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.

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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

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• 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.

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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.

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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For retirees and those closing in on retirement, understanding how to manage required minimum distributions (RMDs) is essential.

These government-mandated withdrawals must be taken from tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, starting at age 73. Yet, as a longtime financial adviser, I've learned that many investors nearing that age aren't familiar with how RMDs work or prepared to deal with the extra taxes they can trigger.

Even those who know something about RMDs aren't always aware of recent rule changes or useful strategies that might help reduce their RMD tax burden. That means they could easily make costly missteps that impact their retirement savings.

What are RMDs?

The IRS doesn't allow retirement savers to keep money stashed in their tax-deferred accounts indefinitely. Once you turn 73, you must begin withdrawing a minimum amount annually (based on an IRS formula) and pay ordinary income taxes on that amount.

These mandated withdrawals are called required minimum distributions. And failing to take the appropriate distribution at the correct time can result in a hefty penalty.

The RMD rules apply to all tax-advantaged plans except Roth IRAs because those account owners have already paid taxes on their contributions.

Common mistakes with RMDs

1. Taking RMDs without advance tax planning

RMDs start at age 73 for most people born between 1951 and 1959. And those born in 1960 or later will start at age 75. But I recommend planning for these complicated withdrawals long before you're required to take them.

When you hear retirees complain about paying much more in taxes than they expected in any given year, it's often because they weren't ready for how RMDs would affect their taxable income.

For example, your RMD could push your income past the IRS threshold that determines whether your Social Security benefit will become taxable and at what percentage it could be taxed.

Your withdrawal could also trigger the income-related monthly adjustment amount (IRMAA), a surcharge on your Medicare premiums. Planning ahead could help you avoid these and other RMD-related tax traps.

2. Waiting until the last minute to take your first RMD

RMDs generally must be completed by December 31 of the current calendar year. In the year you turn 73, however, you'll have the option to delay taking your RMD until April 1 of the following year. (For example, if you're turning 73 in 2027, you'll have until April 1, 2028, to take your first RMD.)

But there can be consequences for postponing. If you decide to make two withdrawals in one year, your taxable income will likely be higher for that year, which could mean facing a steeper tax bill. Before you decide to double up, you may want to run the numbers to be sure it makes sense.

In fact, waiting until the last minute in any year could cause problems if you suddenly get busy, can't afford or simply forget to take your RMD.

If you haven't withdrawn the full RMD amount by the deadline, you could face a 25% penalty on the amount you haven't withdrawn. (That drops to 10% if the RMD is corrected within two years.)

If you decide to wait until the RMD deadline, you also may have to sell investments in a down market. Spreading out your withdrawals could help reduce market risk.

3. Forgetting inherited IRA rules

Planning to leave what's left in your accounts to your beneficiaries? They, too, will have to take distributions based on IRS rules. And they, too, could face a penalty if they don't correctly calculate and take their required withdrawals at the proper time.

The rules for when account beneficiaries must take RMDs vary based on the inheritor's relationship to the original account holder. A spouse who inherits a retirement account usually has more flexibility, for instance, when it comes to determining how soon RMDs will begin and how they'll be calculated.

But most non-spouse beneficiaries are required to empty their inherited account and pay taxes on this income within 10 years of the original account holder's death. Which means adult children often end up having to take RMDs from an inherited account during their highest-earning years.

If you expect to leave money in a 401(k) or similar account to your loved ones, it's important that they have a chance to do their own tax planning. Your financial adviser should be able to suggest strategies to help them maximize your generous gift.

4. Missing out on qualified charitable distribution opportunities

It may be difficult to predict exactly how much your RMDs will be from year to year — or how much they might impact your taxes. But just knowing they're coming will give you an opportunity to prepare.

If charitable giving is part of your financial plan, a qualified charitable distribution (QCD) can help you further your philanthropic goals and reduce the tax hit from your RMDs.

QCDs allow individuals age 70½ and older to make tax-free donations directly from an IRA to a qualified charity, potentially satisfying all or part of the annual RMD amount due from their eligible accounts.

A QCD doesn't offer a tax deduction, but the amount of your QCD won't be included in your taxable income. And you can make a QCD from several different types of tax-deferred retirement accounts — although there are rules regarding using a SIMPLE or SEP IRA, and you can't make a charitable contribution from a workplace retirement plan, such as a 401(k).

5. Ignoring Roth conversion strategies before RMD age

Converting a traditional IRA to a Roth IRA can help you avoid RMDs altogether — or at least lower the amount you'll have to withdraw each year.

Unlike traditional IRAs, Roth IRAs don't require that you take RMDs during your lifetime. This means you can keep your money invested for as long as you want, allowing it to grow tax-free. And if you pass on a Roth IRA to your heirs, they can take their RMDs tax-free.

Of course, you'll have to pay taxes on the amount you convert, so timing — and planning well in advance of your RMD age — is important. Minimizing your income sources in the year you plan to do the conversion can help keep your tax liability as low as possible.

Many retirees find the "sweet spot" for completing a conversion is after they've stopped working but before they begin receiving Social Security benefits or pension payments.

Your adviser can help you determine if and when a Roth conversion makes sense for your needs.

Don't put off RMD planning

If you expect to withdraw the IRS's required amount — or more — each year to cover your living expenses in retirement, RMDs may not be a concern for you. But if RMDs will impact your income, tax and estate planning, you may want to seek guidance.

The rules are complex, and making a mistake can be expensive.

The IRS website offers basic information regarding the overall RMD regulations. But if you want more specific advice and ongoing support, consider talking to a financial adviser ASAP.

Kim Franke-Folstad 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.

If you have a traditional IRA or 401(k), required minimum distributions or RMDs are a fact of life.

They kick in when you turn 73, requiring you to withdraw a certain amount of money from your account each year.

After all, the Internal Revenue Service wants to get paid for all that tax-deferred income you benefited from during your working years, and RMDs are how they do it.

While the IRS is a fan of RMDs, many retirees are not. RMDs are treated as ordinary income and may push you into a higher income bracket. Plus, if you withdraw them during a down market, it can impact your retirement savings later on.

RMDs also force retirees to spend a portion of their income, something many tend to resist. And if you forget to take RMDs, you could face a penalty of as much as 25%.

As a result, it's important to withdraw the correct amount each year. Take out too little, and you could be in trouble with the IRS. Withdraw too much, and it can drain your retirement account prematurely.

The stakes only get higher as your nest egg gets larger. Here's how much you need to withdraw if you have $5 million saved across different ages.

Calculating your RMDs

When calculating your RMDs, the formula takes into account your account balance and life expectancy factor. You obtain the latter from the IRS's Uniform Life Table, which is the go-to chart that the vast 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 formula is the following:

Account Balance/Life Expectancy Factor = RMD

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 you have less time left to spend your wealth, they force you to withdraw a larger percentage of your remaining savings with each passing year. Remember, the IRS wants to get paid!

The tax impact

For savers with big nest eggs, RMDs can prove particularly problematic because of the tax treatment. If you are required to withdraw $203,252 in one year because you have a $5 million IRA, it 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.

Or you can begin taking withdrawals prior to 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 are 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.

You can't avoid RMDs, but you can plan ahead

You can't avoid RMDs, but you can mitigate the potential hit. But to do that, you have to know what you will be on tap for ahead of time.

If you are a saver with a big nest egg, planning and preparation are key to navigating the world of RMDs.

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For years, retirees have been told the same thing: Protect your Roth IRA at all costs. Let it grow. Don't touch it. Save it for last. And in many cases, that advice holds up.

But if you're among a small group of Americans with both a pension and $1 million or more saved, the rules change. What works for the average retiree doesn't always apply to what we often call the "2% Club." (I wrote a book about this group, which you can request here.)

In fact, there are specific moments when tapping your Roth IRA earlier can be strategic and save money on taxes. Here are eight situations where it may make sense to take withdrawals from your Roth, even if you've spent years trying to build it.

1. When tax rates are higher than expected

Roth assets shine brightest when tax rates rise. If future tax policy shifts, or increases in your personal income push you into higher tax brackets, pulling from your Roth allows you to avoid those elevated rates.

While today's tax environment is historically low, retirees with pensions often find themselves in equal or higher brackets later in life. That's when tax-free income becomes especially valuable.

2. When you're near the top of a tax bracket

Small decisions can have outsized tax consequences. If an additional $10,000 withdrawal from a traditional IRA would push you into the next tax bracket, it may be smarter to take that amount from your Roth instead.

This strategy helps you "cap" your taxable income and avoid paying a higher marginal rate on dollars that could have been tax-free.

Think of your Roth as a pressure valve, used strategically to keep your tax situation under control.

3. During unusually high-income years

Not all retirement years look the same. You may sell a property, receive a large bonus before retiring, cash out unused vacation time or experience another one-time income spike.

In those years, adding more taxable income from traditional accounts can be costly. Roth withdrawals, on the other hand, won't increase your taxable income, making them a useful tool to maintain flexibility when your income temporarily surges.

4. If you're using the Affordable Care Act before age 65

Early retirees face a unique challenge: bridging the gap to Medicare. Health insurance through the Affordable Care Act is income-based. The lower your reported income is, the lower your premiums may be.

By withdrawing from your Roth instead of tax-deferred accounts, you can generate the income you need without increasing your reported income. This could translate into meaningful savings on health insurance during early retirement.

5. To avoid higher Medicare premiums

Once you reach age 63, another income-based threshold comes into play: Medicare premiums. Known as the income-related monthly adjustment amount (IRMAA), these surcharges can significantly increase your Medicare costs if your income crosses certain limits, even by a small amount.

Higher premiums do not change your coverage. You receive the same Medicare benefits regardless of cost.

Strategic Roth withdrawals can help you stay below those thresholds. In some cases, avoiding a relatively small income increase can save thousands in premiums.

6. To navigate the Social Security 'tax torpedo'

Few retirees anticipate how aggressively Social Security can be taxed. As your income rises, more of your Social Security benefits become taxable — up to 85%.

This creates what's often called the "tax torpedo," where each additional dollar withdrawn can trigger disproportionately high taxes.

Roth withdrawals don't count toward this calculation, making them a powerful way to access income without increasing the taxability of your benefits.

7. After the loss of a spouse

The "widow's penalty" is one of the most overlooked risks in retirement planning. After a spouse passes, the surviving partner typically moves from married filing jointly to single tax brackets, meaning higher taxes on the same (or even reduced) income.

In these years, Roth withdrawals can help manage tax exposure because they are not taxable. This provides flexibility when traditional income sources become less efficient.

Also, consider Roths when planning for your heirs

Roth strategies don't end with your lifetime — they extend to your legacy. Under current rules, most non-spouse beneficiaries must withdraw inherited retirement accounts within 10 years. If those assets are in traditional IRAs, every dollar withdrawn is taxable.

But Roth accounts? Those distributions are generally tax-free. If your children are in higher tax brackets, or you expect them to be, preserving Roth assets for inheritance while spending from other accounts can create a more efficient wealth transfer.

The bigger picture: Flexibility over rules

For retirees with pensions and significant savings, the biggest risk isn't running out of money — it's losing control over how and when that money is taxed. That's why tax diversification matters. Having assets across taxable, tax-deferred and tax-free accounts gives you options.

In retirement, options are what allow you to adapt to tax law changes, income fluctuations and life events. In the end, the goal isn't just to build wealth, but to use it wisely. So while Roth IRAs don't always have to be spent early, they should always be used strategically.

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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: My husband just retired from his job due to early-onset dementia. I have heart failure and collect disability benefits. We owe $255,000 on our home and pay $8,500 a year in property taxes and homeowners insurance. Our mortgage rate is 5.34%. Utilities are around $399 per month. My husband wants to use his $300k 401(k) to pay down the mortgage. I want to move to a more affordable location. But we're in a very walkable neighborhood close to a beautiful lake, and I hate to give it up. We argue about this every day. Help!
— Love My Lake Home

Dear "Love My Lake Home": When you retire in a home and neighborhood you know and love, it can make your post-working years that much more rewarding. But what if it's a struggle to keep up with your housing costs?

The Urban Institute says that over the past 20 years, the share of senior households considered severely cost-burdened — meaning spending more than half of their income on housing — has nearly doubled. And that burden isn't limited to rent or mortgage payments. Rising homeowners insurance premiums and property taxes are also big drivers.

Here, we have a couple struggling to afford their home. They have a moderate mortgage interest rate and high property taxes.

The husband is willing to empty his 401(k) to pay off the mortgage, while the wife thinks moving to a more affordable place is the smarter choice. At the same time, both would clearly rather stay put.

It's a tough situation, especially since it's compounded by the couple's health problems. Here's how the experts suggest navigating it.

Raiding your 401(k) may not solve your problem

If you're carrying a mortgage with a moderate interest rate, you might assume that tapping your 401(k) to pay it off is a smart move. The sooner you eliminate that loan, the more money on interest you can save.

But John Davis, Financial Planner at JKD Financial, warns that the math may not work out.

"One thing people often miss when they look at a 401(k) balance is that the IRS essentially owns a big chunk of it," he says. "If you were to pull out the full $300,000 in a single year to pay off that $255,000 mortgage, you’d likely trigger a tax bill of $60,000 to $70,000, assuming you’re in a moderate bracket."

Davis also cautions that 401(k) providers are legally required to withhold 20% of distributions for federal taxes immediately.

"That means you’d only actually get $240,000 in your hand, which wouldn't even be enough to pay off the $255,000 mortgage," he says. "You’d end up with a huge tax bill next April and still have a mortgage balance."

Then there are tax penalties to consider. We assume that our reader and her husband are over age 59½, since she hasn't expressed concern about 10% penalty for early withdrawals from a 401(k). However, if they are younger than 59½, they may possibly qualify for an exemption due to their significant health issues, though they would still have to pay ordinary income tax on the withdrawal.

