMDs) eventually kick in.

Cody Garrett, CFP, owner and financial planner at Measure Twice Financial, says, "Traditional pre-tax retirement accounts should generally hold tax-inefficient assets, such as taxable bonds, money market funds, REITs, and BDCs."

As Garrett explains, these assets tend to distribute ordinary income rather than qualified dividends and can have higher yields than equities.

Garrett also says that for many retirees, it makes sense to allocate most or all of their bond holdings to traditional retirement accounts. Doing so could shelter your bond interest from immediate taxes, which is important, since bond interest is taxed at ordinary income rates.

Assets that belong in a Roth retirement plan

Roth accounts are often touted as a shining example of tax efficiency. Though contributions are made with after-tax dollars, gains are completely tax-free, as are withdrawals. There are also no RMDs to worry about.

Because assets held in a Roth IRA or 401(k) aren't subject to tax gains, Garrett says, "Roth accounts are often best used for assets with the highest expected long-term growth."

If you have U.S. or international stock market funds and other growth-oriented equity investments, you may want to load them into your Roth.

Sanaiha says, "Your Roth IRA is your growth engine, … so don't waste that on cash or money markets."

Sanaiha also cautions that while it often makes sense to hold international funds in a Roth IRA, it depends on the fund.

"In some cases, the tax drag is comparable to a value fund, so we'll then consider traditional or Roth IRAs for placement," he says.

Assets that belong in a taxable account

With a taxable account (such as a standard, non-retirement brokerage account), there's no IRS benefit when you're contributing funds and building wealth. But there's flexibility. You don't have to worry about annual contribution limits, early withdrawal penalties, or RMDs. Still, it's important to choose the right assets for these accounts.

"Taxable accounts favor tax-efficient investments that produce little taxable income each year and receive long-term capital gains tax treatment on qualified dividends," Garrett explains. "Examples include low-turnover equity funds, such as U.S. stock market index funds. These investments often generate modest dividend income."

Garrett says taxable accounts can also be appropriate for holding crypto ETFs and other volatile assets.

"Investors can harvest capital losses if values decline, while long-term capital gains from securities held longer than a year receive favorable tax treatment," he says. "Many crypto investors instinctively place speculative assets in Roth accounts hoping for tax-free growth, but taxable accounts provide useful tax benefits if the investment performs poorly."

That said, many retirement investors may prefer to skip highly speculative investments like crypto, even with the tax-loss harvesting benefit.

Another attractive option to balance tax efficiency and liquidity needs is municipal bonds or muni market funds, which are exempt from federal income tax. Sometimes they may also be exempt from state or local taxes if they are for in-state bonds.

Assets that belong in an accessible bank account

Retirees are often advised to maintain a hefty cash cushion to cover emergency expenses or buy themselves the flexibility to leave their investment portfolios untapped during periods of market decline. This helps avoid locking in permanent portfolio losses.

Garrett says that from a tax-efficiency perspective, cash and money market funds are best suited for traditional retirement accounts since interest is taxed at ordinary income rates.

"That said, many retirees still prefer to maintain one to two years of liquidity in checking, savings, and other taxable accounts, sacrificing tax optimization for peace of mind," Garrett explains.

Your strategy may shift over time

It's good to go into retirement with a general framework of where to house your various assets. But Sanaiha says that just as your asset allocation might change over time, so too might some of your asset location decisions.

For example, since our reader is 66 years old, their RMDs will start at age 75 under the SECURE Act 2.0. They will have nine years to plan Roth conversions to reduce the risk that RMDs will force them into higher tax brackets.

Moreover, a retiree's asset locations will need to shift as asset allocations change. As you spend down your accounts, using the bucket or other retirement withdrawal strategies, your overall asset allocation will shift. If you spend all your taxable cash first, you may need to rebalance other accounts, which could trigger taxes.

"Asset location decisions should always be made in the context of your overall tax situation, RMDs, Social Security timing, and legacy goals," he says. "What's optimal at 66 may shift significantly by the time RMDs begin."

An evolving strategy, Sanaiha insists, could help you generate retirement income more efficiently while keeping the most money away from the IRS.

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 writers and experts, in this advice column, 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 adviser regarding any questions you may have in relation to the matters discussed in this article.

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