Emptying your 401(k) means losing flexibility

Taxes aside, there's a real danger to using your 401(k) to pay off a mortgage. As Chad Gammon, CFP and owner of Custom Fit Financial, says, "With the 401(k), you have liquidity and flexibility to use that money for needs that come up, such as medical. Paying off the mortgage opens up some cash flow, but not to the extent of having the 401(k)."

Gammon agrees, noting that while it's possible to borrow against home equity, that doesn't offer the same level of flexibility as having money in a 401(k).

"Money that is in a 401(k) is easier to use than money that is tied into a personal residence," he insists. "If they pay off the mortgage, they may be forced to get a home equity loan on the home they thought they just paid off. That very well could be at a higher interest rate and they'd be worse off than where they are today."

If you're going to move or downsize, do it carefully

In a situation like this, moving to a more affordable location or downsizing might seem like a logical money-saving choice. But Davis says it's important to do your research first to make sure that's actually the case.

"For many people in your shoes, downsizing is a much cleaner way to free up cash, but only if you're careful," he warns. "With today's housing prices, downsizing can sometimes cost just as much as staying put once you factor in moving costs and higher interest rates on a new place."

Keep in mind that if you're buying a home in a retirement community, you may be subject to expensive HOA fees that can rise over time. This isn't to say that a new place definitely won't save you money, but you'll need to get a solid handle on all of the costs involved before making a move.

One strong argument for downsizing: She and her husband may exclude up to $500,000 in capital gains when selling their primary residence as a couple. Their equity profit from selling the house would likely be tax-free, whereas the traditional 401(k) withdrawal would probably incur significant taxes.

Consider a middle-ground solution

Raiding your 401(k) to pay off your mortgage leaves you fairly illiquid. A better option, says Davis, may be to accelerate mortgage payments but carry that loan a while longer.

"If you really want to stay in that walkable neighborhood you love," Davis explains, "pay the mortgage down faster but over a longer period — say five to 10 years. Instead of one big withdrawal, take smaller monthly or annual distributions."

This approach, adds Davis, satisfies the urge to get rid of debt and could result in interest savings. But importantly, it spreads out the tax hit so you aren't jumping into a much higher tax bracket all at once.

"Plus," says Davis, "it keeps your 401(k) assets available to generate income for your other needs if the house becomes too much to handle later on."

A final word from Wealth Wise — healthcare should come first

One of the most concerning elements of this reader's question is the double burden of her own health issues and her husband's early-onset dementia (defined as dementia starting before age 65). Unfortunately, it's hard to predict the trajectory of this type of dementia, but our reader may face several years when her husband needs extensive care that she may not be physically able to provide.

As she balances staying in the home she loves versus downsizing, she should also consider how to pay for long-term care. Tapping the 401(k) for healthcare may prove a smarter move than focusing on the house. Moreover, staying in the home may be untenable if it is not adapted for aging in place.

Working with a financial adviser may help her untangle the emotional and financial pressures she'll face in the next few years. We wish her all the best.

Read More From Wealth Wise

Wealth Wise is Kiplinger's advice column on navigating retirement-related dilemmas. Questions from real people, for real people.

• Wealth Wise: Should We Borrow Money From Our Elderly Father?
• Wealth Wise: You’ve Mastered Asset Allocation — Now It’s Time for Asset Location
• Wealth Wise: Bridging the Healthcare Age Gap for Military Couples with TRICARE and Medicare

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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• You May Not Want to Downsize in Retirement: Here's Why
• We Are Retired, Mortgage-Free, With $970K in Savings. My Husband Wants to Downsize to Lower Our Costs, but I Love Our House. Help!
• My Beloved Husband Has Early-Stage Dementia. He Is 'Doing Well,' but How Do I Protect Our $1.6 Million Savings Right Now?
• I'm 63 With an Aging House That Needs Repairs, but I Might Move to a Retirement Community In a Few Years. Is It Worth Making Those Fixes?

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

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

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

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

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

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

2. When does the five-year rule start?

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

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

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

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

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

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

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

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

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

About Ask the Editor, Tax Edition

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

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

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

More Reader Questions Answered

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

Deciding when to collect Social Security — whether early, at full retirement age or age 70 — is a high-stakes decision. Your choice has a lasting impact on your retirement cash flow, your lifestyle and your family's financial security.

You have up to a year to change your mind, but after that, your decision is essentially etched in stone for life. It doesn't help that the rules and combinations surrounding Social Security can get complicated; at last check, there are hundreds of different claiming paths you can employ.

"Social Security comes up a lot for my clients," says Cindy Wilson, a senior wealth adviser at HB Wealth. "There is never a standard answer since your life situation, assets saved and goals are all different."

While you can start collecting benefits early at age 62, doing so means an up to 30% reduction in lifetime benefits. If you were born in 1960 or later, you must wait until age 67 to hit your full retirement age (FRA) and receive your full amount. For every year you delay until age 70, your benefit grows by an extra 8%.

That timing significantly impacts your monthly check. For example, take the 2026 average Social Security benefit of $2,071 for someone with a full retirement age of 67. If you claim at 62, you'd receive $1,450 a month. Wait until your full retirement age, and that increases to $2,071. Hold out until 70, and the check jumps to $2,568 a month.

But there is more to this decision than just the monthly amount. Your longevity, cashflow needs and the impact on your family all come into play. That's why it's vital to weigh every factor before committing.

With that in mind, here are three questions to ask yourself before deciding when to begin collecting Social Security.

1. Does longevity run in my family?

Nobody knows for sure how long they'll live, but when it comes to deciding when to begin collecting Social Security benefits, it's a big factor to consider.

Denny Artache, president and CEO of Artache Financial Group, says whether longevity runs in your family is one of the first questions you need to ask yourself. If you begin collecting benefits at 62 and live to 90, you may have benefited from a bigger monthly payout.

But if you wait until your full retirement age of 67 and die a year later, you'll never reach your break-even point. That occurs when the cumulative amount of the higher monthly checks you receive by waiting finally exceeds the total amount you would have collected by starting early.

"I have some people who come to my workshops and say, 'What if I die in a year or two?' If that is your mindset, then go ahead and take it (early)," says Artache. "But if you do live into your 80s and possibly 90s, it could mean a difference of six figures in benefits you are collecting."

That's why longevity is so important. If your family has a history of living long, you might want to consider delaying until at least your full retirement age or even later. If your family history points toward a shorter lifespan and/or your health is failing or compromised, you might want to begin collecting earlier.

While there's no hard and fast rule to determine if there's longevity in your family, you can gauge it in part by looking at your ancestral lifespan, or the age at which multiple family members lived. Having a great aunt who lived to 95 is great, but having multiple relatives who lived past 90 is a stronger indicator of longevity.

The age at which family members fell ill, your inherited trends in blood pressure and cholesterol, and their specific lifestyles can all provide clues about your own health trajectory. However, keep in mind that genetics doesn't paint the whole picture — your daily habits have a direct impact on your longevity.

2. Do I need the money now, or can I wait?

Cashflow is a big consideration in retirement. When the paychecks stop, unless you have a pension, you have to rely on your savings and your Social Security to get by for what could be 30 years of retirement.

That's why Isabel Barrow, executive director of financial planning at Edelman Financial Engines, says the next question you need to ask yourself is: Do you need the money right away, or can you wait?

"If you don't have enough money to cover your expenses and you have to use Social Security to pay for Medicare or pay for food," then taking it earlier is more important than waiting for a bigger payout, she says.

But if you can hold off and tap other sources without getting into debt or selling investments in a down market, it might be more advantageous.

Keep in mind that Social Security has a cost-of-living adjustment, which isn't true of many pensions and investments. That's why Artache says it might be better, depending on your retirement savings and longevity picture, to delay Social Security and live off the investments first.

Some people who don't need the money will elect to take Social Security as soon as possible out of fear that it will run out of money. They don't care if it means a smaller payout; they just want their fair share.

While it's true that the Old-Age and Survivors Insurance Trust Fund, which pays Social Security benefits, is projected to run out of money in the first quarter of 2032, it won't go bankrupt. If nothing is done by then, benefits would be cut by 23%, and beneficiaries would receive 77% of their benefits.

3. What impact will my claiming decision have on family members?

If you're married, when to collect Social Security benefits isn't an individual decision. The timing will impact how much your spouse receives when you pass.

If you wait until at least your full retirement age, that guarantees your spouse will have a bigger check than if you take it before that. That's why the third question to ask yourself is: What impact will my claiming strategy have on family members?

Wilson says it's common for the spouse with the bigger check to delay collecting Social Security benefits, while the other spouse begins receiving payments. That ensures a bigger benefit for the surviving spouse.

Another consideration, says Wilson, is the impact collecting will have on your legacy. If you delay and must spend more of your assets while you wait for a bigger check, are you OK with depleting your retirement savings and reducing the amount that gets passed on to heirs?

"For some people, it's not worth delaying. They want to leave a bigger pot for their family," she says.

Whether or not you'll work in retirement is yet another factor. If you are under your full retirement age and earn more than $24,480 in 2026, the Social Security Administration will temporarily withhold $1 for every $2 you earn above that limit.

Additionally, you must consider the tax bite. If your combined income, including Social Security, exceeds certain thresholds, up to 85% of your benefits might be subject to federal income tax.

Working while collecting benefits can also potentially trigger higher Medicare premiums (IRMAA) if your total income crosses specific levels. All this will have an impact on your family.

Get help if you're unsure

Deciding when to claim can be complicated, which is why Barrow says to seek help from a financial adviser or the Social Security Administration before making a final decision. There are also online calculators, tools and software that can help with the decision.

You can contact a Social Security office to get answers to your questions, whether in person or on the phone. Keep in mind that while staff can explain the rules and provide your specific benefit numbers, they're prohibited from telling you when you should claim. Ultimately, that decision is yours to make.

"It can be really costly to make a mistake because once you decide and start taking Social Security, that decision in many cases is irreversible," says Barrow. "Usually, people decide without all the information. Do not go this alone."

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 and 3 Questions to Ask Before Unretiring.

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Moving your retirement savings from an employer-sponsored 401(k) to an Individual Retirement Account (IRA) is often the result of changing jobs. However, this transition strips away the federal shield of ERISA regulations, exposing your nest egg to hidden costs, aggressive civil lawsuits, and administrative oversights.

True financial security requires understanding these structural gaps — ranging from shifting bankruptcy rules to the vanishing of spousal consent protections — and actively managing your retail accounts, such as IRAs, to replicate the institutional safeguards you left behind. Think your rollover is completely safe? Test your knowledge on how moving your 401(k) into an individual retirement account fundamentally alters your legal rights.

Don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

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Graduation and adulthood are still years down the road for my two young kids, so my focus now is on setting them up for success when they get there. One way my husband and I are doing that is through 529 college-savings plans.

With these investment accounts, you can set aside money that grows tax-deferred and withdraw it tax-free for qualified education-related expenses, including college tuition and fees, room and board, and computers.

A common concern among parents who contribute to 529s is that their kids won't end up going to college, or that the costs will be lower than expected. Luckily, the qualified uses for 529 money have expanded in recent years.

The One Big Beautiful Bill Act, signed into law last summer, introduced additional eligible expenses, including tuition, books and other fees associated with qualifying non-degree credential programs, such as for plumbing, electrical work, HVAC and welding. You can also withdraw up to $20,000 per year for elementary and secondary school tuition, course materials, tutoring, fees for standardized tests, and more. (Not all states follow the federal rules, so check your state's policies.)

If you end up with leftover money, a compelling option — one that I'm keeping in my back pocket in case my kids don't need all their 529 funds — is the ability to roll over up to a lifetime limit of $35,000 of the 529 balance, tax- and penalty-free, to the beneficiary's Roth IRA.

The 529 plan must have been held for the beneficiary for at least 15 years before you can make this move, and you can't roll over more than the Roth IRA contribution limit ($7,500 in 2026 for those younger than 50) each year.

Even if you withdraw 529 money for non-qualified expenses, all is not lost. You'll pay income tax and a 10% penalty on the investment-earnings portion of the distribution, but not contributions.

Picking a plan

Almost all states sponsor a 529 plan, and you can invest in any of them. More than 30 states offer a tax credit or deduction for contributions. Usually, you can get that tax break only if you invest in your own state's plan.

But in Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio and Pennsylvania, residents get a tax benefit no matter which plan they choose.

If you're shopping among plans, compare features, including the investment options and costs. Most plans offer age-based portfolios that gradually dial down the risk, shifting to more-conservative investments as your child approaches college.

When it comes to minimizing fees, opening an account directly with the state, rather than through a broker, is your best bet. You can compare plans with Saving for College's tool here. The site also rates plans based on performance, ease of use and more.

Read: The Best 529 Plans of 2026

Watch for promotions that could give your savings a boost. May 29 is National 529 Day, and some plan sponsors offer a cash bonus or match to families who open a 529 during a specified window near that date.

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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Nvidia (NVDA) is the most valuable publicly traded company in the world, thanks to insatiable demand for the semiconductor company's artificial intelligence (AI) chips.

The company is so important that its quarterly earnings reports are often seen as an indicator for the global AI market. With its next earnings event right around the corner, we decided to test your Nvidia knowledge with this quick quiz.

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For the past several years, Jody King and Jim Vozar have made it their practice to give their four adult children a sum of money annually to help with their expenses.

The "kids" — the couple each have a son and daughter from their first marriages, ranging in age from 25 to 38 — all have jobs and can cover essential bills on their own. But the financial assistance from Mom and Dad makes a meaningful difference.

"Everything is more expensive these days, from groceries to rent to cars; it's harder to buy a house, harder to save money," says Vozar, 56, who owns a real estate development and construction company in Nazareth, Pennsylvania. "We're happy we have the means to help our children, to create a good foundation for them moving forward, so they're not sweating every payment."

The couple hasn't placed any strings on how the children use the money. "There are really no ground rules, other than our encouragement that they buy something they've wanted but maybe couldn't easily afford and to invest the rest wisely," says King, 58, a commercial real estate broker with CBRE in Allentown, Pennsylvania.

So far, the kids' purchases have included a computer, a treadmill, professional coaching services and new windows for the oldest child's home. All four have invested some, as well — money that Vozar expects one day will help them buy a car or house and build long-term savings.

"We'd know if one of them put it all on black or was driving a Porsche," says Vozar, who adds he has warned his kids not to spend the money on anything stupid.

If that happened, the couple say, their no-rules philosophy on gifting would change — although they make it clear that the children all work hard and want to forge their own ways. Vozar says, "I'm a firm believer in a hand up, not a handout."

A growing number of parents these days are following a similar path, helping their adult children with money in greater amounts and for longer periods than previous generations, research shows. More than six in 10 parents in an Ameriprise survey last year, for example, said they were covering some ongoing expenses for a child 21 or older, from phone bills to everyday living costs. (Participants in the survey had, on average, more than $500,000 in assets.)

More than three-fourths were helping to pay for a big one-time goal, such as a wedding or the down payment on a home.

The average amount of cash support to children 18 and older, according to a 2025 AARP study, is about $7,000 a year, with higher-income households that earn $75,000 or more giving over $10,000 annually.

Studies show that ongoing assistance drops sharply once adult children hit their late twenties, but it doesn't end entirely for many families.

About one-third of Americans ages 30 to 34 still get some financial help from their parents, a 2024 Pew Research Center study found, most commonly for household expenses such as groceries and utility bills, and for rent or mortgage payments.

"Younger generations today are in a very difficult situation in terms of affordability," says certified financial planner Mary Clements Evans, author of Emotionally Invested and founder of Evans Wealth Strategies in Emmaus, Pennsylvania.

"It's not just about the price of eggs and gas for them; it's the price of education, housing, health insurance, childcare, you name it. A lot of boomers have the financial means, and these kids really need the help."

Still, many parents helping adult children with money are feeling the strain. Studies also show that for some, lending a financial hand to kids in their twenties and thirties has cut into their ability to save for retirement, pushed back the timeline for when they can stop working or necessitated belt-tightening their own lifestyle.

Meanwhile, many parents, whether the help they're giving is comfortably affordable or not, worry they might be inadvertently hurting their child by fostering dependence. They might worry that people judge them as helicopter parents, concierge parents, snowplow parents (forever clearing the path of obstacles for their child) or whatever trendy but vaguely disparaging label observers bestow these days.

If you're helping an adult child with money and wondering whether you're doing the right thing for both your child and your own financial health or simply looking to close the Bank of Mom and Dad for good, these insights and moves can help.

Consider the circumstances

Trend data going back at least 50 years from the Institute for Social Research at the University of Michigan confirms that parents today are providing more financial support for adult children than previous generations of moms and dads.

Parents themselves agree: Six out of 10 people helping an adult child with money are providing more support than they received at the same age, the AARP survey found, and nearly half are giving larger amounts than they anticipated they'd need to provide.

That many of these kids really need a helping hand is evident too, with recent economic data documenting the financial strain on young adults compared with what their parents and grandparents experienced in their early grown-up years.

The typical student borrower now graduates from college with more than $35,000 in loans, more than double the average amount that new grads owed 25 years ago, according to the Education Data Initiative. More young people are also getting degrees, which delays their launch as wage-earning employees who can support themselves.

When they do get jobs, the salary isn't what it used to be, with wages for young workers eroding in real terms, especially for those who don't have a college degree — that is, if a young worker can find a job, given that the unemployment rate for college graduates ages 22 to 27 recently hit 5.6%, according to the Federal Reserve Bank of New York.

That's the highest rate in a decade, outside of a brief pandemic-era spike, and a reversal of the longstanding trend of young grads being able to land jobs more easily than workers overall.

Meanwhile, good luck to many young people hoping to buy a home on their own, with housing prices up 50% since the pandemic, according to the S&P CoreLogic Case-Shiller National Home Price Index.

"The helicopter/snowplow parent analogy is way overblown," says Monica Johnson, a sociology professor at Washington State University who studies the transition to adulthood. "What's happening is driven by history and a shifting economy. It's not a personality fault of either the kids or the parents."

That said, Johnson notes, a shift in family dynamics, marked by what she calls the growth of “intensive parenting,” is a contributing factor. "We have fewer children, and we're very invested in them," she says. "We know they're hitting this new economy, this new world, in a way we didn't and our grandparents didn't, so the stakes feel higher."

She adds, "It does mean that some young adults are delayed in learning some of the independence that earlier generations may have gotten."

Understanding the impact of ongoing support

The good news, says Johnson, is that there's no sign that a helping hand from parents generally breeds long-term dependence. The trend data show ongoing support drops sharply by the time most young adults hit their late twenties (keeping your kid on your family cellphone plan doesn't really count).

The research also shows that most parents feel the level of assistance they're currently providing feels right to them, given their child's circumstances. Meanwhile, the economic benefits are clear. Young adults who get financial support from Mom or Dad are more likely, for example, to graduate from college and earn a livable wage later.

Moreover, Johnson says, there's evidence of a strong reciprocity norm in families, so that parents who help young adults with money when they need it are more likely to get help from those kids later on — not necessarily financial aid, but perhaps a hand navigating health care needs, filling out government forms or arranging for home repairs. "It helps keep family bonds strong. There's a lot of give and take," she says.

Where parents are more apt to have concern: "They may be fine with the level of support right now, but worry about what will happen in the future," Johnson says.

"Most important, though, parents worry about what other people think of them, because we tend to judge parents a lot, and partly by how well their kids are doing," Johnson says. "It's less about what the parents are actually doing and more about how it will be perceived by others."

An even more pressing problem is the potential impact on some parents' long-term financial security.

More than one-third of the parents in the Ameriprise survey, for instance, said that supporting their adult children financially could affect whether they'll have enough money to live comfortably in retirement, and 40% of the parents in the AARP study with at least one child 23 or older said it has given them some degree of financial stress.

"We see it with student loans, when parents take out parent PLUS loans or co-sign for private loans that will lead to debt that they are likely to carry into retirement. We see it when parents pay for credit cards or auto loans for their children," says Lori Trawinski, senior director of finance and employment at AARP.

"It is understandable that parents want to help, but they should consider whether they can truly afford it," said Trawinski.

Determine the best path forward

To help figure out what's right for your family, experts suggest asking yourself a few key questions about the kind of monetary help your child needs, what's affordable for you, the implications for your security in retirement, and your son's or daughter's ability to close their account at the Bank of Mom and Dad and forge an independent life.

How much can you truly afford to help?

Financial advisers like to use the oxygen-mask analogy when it comes to helping adult kids with money — you know, the one from airline safety briefings that tells you, in the event of an emergency, to put on your own mask first before you help others.

If subsidizing your kid's rent or paying for auto insurance or helping with the utility or grocery bills strains your budget or hurts your ability to save what you need for retirement, don't provide a cash infusion, planners say. Instead, let your young adult go about the business of adulting and figuring out how to manage those expenses on their own.

Applying logic to the emotional tug of your child needing your help, though, doesn't always work in real life.

Consider the results of a survey last year of consumers with investable assets of at least $150,000 by LIMRA (PDF), a financial services trade group.

Among the 17% of respondents who were providing financial support to an adult child 26 or older, more than half said that doing so has affected their retirement savings.

Yet when asked what trade-offs they'd be open to making to stretch those savings, only 15% were willing to stop giving money to their kids or another family member who needed their help — dead last among the options given — compared with 58% who were willing to adopt a lower standard of living and 54% who were willing to return to work, either full-or part-time.

"Parents are used to making sacrifices for their children, putting themselves secondary to their kids' needs," says Kayla Fernandez, a CFP with California Financial Advisors in San Ramon, California. "Using math to evaluate such an emotional situation may not work."

Still, advisers say that running the numbers to evaluate whether you can truly afford to help your adult kids, considering both your current cash flow needs and the potential impact on your long-term retirement savings, can be an eye-opening exercise.

If you work with a financial adviser or have access to one through your workplace retirement-savings plan or financial services provider, you can run simulations to assess how various levels of support for your kids will affect the likelihood of your savings lasting through retirement. Do-it-yourselfers can use financial planning software such as Boldin (free for the basic version or $12 monthly for more advanced features) or Empower (free) to test different scenarios.

Then tackle the emotional part of the equation. Fernandez asks clients to think about what would happen if they hit an unanticipated setback or the money they're giving now causes their savings to dwindle so much that they end up needing a financial hand from their son or daughter when they're older.

"Think about how you'd feel," says Fernandez. "Ask yourself whether helping now could end up hurting your child more in the long run."

One other aspect to think about: "Parents underestimate the financial compounding effect of ongoing support," says Rick Kahler, a CFP, certified financial therapist and founder of Kahler Financial Group in Rapid City, South Dakota. "Even small subsidies over 10 or 20 years materially reduce retirement assets."

The bottom line, says Kahler: "You cannot fund your child's 30-year-old self at the expense of your 85-year-old self."

Are you helping or enabling?

Kahler says that the most critical question often isn't whether you can afford to help, but rather, will providing support increase or decrease your child's growth toward independence?

Kahler has a simple litmus test. "Helping after a layoff, a health crisis, or during education can be stabilizing and wise," he says. "Helping fund a lifestyle beyond what someone can sustain on their own income shifts from bridge to bailout."

Focus your assistance on essential expenses, not such lifestyle upgrades, says Evans. You might, for example, lend a hand with the deposit on a first apartment and some basic furnishings to launch your baby bird from the nest (think IKEA or Wayfair, not Crate & Barrel or Pottery Barn), but only if your child can manage the rent on their own after that.

Assisting with anything that helps build wealth can also be a good use of your money if you can afford it, whether that's one-time help with a home down payment, say, or offering to match savings in an emergency fund or for other long-term goals.

Ongoing help that makes life a little cushier than they could otherwise afford? Not so much, advisers say.

"Learning to be fiscally responsible when you're young can be uncomfortable — and that's OK," says Fernandez. "If your child never feels the pain of telling her friends that she can't go out to dinner and drinks this week or buy those concert tickets because it's not in her budget, she's not going to learn to live within her means. That is productive pain, in my opinion."

Also, think twice about helping them out of a jam of their own making, such as racking up a boatload of credit card debt not related to a layoff or healthcare bills. If your child is otherwise typically responsible, you might match their monthly card payments to expedite getting the balance to zero. But if it happens again, offer your counsel, not your wallet.

"Be careful if a ‘one-time' situation continues to repeat itself," Kahler says. Besides the potential impact on your own finances, he says, "Repeated rescuing can quietly build entitlement, resentment and shame, and it lowers the child's confidence."

Have you set parameters for support?

Ideally, you will have worked out the basic details about the assistance you're prepared to give before the first dollar exchanges hands. That includes laying out the specific expenses you will help with, the amount you're prepared to pay, how long you'll provide support, and if there's any question about it, whether the money is intended as a gift or a loan.

If not, have the conversation now, so there's no miscommunication and no surprise or hurt feelings on your child's part when you're ready to wind down the family aid plan.

In figuring out what kind of assistance to provide, invite your child into the process, rather than just informing him of your intentions.

"Ask, ‘How would you like us to help you? What would do the most good?' " says CFP Bobbi Rebell, author of Launching Financial Grownups and CEO of Financial Wellness Strategies, a financial education consulting company. "Give them agency. One of the mistakes we sometimes make as parents is treating our adult children as children, not adults."

One practical tool Kahler recommends to parents who anticipate needing to help their child with future expenses is setting up what he calls a child benevolent fund. Parents decide in advance how much they can allocate monthly without harming their own financial plan and regularly shift that money into an account earmarked for that purpose. When the child needs help, the balance in the fund sets the limit for aid.

"It removes guilt-based, in-the-moment decisions and protects long-term security," Kahler says.

Have you constructed an exit ramp?

Ongoing financial support for an adult child should generally be temporary, advisers say. One exception: If your child has a physical or mental health condition — true for about 30% of the parents providing financial support in the AARP survey — that might interfere with their ability to entirely make their own way.

Let your child know your intended end date well in advance so they have time to prepare. Experts also recommend tapering off gradually — say, reducing the amount you provide by 25% a quarter over the course of a year.

If you're looking to end support because it's no longer affordable or you're concerned about your long-term financial security, it's OK to let your child know that. The idea is not to pile on guilt (take care to keep the temperature low there) but to ensure they better understand the circumstances, which lessens the likelihood they'll feel hurt or resentful that they can no longer rely on you for money.

“Your children may feel very differently if they realize that helping them is a strain for you, because children love their parents and want to do right by them,” Rebell says.

Think about other ways to help that don't involve dispensing cold, hard cash — either to show you're still there for them after you've ended direct financial aid or as an alternative or supplement to giving money outright.

If, for instance, they're struggling with credit card debt, you might suggest seeing a debt counselor or allow them to move back home for a while to free up cash to pay down those balances.

Maybe you can help them set up a budget to get a better handle on their cash flow. If they're struggling with childcare costs, and you're retired, live nearby and are so inclined, perhaps you can babysit one day a week to alleviate the strain. "You don't necessarily have to write a check to help," says Rebell.

Adds Kahler, "Often what adult children need most is confidence, guidance and belief — not a subsidy."

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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As we near retirement, we're often told that we'll pay less in taxes once we've retired. But is that always the case?

For some, yes, but for many, I would contend that you'll pay just as much, if not more, in taxes in retirement than you did in your pre-retirement years.

Some people have misconceptions about taxes and retirement. They believe their income will drop significantly but ignore that taxable withdrawals from retirement accounts and other income sources could put them in a higher tax bracket.

Others fail to seek tax advice as they near retirement and don't plan proactively, resulting in the lack of a tax-efficient, long-term distribution strategy.

The complexity of tax laws and how they differ for various accounts and investments is another contributing factor to unforeseen tax liabilities.

Here are some financial aspects of retirement that can lead to a tax trap.

Your lifestyle

Most experts recommend planning to replace 75% to 85% of your pre-retirement annual income to maintain your current lifestyle. While expenses such as commuting or saving for retirement might drop, others, such as healthcare and leisure (travel, entertainment, hobbies, social activities, etc.), often increase.

Without a significant reduction in expenses, you'll need to have an income similar to your later working years, likely keeping you in the same tax bracket.

Social Security

Up to 85% of your Social Security benefits can be taxable, depending on your combined or provisional income, a specific IRS formula used to determine whether Social Security benefits are taxable.

It's calculated by adding your adjusted gross income (wages, interest, dividends, pensions, capital gains and retirement account withdrawals), nontaxable interest (typically, interest from tax-exempt bonds, such as municipal or government bonds) and half the total gross Social Security benefits received during the year.

That combination could create a "tax domino effect" if you withdraw money for living expenses and unintentionally trigger higher taxes on your Social Security.

Here are the income thresholds at which Social Security benefits become taxable:

Medicare

Medicare premiums can increase due to the income-related monthly adjustment amount (IRMAA). That's an extra, income-based surcharge added to Medicare Part B (medical) and Part D (prescription drug) premiums for individuals with higher incomes.

For 2026, single tax filers with a modified adjusted gross income (MAGI) above $109,000 and joint filers above $218,000 are subject to IRMAA. The Social Security Administration uses tax returns from two years prior to determine if the additional fee applies.

Required minimum distributions (RMDs)

RMDs, which for most people begin at age 73 (it's age 75 for those born 1960 or later), could push you into a higher tax bracket. At those ages, the federal government requires people to make withdrawals from tax-deferred, pretax retirement accounts that they built over decades of their working life.

Those accounts include 401(k)s, 403(b)s, 457(b) plans, traditional IRAs, SEP IRAs, SIMPLE IRAs and Thrift Savings Plans (TSPs). The money you withdraw from those funds is considered taxable income.

The potential downside tax impacts of RMDs:

• They could potentially bump you into the next higher tax bracket
• They could increase your taxes on Social Security
• They could also increase your Medicare premiums due to IRMAA

Ways to help reduce the tax trap in retirement

How can you avoid paying unnecessary taxes in retirement? Here are a few strategies to consider.

1. Make Roth conversions (if appropriate).

A Roth IRA might be able to insulate you from future unknown taxes. Roth conversions are moving money from a pre-tax retirement account (such as a 401(k) or traditional IRA) into a Roth IRA.

You pay taxes on the amount you convert in the year you convert; the tradeoff is that you get tax-free growth and in retirement, withdrawals are tax-free. There's no limit on how much you can convert.

A Roth conversion is a popular strategy to help reduce future tax burdens, especially for those expecting higher tax brackets later or wanting tax-free inheritance for their beneficiaries. There are no RMDs for the original owner of the account.

Because Roth withdrawals are tax-free, using funds in your Roth account in retirement can help prevent you from a higher tax bracket.

2. Consider using the low tax window before your RMDs start.

Some people will experience a drop in income when they retire. A prime time to begin withdrawing or converting assets is when you're in a lower tax bracket.

Also consider that the next administration might increase taxes and make it more difficult from a yearly tax-rate perspective for some people to do such withdrawals or conversions.

Along with Roth conversions, here are other strategies to potentially take advantage of the low tax window:

• Consider early voluntary withdrawals. Start taking money out of IRA accounts after age of 59½ to lower the account balance and spread the tax liability over more years, rather than waiting for large, taxable RMDs.
• Balance tax brackets and IRMAA. Target a specific tax bracket in the years between retirement and RMDs to stay below higher tax brackets and avoid Medicare IRMAA surcharges.
• Consider qualified charitable distributions (QCDs). For those age 70½ and older, direct transfers from an IRA to a qualified charity can satisfy upcoming RMD requirements while reducing taxable income, even if you do not itemize deductions.
• "Fill" tax brackets. Purposefully take just enough income from tax-deferred accounts to reach the top of your current, lower tax bracket. You could end up paying less in taxes compared with the higher rates you might face when combined with future Social Security and RMDs.

3. Organize withdrawals by bucket.

In my experience, retirees often pull money from accounts in the wrong order, incurring tax consequences they could have otherwise avoided.

Taking too little from your tax-deferred accounts can lead to huge RMDs later in life. Taking too much early can increase your taxes and, potentially, your tax bracket.

It would be ideal to have a strategy that balances withdrawals from your taxable accounts, IRA (tax-deferred accounts) and Roth, while considering the income from Social Security and pensions.

The order in which you take withdrawals isn't a hard-and-fast rule. A sensible approach is to have three buckets of money:

• Taxable (brokerage accounts)
• Tax-deferred (IRA/401(k), etc.)
• Tax-free (Roth)

Deciding which bucket to withdraw from depends on what's going on in your life at that time.

Let's say you're married and filing jointly in the 12% tax bracket, which tops out at $100,800 of income for the 2026 tax year. Your taxable income for the year was close to that limit. You want to go on a cruise, and it's going to cost $5,000. Should you pull that amount from your tax-deferred bucket? No.

In this example, it may be better to pull it from your Roth because it's not taxable, and that $5,000 is not going to bump you into the next tax bracket.

Portfolio structure matters, especially in retirement.

• Consider placing tax-inefficient investments (e.g., taxable bonds, high-turnover funds) in tax-advantaged accounts, such as IRAs or 401(k)s
• Put tax-efficient investments (e.g., ETFs, index funds, municipal bonds) into taxable brokerage accounts
• Potentially avoid unnecessary capital gains, manage your dividends and distributions, and use tax-loss harvesting to offset capital gains and reduce tax burden

Review periodically and coordinate your plan

A retirement portfolio is not "set it and forget it." Too many things can change year to year, so make sure to review your plan periodically and adjust it as needed.

Keep these priorities in mind when reviewing:

• Income changes
• Market shifts that can affect your portfolio
• New tax laws that can affect your lifestyle, taxation and withdrawals
• Health care cost adjustments
• RMDs and Social Security

Retirement tax planning should be geared toward reducing taxes and avoiding ugly surprises, helping ensure you keep more of what you've worked hard to build and save.

If you're nearing retirement or already retired, it's important to ask yourself: Am I heading toward a possible tax trap in my retirement?

The earlier you spot the tax trap, the easier it may be to avoid and ensure you can retire relaxed and happy.

Dan Dunkin contributed to this article.

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

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

Not long ago, a client came to me with what sounded like a simple question:
"Should I do a Roth conversion?"

It's a question I hear often — and it makes sense. Roth conversions are frequently recommended as a smart tax strategy for retirement.

But after walking through this client's situation together, it became clear that a Roth conversion might not have been the right move at that time.

That's an important reminder I share with many of my clients: A strategy that works well for someone else isn't automatically the right fit for you.

What exactly Is a Roth conversion?

A Roth conversion simply means moving money from a traditional IRA or 401(k) (where contributions were made pre-tax) into a Roth IRA (where withdrawals can be tax-free later).

When you convert funds, you pay income taxes on the amount converted now in exchange for potential tax-free growth and withdrawals in the future.

For many people, this can be a powerful long-term planning strategy — but timing and circumstances matter.

Why a Roth conversion didn't make sense in this case

In this client's situation, their primary source of retirement income was going to be withdrawals from their IRA, and retirement was only a few years away.

When you convert funds into a Roth account, a five-year rule applies. Generally speaking, you need to wait five years before withdrawing converted funds to avoid additional taxes.

Since this client expected to rely on those assets sooner than that, the primary benefit of converting simply wasn't going to apply.

In other words, the strategy sounded appealing on the surface, but it didn't support their real-world retirement timeline.

Why timing matters

For many investors, Roth conversions can be extremely valuable. Yes, you pay taxes at the time of conversion, but once the money is inside a Roth account, it can grow tax-free and be withdrawn tax-free in retirement.

Roth IRAs are also not subject to required minimum distributions, which can make them a powerful planning tool for both retirement income flexibility and legacy planning.

Still, there are several situations where it makes sense to pause before converting.

1. You're currently in a higher tax bracket.

Every dollar converted is treated as ordinary income in the year of the conversion. If your income is already near the top of your tax bracket, converting could push part of that income into a higher bracket.

Sometimes, waiting for a lower-income year can make the strategy far more efficient.

2. You would need to use retirement funds to pay the conversion taxes.

Ideally, taxes on a conversion should be paid from savings outside the retirement account. Using retirement assets to cover the tax bill reduces the amount working for you long term and weakens the overall benefit of the strategy.

3. Your income may drop in the near future.

If you expect retirement, reduced work hours or another life transition that lowers income, it may make sense to delay conversion until you're in a lower bracket.

Timing can be just as important as the decision itself.

4. The conversion could increase your Medicare premiums.

Medicare Part B and Part D premiums are based on taxable income. Because conversions increase income in the year they occur, they can sometimes trigger higher premiums.

This doesn't automatically rule out a conversion — but it's something worth planning around carefully.

Sometimes the smartest strategy is a gradual approach

In many cases, spreading conversions over several years can reduce the tax impact and create a more efficient outcome overall.

Rather than asking "Should I convert?", the better question is often: "How much should I convert — and when?"

That's where personalized planning really makes a difference.

Roth conversions are powerful — but personal

It's easy to hear about a friend, neighbor or coworker who completed a Roth conversion and assume it's something you should do, too. But retirement planning works best when strategies are tailored to your specific income picture, timeline and goals.

Roth conversions can absolutely play an important role in a well-designed retirement plan. The key is making sure they're implemented thoughtfully and at the right time.

With the right guidance and a clear understanding of the trade-offs, they can become a valuable tool — not just a popular recommendation.

Ronnie Blair contributed to this article.

Advisory services offered through Woloshin Investment Management, LLC, an Investment Adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.

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

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• Are You Getting Vague Advice About Roth Conversions?
• When Multiple Tax Rules Collide: Don't Pay a 50% Rate on Your Roth Conversion by Mistake

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

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

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

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

Rollovers and retirement saving

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

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

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

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

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

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

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

Job mobility and retirement savings

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

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

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

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

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

Five ways to protect your money in an IRA

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

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

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

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

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

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

1. Work with a fiduciary advisor

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

2. Implement self-imposed "leakage" barriers

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

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

3. Review and update beneficiary designations

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

4. Understand your state's creditor protections

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

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

5. Scrutinize Fees and Disclosures

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

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

Vigilance is your friend

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

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

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

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

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Data show that roughly 70 million workers participate in an employer-sponsored 401(k) plan as a key retirement savings vehicle, and 401(k) matches offered by many employers help boost those savings each year.

A Vanguard How America Saves report estimates the average employer match in the United States at about 4.6% of pay, in addition to employees' own contributions.

For someone earning $75,000 a year, that amounts to roughly $3,450 in additional tax-advantaged retirement savings annually. Some workers consider this effectively "free money" on top of their regular pay.

But…some employers have begun pausing or reducing matching contributions as they review benefit costs and overall spending.

For example, $2 billion customer experience company TTEC reportedly told employees it would suspend its discretionary 401(k) match through the end of 2026. Sherwin-Williams previously paused its match during a cost-cutting period and has since resumed it. In recent years, IBM has moved away from a traditional matching structure to a Retirement Benefit Account (RBA) defined-benefit plan, while still reportedly allowing employees to contribute to their 401(k)s.

The details surrounding these and other similar situations vary, but the outcome for workers is generally the same. There's less money going into their retirement accounts from their employers.

That leads to a key question for those affected: What, if anything, changes for your taxes and savings when the 401(k) match goes away?

Why some companies are suspending 401(k) matches

Employer 401(k) matches have long been a core part of workplace compensation, even though they do not appear on a paycheck.

A study by the Employee Research Benefit Institute (ERBI) found that a majority of employees are more likely to participate in a retirement savings plan if there's a company match. Other data from an American Century Investments survey suggest that more than a third of respondents would take a 401(k) match over a salary increase.

But recently, some companies have begun scaling back or pausing these contributions as part of broader cost reviews.

Data from the U.S. Bureau of Labor Statistics show that benefits make up a significant share of total compensation costs. As a result, retirement contributions are sometimes adjusted alongside other expenses.

Should you still contribute to a 401(k) if there is no employer match?

Traditional 401(k) contributions still reduce taxable income in the year they’re made, and investments continue to grow tax-deferred until withdrawal. So even without an employer match, you still get the same tax deduction on your contributions, but you lose the additional tax-deferred dollars your employer would have added.

Even so, some workers continue contributing to capture the tax break.

For example, someone in the 22% federal tax bracket who contributes $15,000 without a match could potentially lower their federal tax bill by about $3,300 before factoring in state taxes.

At the same time, the loss of an employer match is prompting some workers to reassess their strategy. One approach is to maintain their contribution rate to stay on track with retirement savings. Another is to scale back to preserve take-home pay or prioritize other financial goals.

In some cases, a shift in the employer match pushes employees to consider savings options aside from a 401(k). For example:

• A Roth IRA doesn't offer an upfront deduction but may provide tax-free income later in retirement.
• Some may also pay closer attention to Health Savings Accounts (HSAs) if they are available through employer health plans.
• A key benefit of HSAs is that they allow eligible workers to contribute pre-tax money toward medical expenses. Additionally, investments can grow tax-free, and withdrawals used for qualified healthcare costs are also generally tax-free.

HSAs aren't a replacement for retirement accounts, are subject to contribution limits and sometimes involve "hidden costs", but they can provide another way for some households to lower taxable income and build longer-term savings.

401(k) tax benefits: Bottom line for retirement planning

When employer matches disappear or shrink, some workers may need to contribute more of their own money to stay on track for retirement. And while the changes might look relatively small year to year, losing thousands of dollars in annual employer contributions can affect long-term retirement balances.

For example, for a $75,000 earner losing a 4.6% match (~$3,450/year), that gap over 20 years at a 6% average rate of return could compound to $135,000 less at retirement.

So, what can you do? If your employer suspends or reduces its 401(k) match, your approach to saving might need to shift.

• If you were only contributing enough to get the match, you might want to revisit your contribution rate.
• If you can afford it, increasing contributions could potentially help keep you on track.
• However, if your cash flow is tight, it may make more sense to hold steady while prioritizing emergency savings or high-interest debt.

Overall, though, it's important to keep in mind that without an employer match, there is no one-size-fits-all answer when it comes to next steps.

Saving decisions depend, as always, on your personal budget, tax considerations, and long-term financial goals.

Note: Because everyone’s financial and tax situation is different, keep in mind that this is general information, not personal advice. Consult a tax professional or financial adviser to determine the best course of action for your individual circumstances.

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• 2026 Federal Tax Brackets and Income Tax Rates
• 2026 HSA Contribution Limits Are Set
• Is It Time to End 401(k)s to Save Social Security?
• Roth Rule Changes to Know This Year

The One Big Beautiful Bill Act (OBBBA) opens up several planning opportunities that could make a real difference in what you keep in your pocket — not just this year, but for years to come.

If you're like our clients, whom we call Midwestern Millionaires — hardworking, frugal and diligent savers with $1 million or more saved (I wrote a book on this that you can request here) — these are five of the most important provisions to understand for how they may affect your long-term tax strategy.

1. Lower tax rates aren't going away (for now)

One of the biggest concerns we hear from clients is whether today's historically low tax rates are about to disappear. Current legislation signals that lower marginal tax rates are likely here to stay longer than previously expected, at least for now.

This creates a great window of opportunity for both retirees and pre-retirees to execute strategies such as:

• Roth conversions
• Accelerating income into lower-tax years
• Capital gains planning

If tax rates continue to remain relatively low, planning proactively and implementing various planning strategies now can dramatically reduce your lifetime tax liability.

This is especially important for those with significant IRA balances and/or pensions that will increase their income in the future.

2. A higher standard deduction — and bonus deductions

The standard deduction has already simplified filing for millions of Americans, and the OBBBA has increased the already large standard deduction once again.

For many households, this means that itemizing deductions will become even less common. But with the OBBBA comes an additional bonus deduction opportunity on top.

Specifically, the law introduces an enhanced deduction of $6,000 for taxpayers aged 65 and older. This additional deduction phases out at higher income levels, so it's most impactful for retirees and near retirees in moderate-income ranges.

This makes it more crucial than ever to revisit your tax strategy each year, rather than assuming your situation remains the same.

For those in or approaching retirement, the potential savings here are too significant to overlook.

3. A new charitable deduction for non-itemizers

Historically, if you did not itemize your deductions, you likely have seen no benefit from any charitable giving you have done over the years, but the OBBBA has changed that.

The law introduces a charitable deduction that's specifically designed for non-itemizers, so you can finally see a tax benefit for the giving you're already doing, even if you elect to take the standard deduction.

Those who file married filing jointly can deduct up to $2,000, and those who are single can deduct up to $1,000.

4. An expanded SALT deduction

The state and local tax (SALT) deduction cap has been a sticking point for years, particularly for higher-income households and those in high-tax states.

The OBBBA has increased the deduction cap, potentially allowing taxpayers to deduct more of their:

• State and local income taxes
• Property taxes

While the impact will vary depending on where you live, this could be a meaningful change for those who have felt limited by the previous cap of $10,000.

For some households, it may even make itemizing deductions viable again, especially when combined with mortgage interest, medical expenses and charitable deductions.

5. Trump Accounts for newborns

One of the more unique provisions in the bill is the introduction of so-called Trump Accounts, which are tax-advantaged savings accounts established for newborns.

These accounts are designed to create a financial head start for future generations.

While details will continue to evolve, the broader theme is clear: Early investing is being incentivized.

For parents and grandparents alike, this could be a great thing to do for their children/grandchildren. To find out more and to sign up your newborn, visit www.trumpaccounts.gov.

The bigger picture: Opportunity requires action

Tax legislation always creates winners and losers, but more importantly, it creates planning opportunities. The common thread across all five of these tax changes is flexibility:

• Lower rates extend planning windows
• Higher deductions simplify filing while adding targeted benefits
• Expanded deductions and new account types create new ways to reduce taxes over time

But none of these matters without a strategy. The households that benefit most won't be the ones who simply react — they'll be the ones who proactively adjust how and when they recognize income, take deductions and plan for the next generation.

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• Are You a 'Midwestern Millionaire'? 4 Retirement Strategies
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• Do You Have at Least $1 Million in Tax-Deferred Investments?
• The Secret to Reducing Lifetime Taxes for Retirees in the 2% Club, From a Financial Planner

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.

A mega backdoor Roth IRA is one of the most powerful strategies available to high-income earners who want to maximize tax-advantaged retirement savings.

The name "mega backdoor Roth" sounds big and exciting, and it is. It is a way to get money into a Roth account, where it can grow tax-free and be withdrawn tax-free in retirement, once certain conditions are met.

To fully understand how a mega backdoor Roth IRA works, it helps to first look at its predecessor — the standard backdoor Roth IRA — and then explore how this enhanced version expands your retirement investment options.

A backdoor Roth IRA is a strategy designed for individuals whose income exceeds the limits for direct Roth IRA contributions. For example, if you are single and your income is higher than $153,000, you're not allowed to contribute to a Roth IRA. So if you're a high earner, then this article is for you.

So while high earners are restricted from contributing to a Roth IRA, the tax code allows a workaround with the backdoor Roth —you simply make an after-tax contribution to a traditional IRA and then convert those funds to a Roth IRA.

Because traditional IRAs do not have income limits for after-tax contributions, this process effectively bypasses the restrictions. That is the magic of this strategy.

Here is a short example comparing two high-earning investors, Alex and Sam, to show the long-term benefit.

The scenario (20-year horizon)

Both Alex and Sam have an extra $7,500 (the 2026 contribution limit for an IRA) to invest each year. Both are in a 24% tax bracket and expect to stay there in retirement.

• Alex invests in a standard taxable brokerage account
• Sam uses the backdoor Roth IRA strategy

Why Sam wins

Even though they both invested the same amount of money in the same funds, Sam ends up with roughly $52,000 more after 20 years. This is why:

• Elimination of "tax drag." In Alex's taxable account, a portion of the returns is "chipped away" every year by taxes on dividends and rebalancing. Sam's money compounds in total.
• The "never taxed again" perk. Once Sam moves the money into the Roth, those dollars — and all their future growth — are legally invisible to the IRS. Alex will eventually owe a significant chunk of his $214,000 to the government when he decides to spend it.
• No RMDs. Unlike a traditional IRA, Sam is never forced to take money out. He can let it grow for his entire life or pass it to heirs tax-free.

If you want to follow Sam's lead, the process is a simple "two-step":

• Contribute $7,500 to a traditional IRA (mark it as "nondeductible")
• Convert that money to your Roth IRA immediately

Where things get complicated

The backdoor Roth IRA can be tax-free if executed correctly. If all the funds in your traditional IRA consist of after-tax contributions, converting them to a Roth IRA does not trigger additional taxes.

However, things become more complicated if you also hold pretax funds in your traditional IRA. In that case, the IRS applies what is known as the pro-rata rule, which determines how much of the conversion is taxable.

This rule can create unexpected tax consequences, making it important to work with a financial planner to do this correctly.

While the backdoor Roth IRA is useful, it is limited by annual IRA contribution limits: $7,500 in 2026, or $8,600 for those age 50 and older.

For high earners who want to save more aggressively, the mega backdoor Roth IRA could be the answer.

Higher contribution limits

The mega backdoor Roth IRA takes advantage of higher contribution limits within a 401(k) plan.

Unlike IRAs, 401(k)s allow significantly larger total contributions when combining employee deferrals, employer matches and additional after-tax contributions.

In 2026, the elective deferral limit is $24,500, with higher limits for older workers due to catch-up contributions.

More importantly, the total contribution limit in 2026, including employer and employee contributions, can reach as high as $72,000, or even more per year for those eligible for catch-up provisions.

Just think of that. After just a short 10 years, you could stash away $720,000 for retirement, and after just 20 years, you could stash away more than $1.4 million.

After maxing out standard 401(k) contributions and receiving any employer match, some plans allow participants to contribute additional after-tax dollars.

These are not Roth contributions, but rather a separate category of after-tax funds. If the plan permits, those after-tax contributions can then be converted into a Roth IRA or a Roth 401(k). This conversion is the "mega backdoor" step.

When done correctly, the after-tax contributions themselves can be converted without paying additional taxes, since taxes have already been paid on that money. However, any earnings generated before the conversion may be taxable.

For this reason, it is important to time this properly with the help of a financial adviser. You should convert these funds as quickly as possible to minimize or avoid taxable gains.

The appeal is the scale

The appeal of the mega backdoor Roth IRA lies in its scale. Instead of being limited to a few thousand dollars per year, you may be able to move tens of thousands of dollars annually into a Roth account.

Over time, this can dramatically increase the amount of tax-free income you will have in retirement.

Additionally, Roth IRAs are not subject to required minimum distributions (RMDs) during the account holder's lifetime, offering greater flexibility and estate planning advantages.

If you want to, you can just let all that money sit in your mega backdoor Roth and grow bigger and bigger and bigger every year.

If your financial planner also has an insurance license, like I do, you can even put that money in a high-quality annuity that is guaranteed to never lose value and that can also provide you with a guaranteed lifetime income.

Not all 401(k) plans allow the use of this strategy. To find out if yours does, you can set up a free meeting with me, and we can talk about it.

Common mistakes to avoid

Don't try to do a mega backdoor Roth on your own. Mistakes can cost you thousands, or even tens of thousands, of dollars in extra taxes. Considering working with a CERTIFIED FINANCIAL PLANNER® (CFP®).

Here are some common mistakes that do-it-yourselfers make:

• Waiting too long to convert after-tax contributions, which can create earnings that become taxable
• Confusing or mixing up pretax contributions, Roth contributions and after-tax contributions, which are each treated differently for tax purposes.
• Making mistakes when handling rollovers. Improperly mixing pretax and after-tax funds during a rollover can create tax headaches
• Don't exceed IRA or 401(k) contribution limits. Because the total 401(k) limit includes employee contributions, employer matches and after-tax contributions, it is easy to get confused and exceed the contribution limits if you are not tracking everything carefully. Overcontributing can result in severe penalties.

The mega backdoor Roth IRA is a sophisticated strategy that offers substantial rewards for those who use it effectively. It enables high earners to enjoy both tax-free growth but also tax-free withdrawals.

By working with a skilled financial planner who is also a fiduciary, you can take full advantage of one of the most generous opportunities in the retirement savings universe.

Related Content

• How a Backdoor Roth IRA Works (and Its Drawbacks)
• Five Ways to Catch Up on Retirement Savings
• Roth or Traditional? Seven Considerations for High Earners
• 5 Legal 'Loopholes' the IRS Wishes You Didn't Know
• The 2026 Retirement Catch-Up Curveball: What High Earners 50 and Older Need to Know Now

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.

The baby boomer generation exploded onto the American cultural and economic landscape in 1946, becoming the wealthiest generation in American history. Like the rule-breaking characters of "Easy Rider," boomers claimed the right to more freedom to shape their lives than their parents had enjoyed. In the same vein, they have had to reinvent what it means to have leisure time, to work and retire. But though boomers (born in 1946 to 1964) haven't gloriously burned out, as Neil Young's anthem extolled, they also haven't "faded away."

Their fate has got to be better than that of Easy Riders' Billy, Wayne and George.

The older boomers of the Woodstock era now worry about the long-term viability of their retirement, while younger boomers (who identify more with Star Wars than Woodstock) are sweating over their retirement readiness.

Of course, retirement wasn't a top priority for the boomers at Woodstock (heck, the 401(k) wasn't invented until nine years after the last chords faded away from Hendrix's "Hey Joe" at the legendary music festival). But the size of their nest egg, nearly 60 years later, is a prime concern.

With the average boomer 401(k) account balance clocking in at $270,800 at the end of 2025, according to Fidelity's Q4 2025 Retirement analysis — falling well short of the $1.46 million 'magic number' that American workers think they'll need to retire comfortably, according to Northwestern Mutual — there's reason for concern. In fact, four of 10 Boomers think it's likely that they will outlive their savings, according to Northwestern Mutual's 2026 Planning & Progress Study.

But there's good news about boomer 401(k) balances, too

A review of Fidelity data highlighting 401(k) balances for boomers who have contributed to the same workplace retirement plan for 5, 10, or 15 consecutive years casts a more positive light on their retirement readiness. Boomers, for example, who have socked away money in their 401(k)s starting in 2010, have an average balance of roughly $600,000, just shy of the $617,600 average for all 401(k) savers, according to Fidelity. Boomers in their 60s have an average balance of $269,100, and retirees 70 and older have an average balance of $273,100, according to Fidelity data.

"The long-term savings data is perhaps more accurate," says Jonathan Lee, a wealth management advisor at U.S. Bancorp Advisors. In his work with clients, he says it's not uncommon for workers who have been at one job for a long time to also have other retirement savings balances from prior jobs that they've kept at their old employer or rolled into an individual retirement account (IRA).

His point is backed up by data. A review of Fidelity's fourth-quarter 2025 data shows that boomers, on average, have $287,600 in IRA savings, too. And Boomers 70 and older have $332,784 saved in their IRA. That extra savings brightens the picture for boomers, especially for those who also have 401(k)s. Looking at all the different sources of retirement savings, Lee says, paints a more realistic picture of total savings.

Lee also stresses that looking at average balances through the lens of an entire generation may offer less insight than you think regarding your own retirement readiness. "Don't be so fast to compare yourself to your whole generation," says Lee. "Your situation, your goals, and your lifestyle are different."

Boomer savings trends, on average, tend to be pretty solid. The average boomer who is still working saves 17.1% of their salary (including their employer's matching contribution), which tops Fidelity's recommended 15% savings rate. And nearly one in 10 boomers increased their contribution rate last year.

Boomers' savings versus the recommended amount by age

When it comes to Fidelity's savings guidelines that measure savings targets by one's age and salary, boomers are doing just OK. Fidelity recommends that savers have 8 times their salary saved by age 60. But just 37% of boomers have that much saved (even though they are older than 60), according to Northwestern Mutual's 2026 study. And only 29% of boomers have more than 10 times their salary saved, which Fidelity says is a benchmark for savers by age 67.

But the fact that the average Boomer 401(k) balance is roughly $271,000, far from the seven-figure balance most people think they'll need, suggests that many members of the nation's oldest generation have a savings gap that must be filled.

The good news is that the youngest Boomers are just 62 years old, giving them at least five more years to work and save before they reach age 67, a common retirement date as it coincides with full retirement age (for workers born in 1961 or later) in the eyes of the Social Security Administration.

How boomers with 401(k) shortfalls can play catch-up

Creating a nest egg that's built to last is not just about poring every available dollar into a tax-deferred retirement account. Blake Smith, an investment advisor at Financial Partners, Inc., says every worker and retirement saver should ask themselves: "Where are those retirement dollars located?" Is all your money in a traditional pre-tax 401(k) or a Roth account that's taxed upfront but offers tax-free withdrawals?

The answer is key, as it will impact how long your money will last once you start taking distributions, Smith says. "Not all money is taxed the same," says Smith. "A million dollars sitting in a traditional 401(k) (that is taxed as ordinary income) is very different from $1 million in a tax-free Roth."

Just like a paycheck in the working world, a retirement account balance must be viewed in the context of what you can bring home after taxes. "A huge part of the planning conversation is not only what a client's account balance is, but what is the future tax nature of those account balances," says Smith.

Consider this example. Let's say you need to net $50,000 from a retirement account to pay for your daughter's wedding. If you have the cash sitting in a tax-free Roth account, you only need to withdraw $50,000. However, if all your money is in a traditional 401(k), which treats withdrawal amounts as regular income, and you are in the 22% tax bracket, you will have to withdraw $64,103 to meet your $14,103 tax obligation to the IRS.

That's why Smith says so-called "tax diversification" of your retirement savings is just as important to portfolio diversification.

Retirement challenge for Boomers: unwinding years of tax-deferred savings

Unlike younger generations like millennials and Gen Z, boomers did not grow up with tax-free Roth retirement accounts as their primary retirement savings options. While they have had ample time to convert from traditional retirement plans to Roth accounts, the bulk of boomers' retirement savings remains in tax-deferred accounts. And that poses a tax time bomb in the future, unless those savings (which will be taxed as regular income when withdrawn) are converted to tax-free Roth accounts.

As a result, the game plan for many boomers nearing retirement is to "unwind many years of tax-deferred savings" to avoid a so-called tax torpedo later when required minimum distributions (RMDs) start at age 73 and result in large tax bills because the withdrawals are taxed at ordinary income rates, which can go as high as 37%, says Smith.

Why Roth conversions make financial sense

Smith recommends that boomers take advantage of the low tax rates that were made permanent by the passage of the One Big Beautiful Bill in July 2025. "We don't want to let this current window of low tax rates close," says Smith. "We get to keep these historically low tax years for years to come."

Doing Roth conversions when taxes are low allows you to pay less to the IRS on the amount of assets you convert. For younger boomers with years to go before retirement and Social Security kicks in, a good strategy is to move money from traditional pre-tax 401(k)s and IRAs into Roths over a number of years to minimize your annual tax hit and to lower your balances before RMDs kick in at age 73.

Another way to unwind higher-tax savings sitting in traditional retirement accounts is to withdraw more money than you need from these accounts to tactically lower your balance in the years before RMDs start, says Smith.

Take advantage of catch-up contributions

If you're facing a retirement savings shortfall, play catch-up. The IRS offers a number of opportunities for retirement savers ages 50 and older, as well as those between 60 and 63, to save more in their accounts. "Take advantage of these higher catch-up contribution limits," says Smith.

The regular contribution limit for 401(k)s in 2026 is $24,500. But workers 50 or older can sock away an additional $8,000 in catch-up contributions. And workers ages 60 through 63 can save an additional $3,250 in a "super" catch-up. That's a maximum savings of $35,750 in 2026.

A new Roth catch-up mandate created in the One Big Beautiful Bill forces high-income earners aged 50 and up with prior-year FICA wages over $150,000 to designate all catch-up contributions to a Roth 401(k) using after-tax dollars. While the new rule does away with an up-front tax deduction, it's a way for savers to begin to diversify their retirement dollars from a tax perspective by funneling more funds into tax-free Roths. "It's an opportunity to accelerate savings into the future and take advantage of these low brackets," says Smith, adding that it also gives savers who have no Roth accounts a way to open an account and start the five-year timeframe before they're able to access the Roth money penalty-free. "The quicker that clock starts counting, the quicker you can satisfy the five-year rule."

Read More

• The Average Gen X 401(k) Balance Kind of Bites
• The Average Net Worth by Age: Are You Rich?
• How to Turn a $1 Million Nest Egg Into a Lifetime Income Machine

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

Estate planning is no different.

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

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

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

What is an IRA?

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

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

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

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

1. Your IRA and your will

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

2. Beneficiary matters

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

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

3. Traditional IRAs and taxes

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

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

4. Look beyond taxes

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

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

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

5. Coordination is key

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

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

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

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

Related Content

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

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

Question: Our grandson just graduated from college with $45,000 in debt. I want to pay off his student loans, but my husband says we can't afford it. We're 73-year-old retirees with $2.1 million and $4,000 a month in Social Security that covers most of our bills. Who's right?

Answer: You'll often hear that college graduates are drowning in debt. That might not be true for everyone, but the average student loan debt, including private loans, could be as high as $42,673 today, reports the Education Data Initiative.

A balance that large could be difficult to shake for recent grads who aren't diving into instantly lucrative careers. If you're a retired couple who's financially comfortable and have a grandson who just walked away with a $45,000 pile of student loan debt after wrapping up his studies, you might be inclined to help.

If you're sitting on a $2.1 million nest and your $4,000 monthly Social Security check mostly covers your bills, it's clear that you have some wiggle room in your budget. But your husband might not be as convinced.

Here's how to figure out how to lend a hand in a manner that doesn't compromise your financial security or convey the wrong message.

Paying off the loan probably won't change your lifestyle

A $2.1 million nest egg is not the same thing as unlimited financial resources. But if you're mostly able to live on Social Security and that $2.1 million is just your "extra" cash, a $45,000 withdrawal might have a minimal impact, says Deon Strickland, Ph.D. financial adviser at Scholar Advising.

"If you’re looking at the couple, 73 years old, about $2 million in retirement assets, and $4,000 a month in Social Security, you’re probably talking about somewhere around $100,000 a year, give or take, available to spend after tax," he says. "They’re in a position where this decision is not going to dramatically change their lifestyle."

That doesn't mean you should just write a check without thinking things through, though.

As Strickland says, "This really comes down more to the relationship with the grandson and what they’re trying to accomplish. If the grandson has been responsible, appreciates the opportunities he’s had, then maybe there’s a way to help. But it doesn't necessarily have to be just writing a check."

Strickland says you shouldn't feel obligated to pay your grandson's debt in its entirety.

"It could be structured," he explains. "It could be something like, 'If you pay the first $5,000, we’ll match it.' Something that reinforces good behavior rather than replaces it."

Consider your goals carefully

A $45,000 gift to repay student loans might be a small chunk of a $2.1 million pool of money. But for your grandson, it's huge.

Strickland says that if you're looking to make that gift, it's important to tell the right story.

"It’s more about what they want to pass on, not just financially, but in terms of values," he says. "While $45,000 is not going to be a huge shock to their overall financial picture, it is an opportunity to demonstrate how to make good financial decisions."

In other words, if you're going to give your grandson the money, set some expectations and help him realize what that gift represents. It could be the thing that allows him to build savings early on or get a head start on accumulating his own retirement nest egg so that he might one day be in a position to help a grandchild pay off their student debt.

Figure out the path that's best for your cash flow

Even though you can probably afford to pay off your grandson's $45,000 debt without blinking, that doesn't mean you shouldn't try to do so strategically. Brandon Agamennone, CRPC and wealth management adviser at Victory Private Wealth, says you have several options for handling that bill.

"It depends on what you need for your income," he says. But one option is to use dividends or interest from your portfolio to pay off the loan over a few years. Another option is for each of you to give your grandson a $19,000 gift this year, for a total of $38,000, to stay within the gift tax limit. You can then tackle the remaining loan balance the year after.

Another option? "If you have RMDs on a portion of your investment portfolio," Agamennone says, "you could take those and then gift some or all of that amount to your grandson to pay off the student loan."

Make sure your grandson knows what repayment options he has

A $45,000 student loan bill might seem overwhelming to a new college graduate. But before you rush to come to the rescue, you could want to walk your grandson through his options for repaying that debt, either on his own or with assistance.

"I would have the grandson understand college loan consolidation options," says Brian Safdari, founder of College Planning Experts. "Maybe the [grandson] can get some student loan interest deductions while working."

Safdari thinks it's important that borrowers realize that there are different ways to tackle college loans. With federal loans, for example, there are income-based repayment plans that can be more affordable.

"Start with a strategy and a plan first," he says. "Then execute the best plan that provides the family the best outcome."

That plan could involve having you foot some or all the bill, but it's important to dole out that money in the context of a broad plan everyone involved is on board with.

Next Steps to Help Your Grandchild Afford College

• The basics
  • Use the 529 Grandparent Loophole to Maximize College Savings
  • We're 75 With $3.2 Million. Our Grandchild Needs Help Paying for College.
  • I Want to Help Pay for My Grandkids' College. Should I Make a Lump-Sum 529 Plan Contribution or Spread Funds out Through the Years?
• Balance your retirement security with supporting grandchildren
  • We Retired at 70 With $4.3 Million. My Wife Won't Spend 'Our Grandkids' Inheritance,' but I Want to Travel.
  • We're 54 With $1.8 Million. My Wife Wants to Start a College Fund for Our Grandson, but I Think We Should Keep Funding Our Retirement.

The stock market is sitting on a knife-edge, and interest rates are still top of mind, which has investors wondering what the Federal Reserve will do next.

Add in tax season being fresh in everyone's minds, and it's no surprise that many people are thinking about their retirement accounts and asking themselves: What should I be doing with my money?

While most people focus on getting their taxes filed or making that last-minute IRA contribution, this is also the perfect time to step back and look at the bigger picture. Are you contributing strategically, or are you just checking the box because you know you "should"?

For many investors, another timely question comes up: Should you consider a Roth conversion?

The buzz around Roth conversions

Roth conversions have become one of the hottest financial buzzwords in recent years. But like most trends or fads, they're often misunderstood.

In the simplest terms, a Roth conversion is when you move money from a tax-deferred account such as a traditional IRA or 401(k) into a Roth IRA. When you do this, you pay income tax on the converted amount immediately, but future withdrawals in retirement become completely tax-free.

That sounds great in theory, but it's not a one-size-fits-all solution. Deciding whether a conversion makes sense depends on several factors:

• Your current income and tax bracket
• How long until you retire
• Your ability to cover the tax bill
• Your long-term goals

The good news is that whether you're looking for tax-free income in retirement or want to leave a legacy, there are tools available to help make this decision a little clearer.

Financial advisers can run detailed reports showing the long-term benefits and trade-offs of doing a conversion, helping you see whether the numbers make sense for your specific situation.

All or nothing? Not quite

One of the biggest misconceptions about Roth conversions is that you must move all your retirement money at once. In most cases, that's not advisable. Converting everything in a single year could trigger a huge tax bill and bump you into a higher income bracket.

Instead, many people choose to convert a portion of their traditional IRA or 401(k) over several years. This allows you to stay within a target tax bracket and better manage your tax situation.

Others use conversions as part of legacy planning, converting over five to seven years so that the money they pass on to children, grandchildren or charities is tax-free.

In other words, it's not about doing it all — it's about finding the right amount to convert at the right time.

When conversions make sense (and when they don't)

Roth conversions can be a powerful tool, but they aren't right for everyone. They typically make sense for people who:

• Expect their taxes to rise in the future
• Have enough savings to pay the tax bill
• Are in or nearing retirement and want to reduce future taxable income

On the other hand, conversions often don't make sense for high earners who are already paying a top tax rate. For example, if you're earning $500,000 a year, converting your IRA might add to your taxable income without providing any real benefit. In some cases, a conversion might cost more than it would save.

What about younger investors?

For younger savers or people who've recently changed jobs, the idea of converting old 401(k) accounts to a Roth IRA can be appealing. But the decision depends on whether you have the cash available to pay the taxes now.

A smarter move would be opening a Roth IRA directly and starting to fund it as early as possible. Investing just $20 a day would be enough to max out your annual contribution limit of $7,500.

If you stick with it and invest steadily (say, in a diversified index fund such as the S&P 500), that money could grow to more than $1 million over a 40-year career — and all of it would be tax-free when you retire.

That's an incredible opportunity for anyone in their 20s or 30s, and one that's far easier to achieve than people think.

More than just income taxes: How Medicare complicates conversions

Roth conversions are not just about income taxes. They can also affect your future healthcare costs.

When you hit retirement age and enroll in Medicare, your Part B and D premiums are based on your modified adjusted gross income from the two years prior to enrollment. Large withdrawals from a traditional IRA or 401(k) can increase your income and, with it, your Medicare premiums.

By converting some of your traditional retirement savings to a Roth earlier in life, you might be able to reduce your taxable income later and avoid those higher costs. It's one of those planning details that often gets overlooked, until it's too late.

Balancing buzzwords from real-life planning

Social media and financial blogs make it sound as if everyone should be doing Roth conversions, so it's easy to get caught up in the excitement. Who wouldn't want tax-free income later in life? But the reality is life isn't that simple.

With another tax season complete, now is the time to look at your retirement strategy from a fresh perspective.

• Do you have a plan for where your money is going?
• Should you open a Roth or convert part of your IRA?
• How will today's decisions affect your tax picture years from now?

Roth conversions can be an incredible tool for building tax-free wealth and protecting your future income, but they're not for everyone or for every situation. The right approach should take into account your income needs, goals and time horizon.

The most important thing you can do is make an informed decision, not an emotional or impulsive one driven by social posts and headlines.

Related Content

• Timing Is Everything for Roth Conversions: An Expert's Guide to the Right Strategy
• 8 Factors to Consider When Considering a Roth Conversion
• Should You Jump on the Roth Conversion Bandwagon? A Financial Adviser Weighs In
• Your 401(k) Is Sitting Pretty Right Now: It Could Be Time to Rethink Your Strategy
• 4 Pro Tips for Successfully Scaling the Medicare Mountain

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.

After more than two decades writing about retirement — first at Fidelity Investments and now as an independent financial writer and coach — I recently crossed an important threshold:

I turned 65.

For most of my career, retirement was something I analyzed from the outside. I interviewed economists, portfolio managers and retirement specialists about how people build wealth — and eventually live off it.

Now I’m doing it myself. And what I’ve realized is this: not all financial advice holds up in real life. But a handful of lessons do — and they matter more than ever once retirement stops being theoretical.

Here are five that have proven durable.

1. Keep it simple — and don't go it alone

Would you be satisfied earning about 10% annually over the long run?

I would. That’s roughly what the S&P 500 has delivered over the past 25 years — despite the dot-com crash, the financial crisis, COVID and the 2022 bear market. Investors who stayed disciplined and avoided overreacting generally did well.

That’s why I’ve come to believe simple portfolios often outperform complicated ones.

For most investors, a diversified mix of low-cost ETFs — spread across all 11 sectors — is more than enough. You don’t need to chase the next hot stock or layer on complex strategies.

But here’s where my thinking evolved even further: simplicity doesn’t mean going it alone. My wife and I have worked with the same financial adviser for more than a decade. Even after years of writing about investing, I’ve found that an experienced adviser sees things I don’t.

A specific example stands out. A few years ago, I was inclined to hold onto a concentrated position in a Silicon Valley software giant that had appreciated significantly. It felt like a winner — why sell?

Our adviser saw it differently. He flagged the tax exposure and concentration risk and recommended gradually trimming the position over multiple years to manage capital gains. It wasn’t a flashy move. But it was the right one.

That decision helped us reduce risk, improve diversification and avoid a much larger tax hit later.

Key lesson: Keep your portfolio simple — and rely on experienced guidance to make it better.

2. Build your risk capacity — not just your confidence

Investors often talk about risk tolerance — that’s how comfortable they feel when markets move.

But what matters more in retirement is risk capacity, that’s your ability to absorb those moves financially.

That comes down to fundamentals:

• income (or lack of it in retirement)
• savings
• debt
• cash reserves

I’ve always tried to keep debt low, but I also recognize that not all debt is bad. For example, I still carry a 2.99% mortgage on our primary home in New Hampshire. Financially, it makes more sense to invest excess cash than pay it off early. But that only works because the rest of our balance sheet is strong.

High debt, on the other hand, reduces flexibility, especially in retirement when you no longer have a steady income to offset it.

That’s why I think of risk capacity as the foundation of the house. If it’s solid, you can ride out market storms. If it’s weak, even small disruptions feel bigger.

Key lesson: Focus less on how risk feels — and more on what your financial life can handle.

3. When markets get loud, step back

I’ve spent years watching markets closely. At Fidelity, I tracked the VIX — the market’s “fear index.” When it spikes, you know something is rattling investors.

But one of the most important lessons I’ve learned is this:

You don’t need to react to every spike.

I remember the early days of the COVID market selloff. I couldn’t believe the hit my portfolio took in just a few days. Markets were falling fast. Headlines were relentless. Even with all my experience, I felt the pull to “do something.”

Instead, I made a conscious decision: I stopped checking my portfolio.

No logging into Fidelity. No watching CNBC. No reacting.

I focused on what I could control — our long-term plan and our cash reserves. Within months, markets stabilized. Within a year, they had recovered.

That experience reinforced something simple but powerful: reacting to short-term noise often does more harm than good. Having a six-month emergency fund made that decision easier. It gave me the confidence to stay invested.

Key lesson: In volatile markets, discipline often means doing less — not more.

4. Medicare is complicated — even when you think you're prepared

I’ve written dozens of articles about Medicare. I thought I understood it.

Then I turned 65.

Like many people, I did my homework. I researched plans, talked to experts and even worked with a Medicare adviser. When I found a plan through Martin’s Point Healthcare, it felt like a home run. It had great benefits, no additional premium, easy access to care, and even a $600 wellness card.

I recommended it to friends and clients.

Then, just a few months later, Martin’s Point announced it was leaving New Hampshire entirely.

Suddenly, I was back where millions of retirees find themselves — comparing plans, weighing trade-offs and trying to make sense of a complicated system. I remember thinking: I’ve written about this for years — and I’m still dealing with it in real time.

That’s when it hit me. Plans change. Networks change. Doctors change. You can’t control the system, but you can stay engaged.

Fortunately, Medicare gives you an annual opportunity to review and adjust your coverage. That flexibility matters — because the system isn’t static.

Key lesson: Medicare decisions aren’t “one and done.” They require ongoing attention.

5. Giving becomes more meaningful over time

Not all financial lessons are about investing.

This year marks my 20th anniversary of opening a donor-advised fund (DAF) at Fidelity Charitable. At the time, it felt like a practical decision — a more efficient way to manage charitable giving. Over time, it became something much more meaningful.

Giving started with small moments:

• supporting a friend riding in the Pan-Mass Challenge (where I’ve volunteered for 30+ years as a massage therapist) or a Best Buddies event
• donating to family and community causes
• giving to a local church or synagogue
• supporting organizations like Gather, Lasagna Love, and Inspired Sound Initiative

But with a DAF, I began to see patterns — the causes I cared about, the people committed to service, the impact of consistent giving.

There’s also something powerful about simplicity. When someone reaches out for support, you can respond immediately.

But what surprised me most was this: structured giving made me more generous. It turned intention into action.

Key lesson: As financial stability grows, so does the opportunity to make a meaningful difference.

What I understand now

After decades of writing about retirement — and now living it — I see financial planning a little differently.

It’s not just about building wealth.

It’s about building a life that feels meaningful — one where financial stability creates freedom, generosity and peace of mind.

Related Content

• I Thought My Retirement Was Set — Until I Answered These 3 Questions
• Your Parents' Retirement Plan Won’t Work for You (The Stats Are In)
• The 'Die With Zero' Rule of Retirement

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

1. 10-year cleanout rule for inherited IRAs

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

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

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

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

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

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

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

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

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

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

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

3. Decedent's final RMD from a traditional IRA

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

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

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

4. Qualified charitable distribution from an inherited IRA

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

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

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

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

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

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

About Ask the Editor, Tax Edition

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

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

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

More Reader Questions Answered

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

Most of us know the power of compound interest, often followed by the wish that we had started saving and investing decades earlier. By opening a custodial Roth IRA for a grandchild, you are giving them the one asset money usually can't buy: time. If your grandchild has a summer job or a part-time gig, they hold the 'golden ticket' of earned income needed to open an account. Matching their earnings today does more than teach the value of a dollar — it plants a seed that grows into a tax-free fortune by the time they reach their own retirement.

Roth IRA rules for 2026 allow for a generous contribution of up to $7,500, provided the amount doesn’t exceed the child’s total earnings. As you look at your estate planning and gifting strategies this year, consider sitting down with your grandchild to explain the magic of the "Roth match." It’s a conversation that can change the trajectory of their financial life — and a legacy that will continue to grow long after your initial gift has been made.

Here are the rules for opening and managing custodial Roth IRA accounts in 2026.

General custodial IRA rules

A custodial IRA is an effective way to jump-start a minor's retirement savings, leveraging decades of compound growth. The primary 'golden rule' is that the minor must have earned income, meaning wages, tips, or self-employment, to contribute. The minor isn't required to have a formal W-2. The money can come from babysitting, dog walking, mowing lawns, or any other odd job.

If your grandchild is self-employed, be sure they keep detailed records of the work performed, the dates worked and payments earned. The IRS will require documentation of earned income if it ever audits the account's eligibility.

The IRS doesn't have a minimum age requirement for having a custodial Roth IRA. As such, even very young children can have a custodial Roth IRA as long as they meet the earned income criteria.

• Ownership and control: A custodial account is opened under the minor's name and Social Security number, but an adult (the custodian) manages the investments until the minor reaches the "age of majority," usually 18 -25, depending on the state.
• Contribution limits: For 2026, the IRA contribution limit is $7,500 (in line with overall contribution limits) or the total of the minor’s earned income for the year, whichever is less. For instance, if a child earns $2,000 babysitting, the maximum contribution allowed is $2,000.
• Funding sources: While the minor must have earned income to qualify, the money doesn't have to come from their paycheck. A parent or grandparent can "match" the child's earnings by gifting the contribution, provided it doesn't exceed the child's earnings.
• Transition: Once the minor reaches the legal age in their state, the account must be converted to a standard (non-custodial) IRA in their name alone.

How to set up a custodial Roth IRA

Setting up a custodial Roth IRA is a straightforward process. You'll need your grandchild's Social Security number to open the account, and while many providers have no minimum balance requirements, be sure to check the fine print for account fees, fund expenses and brokerage commissions before committing.

• Choose a provider: Find a reputable financial institution that offers custodial Roth IRAs. Pick one with low fees and diverse investment options. 
• Gather documents: You’ll need your grandchild’s Social Security number, proof of earned income, and identification for both the custodian (you) and the minor (grandchild). 
• Open the account: Depending on the institution, you can complete the application online or in person, designating the custodian and minor. 
• Fund the account: Lastly, make contributions based on the child’s earned income.

Contribution deadline: It's the same as if you were the account beneficiary. You can make contributions up to April 15 of the following calendar year. Contributions for the 2026 tax year can be made up until April 15, 2027.

Why a Roth IRA is usually preferred for minors

For most kids, a Roth IRA is the clear winner vs. a traditional IRA for two reasons:

• Low tax bracket: Since most minors earn very little, the tax deduction of a traditional IRA has little value. It is better to pay the small amount of tax owed now (in a 0% or 10% tax bracket) to ensure any growth in the account is entirely tax-free later.
• Education/home flexibility: While these are designed for retirement, Roth IRAs have flexibility: you can withdraw earnings penalty-free for qualified education expenses or up to $10,000 for a first-time home purchase (assuming the account has been open for 5 years).

Why a custodial Roth IRA makes sense

Opening a custodial IRA for a grandchild is a savvy move that combines estate planning with a massive head start on wealth building. For grandparents, it’s often more efficient than a traditional savings account or even a 529 plan, depending on the goal. For grandchildren, it can be invaluable, especially if they graduate from college during a bad economy.

The modern workforce is very different than what baby boomers experienced. Gen Z is expected to hold up to 17 jobs across 7 different careers, while millennials are anticipated to change jobs every three years. Changing jobs frequently can cut into retirement savings. "The median job switcher sees a 10% increase in pay but a 0.7 percentage point decline in their retirement saving rate when they switch employers," according to Vanguard.

"Having money already invested and growing can make a future change less painful in terms of both the emotion and the math," Michael Conrath, Chief Retirement Strategist at J.P. Morgan Asset Management, told Kiplinger.

He noted that one benefit of the custodial IRA is that it won't lose ground when times are tough "...starting early can help hedge against a future 'what-if' scenario — such as a job loss or unexpected expense — that could cause someone to cut back on contributions."

Here are five reasons why a custodial IRA is such a powerful tool for grandparents to give to their grandkids:

1. The "multiplier effect" of time

The most compelling reason is the sheer length of the "compounding runway." A grandchild has 50+ years for that money to grow before retirement.

• The Math: A single $2,000 contribution made when a grandchild is 15 could grow to over $65,000 by the time they are 65 (50 years assuming a 7% average return).
• By "matching" your grandchild’s summer job earnings, you aren't just giving them cash; you are giving them a future fortune that they likely couldn't fund on their own.

2. Estate planning and tax efficiency

Contributing to a custodial IRA helps you move assets out of your estate while ensuring the money is used productively.

• Gift tax exclusion: In 2026, the annual gift tax exclusion is $19,000 per recipient ($38,000 for married couples). Since the maximum IRA contribution is $7,500, your gift will fall well within these limits, requiring no IRS paperwork and leaving your lifetime exemption untouched.
• Generation-skipping efficiency: A custodial IRA is a direct way to transfer wealth to a grandchild (known technically as a 'skip person') by putting it immediately into a tax-sheltered account. Unlike a standard brokerage account, where taxes on dividends and capital gains drag on growth, the assets in this account are protected from that 'tax drag.'

3. Financial "incentive" (The matching strategy)

Many grandparents use the custodial IRA as a teaching tool by matching what the grandchild earns. This rewards their work ethic while introducing them to the concepts of investing and compound interest early on.

The Pitch: "For every dollar you earn as a lifeguard at the pool this summer and save, I will put an equal amount into your Roth IRA."

This is critical as the world grows more complicated and expensive. "People with higher financial literacy have more wealth not just because they are able to plan and save more but also because they get better returns on their savings, even via basic financial instruments." Better financial literacy is also linked to stock market participation, portfolio diversification, portfolio returns and retirement saving behavior, according to a recent study.

4. Better flexibility than a 529 plan

While 529 plans are great for college, they can be restrictive if the child gets a full scholarship or decides not to attend university.

• Roth IRA versatility: With a custodial Roth IRA, the original contributions can be withdrawn at any time, for any reason, penalty-free.
• Flexibility: After five years, your grandchild will be allowed to withdraw up to $10,000 in earnings tax- and penalty-free to use for a first-time home purchase. It’s a powerful 'first-home' fund and a retirement fund rolled into one.

Once the money has been deposited, you should encourage your grandchild and his/her parents to let it grow. "While there are exceptions that allow for early withdrawals free of penalties or taxes, the custodial Roth’s primary purpose should be to jump-start retirement savings for young earners," said Conrath. This factor reminds parents and grandparents that the real benefit comes over time, as it's "not just about the early start or ongoing contributions, but it’s also important to remember that those funds grow tax deferred and compound over years or decades."

5. Minimal impact on financial aid

Assets held in a retirement account (like an IRA) are generally not counted as "available assets" on the FAFSA (Free Application for Federal Student Aid). This means your gift to your grandchild's future retirement likely won't hurt their eligibility for college grants or loans. However, a standard savings or brokerage account in the child's name would be heavily weighted against them.

While a custodial Roth IRA balance won't impact financial aid eligibility, distributions from the accounts will be counted, Conrath said.

"That same preferential treatment applies to the parents’ retirement accounts as well. This means that during the accumulation or growth phase, the IRA won’t adversely impact federal financial aid," Conrath said.

A financial head start

If you’re looking for a way to reward a grandchild’s work ethic while making a meaningful impact on their financial future, the custodial Roth IRA is a tool you can’t ignore. Unlike a standard savings account, this strategy allows you to 'match' their hard-earned wages, effectively doubling their efforts while sheltering the growth from the IRS. It is a powerful way to transfer wealth that prioritizes self-reliance and long-term security over immediate spending.

While we often think of IRAs strictly for retirement, the beauty of the custodial Roth lies in its flexibility. Whether the funds eventually help your grandchild buy a first home, pay for graduate school, or have a more secure retirement 50 years down the line, you are providing a versatile financial foundation. By acting now, you ensure that every lawn mowed or shift worked this year becomes a permanent building block in your grandchild's future wealth.

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We are already halfway done with the 2020s and on the road to 2030. Yet some aspects of our country's robust 401(k) system are stuck in the 20^th century.

In the last century, it was much more common to spend your entire working life at a single employer and retire with a secure pension.

However, today's American workforce is more mobile than ever. According to the U.S. Bureau of Labor Statistics, the average American worker will hold about 12 jobs during their career, with most of their job changes occurring before the age of 40.

That translates to an estimated 15 million to 20 million Americans who participate in their employers' sponsored retirement plans changing jobs in a typical year. Every job change can involve an address update, along with new plan enrollment.

Americans also move homes frequently. American Community Survey (ACS) data indicates that the average American changes residences about 11 times over their lifetime. This translates to 15 million to 25 million retirement accountholders moving to new addresses every year, according to U.S. Census Bureau estimates.

On top of that, Retirement Income Institute data indicates that about 4 million to 6 million Americans retire annually, with 60% to 70% of them participating in some type of retirement savings plan.

All of this mobility — changes in employment, mailing address and labor force status — increases the likelihood that people will accumulate retirement savings across multiple accounts.

Friction and fragmentation in the 401(k) system

Despite an increase in workforce mobility, service providers across the U.S. retirement system — including plan recordkeepers, custodians and government agencies — run on different technology systems that do not natively "talk" to each other.

Our nation's retirement system involves interactions among millions of savers, hundreds of thousands of employer-sponsored retirement plans and many different service providers.

Unfortunately, among all the bustling activity across disparate systems, the easiest course of action for job changers is to leave their 401(k) accounts in their prior employers' plans when they move on.

Moving data and money between plans is often cumbersome and error-prone, especially if recordkeepers, IRA providers and others rely on legacy technology systems that are long overdue for upgrades to digitized, automated workflows.

Even if recordkeepers and other service providers do invest in modernizing their legacy systems, they can never fully digitize their operations — they still must exchange data, instructions and documentation for mobile workers with counterparties that are stuck with legacy or partially digitized systems.

This fragmentation has created persistent friction within the retirement system, making it easier for workers to leave 401(k) balances behind in former employers' plans when they change jobs, or worse, cash them out completely.

The U.S. Department of Labor reports that the percentage of inactive accounts in defined contribution plans increased from 21.1% in 2010 to 29.2% in 2023. That means nearly a third of accounts with balances in our country's defined contribution plans are inactive, because the accountholders are no longer employed by the plan's sponsor.

But "inactive" does not mean "abandoned." Many former employees intentionally leave savings in a prior employer's plan, particularly if fees are reasonable or investment options are competitive. Labeling all inactive accounts as "forgotten" risks overstating the scale of the problem.

A more meaningful indicator of a truly lost 401(k) is returned mail, when plan communications are sent back as undeliverable because the participant's address of record is no longer valid.

Research conducted by Boston Research Technologies and Retirement Clearinghouse in 2018 found that returned mail is a stronger signal of participant disconnection than inactive status alone.

Even then, returned mail does not necessarily mean a participant is unaware of their account — only that communication channels have broken down.

Under current rules, inactive 401(k) accounts with balances under $1,000 may be automatically cashed out, while balances under $7,000 can be rolled into safe-harbor accounts if the participant does not take action.

These provisions were designed to simplify plan administration, but they also introduce additional steps for workers who might later want to consolidate accounts.

If contact information is outdated, notices about these transactions may not reach the participant, underscoring why accurate address records remain critical.

Even an automatic cash-out of a 401(k) account with up to $1,000 can have a detrimental effect on the income a worker can enjoy in retirement.

Our research at Retirement Clearinghouse finds that a 25-year-old with a $750 401(k) account balance that is automatically cashed out today could wind up forgoing $9,312 in retirement savings that the $750 would have grown to by age 65 — had the sum remained invested in the retirement system and earned an annual rate of return of 6.5%.

The cash-out conundrum

The lack of communication between service provider systems and seamless plan-to-plan account portability has tempted too many workers to prematurely cash out their 401(k) accounts after they change jobs.

The decision to cash out can be costly, which not only subjects retirement savings account balances to taxes and penalties, but also depletes an accountholder's overall retirement saving outcomes.

Cashing out just one 401(k) account on the road to retirement can seriously deplete someone's retirement income. Our research at Retirement Clearinghouse indicates that preserving one 401(k) account with $7,000 in the U.S. retirement system at age 25 can add $86,912 in extra savings by age 65.

Similarly, preserving three 401(k) accounts with $7,000 after switching jobs across a hypothetical worker's entire career can eventually generate $157,878 in savings for retirement.

Despite the clear benefits of not cashing out 401(k) savings after switching jobs, too many Americans do so.

According to data from the Savings Preservation Working Group, at least 33% of plan participants withdraw part or all of their retirement plan assets following a job change. However, minorities and younger, low-income workers cash out at rates above the national average.

That 33% rises to 44% for plan participants aged between 20 and 29, and 50% for those earning annual income of between $20,000 and $30,000, according to a Fidelity Investments study.

Hispanic and Black participants cash out at even higher rates — 57% of Hispanic participants and 63% of Black participants cash out within a year of switching jobs, according to a study from Ariel Investments and Aon Hewitt.

Simplifying the consolidation and transfer of 401(k) assets

Industry-led efforts are now attempting to address this fragmentation by building digital infrastructure that allows recordkeepers to exchange data and move assets more efficiently when workers change jobs.

One approach that has taken hold is auto portability, an automated process designed to move certain small retirement account balances from a worker's former-employer plan into their new employer's plan, unless the worker opts out. The objective is to reduce unnecessary cash-outs and prevent small balances from being left behind.

In recent years, an industry-led utility known as the Portability Services Network was launched to support broader adoption of auto portability among recordkeepers.

Workers have more options today than in the past to avoid abandoning or cashing out 401(k) balances when they change jobs. To maximize the income they can enjoy in retirement, workers changing jobs should ask their plan administrators how small balances are handled, and what options exist for consolidating accounts to avoid unnecessary cash-outs.

While the system remains imperfect, incremental improvements in digital portability and standardized data exchange could meaningfully reduce friction for future job-changers.

The real forgotten 401(k) problem is less about millions of Americans losing track of their savings, and more about whether the system makes it unnecessarily difficult to keep those savings consolidated.

Clarifying what is truly at risk, and modernizing how assets move between plans, may ultimately matter more than the headline numbers suggest.

Spencer Williams is president and CEO of Retirement Clearinghouse, a specialized provider of retirement savings portability and account consolidation services, and Portability Services Network, a retirement industry-led utility dedicated to nationwide adoption of auto portability.

Related Content

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• Portable Retirement Plans: Switching Jobs and Keeping Your Savings Gets Easier
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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.

Millennials are a scrappy lot, having to adjust to major tech advances and financial shocks early in their lives.

They came of age during the Great Recession of 2008-2009; they're perhaps best known as the generation mired in so much student debt that they've often delayed key life milestones such as buying a house and getting married.

The lousy economic timing has also set millennials back when saving for their retirement.

Born from 1981 to 1996, millennials now range in age from 30 to 45. The average 401(k) balance for millennials is $83,700, compared with $146,400 for all generations, according to Fidelity Investments' 4Q 2025 Retirement analysis.

That less-than-six-figure nest egg also pales compared with the $1.46 million that Americans consider the "magic number" to retire comfortably in 2026, according to Northwestern Mutual's 2026 Planning & Progress Study.

It's no wonder that more than half (55%) of Millennials — the most of any generation — think they're likely to outlive their savings. But it's not all gloom and doom for their futures.

What is the average millennial 401(k) balance?

Weighed down by debt and an era of sky-high housing prices that crimp savings, millennials are contributing just 8.9% of their salaries to their 401(k)s. Only the younger Gen Z generation, just starting out in their careers, saves less, Fidelity data show.

If you add in employer matching contributions, millennials are saving 13.5% of their salary, which falls short of the 15% savings rate Fidelity recommends.

Source: Fidelity 2025 Q4 Retirement Analysis.

Millennials' poor financial health has also forced them to tap into their retirement accounts to take out loans. Nearly one in five Millennials (19.7%) have an outstanding 401(k) loan balance, above the 19.4% of all generations.

A retirement savings general rule from Fidelity is to have one time your salary saved by age 30 and three times your salary by age 40. A 30-year-old millennial earning $50,000 a year should have a nest egg of $50,000, and a 40-year-old earning the same salary should have $150,000 socked away.

Currently, only 19% of millennials say they've saved three times their salary, according to Northwestern Mutual.

Source: Northwestern Mutual.

Millennials — Don't be 'Clueless' — you have time to save for retirement

If there's a silver lining in the financial vortex that millennials are caught up in, it's this: They still have 20 to 35 years before they retire, a long enough time horizon to play catch-up.

It's often said that time in the market is more important than timing the market. Fidelity statistics demonstrate that the average 401(k) account balance of millennials who have been continuously saving in their 401(k)s for five, 10 and 15 years still have ample time to make a run at a seven-figure nest egg.

Millennials who've been socking money away in their 401(k)s for 10 straight years have balances of roughly $300,000, and older millennials who've been saving for 15 years or more have average balances of around $400,000.

Since millennials are still 20 to 35 years from age 65 and the full retirement age for Social Security, workers with a current account balance shortfall can ramp up savings, invest in the stock market, and benefit from compounding in the next two to four decades.

"Millennials are well-positioned to put themselves on a good path for the years ahead," says Blake Smith, investment adviser at Financial Partners.

But millennials, most of whom are entering the sweet spot of their careers and earning years, must act now to put themselves on a better trajectory for a secure retirement, adds Smith. "Be proactive — now," says Smith. "Don't defer (saving any longer)."

Millennials must start building nest eggs to protect themselves from rising inflation, the increasing cost of health care and the likelihood of higher tax rates in the future.

Blissful ignorance, or facing reality? Millennials can boost their 401(k) balances

Millennials are in a good position now to take advantage of low income tax rates, which were made permanent in July 2025 with the passage of the One Big Beautiful Bill.

Smith says a great way for millennials to build wealth and boost their after-tax income streams in retirement is to take advantage of Roth 401(k)s (and IRAs) that allow tax-free withdrawals after age 59½, provided the account has been open at least five years.

It's important, says Smith, to not only have a diversified portfolio with a mix of stocks, bonds, cash and other assets, but also to diversify retirement savings from a tax standpoint.

Here are concrete ways to boost your retirement savings.

Take advantage of Roth accounts. To build up the tax-free portion of retirement holdings, Jonathan Lee, a wealth management adviser at U.S. Bancorp Advisors, recommends that millennials, especially those not at the peak of their earnings years, contribute to a Roth 401(k) if their workplace plan offers it.

"If you are early in your career and you are not in a high tax bracket, it makes sense to use a Roth vehicle (as you won't miss out on a big upfront tax break with a small salary)," says Lee.

While contributions to Roth accounts (which grow tax-free) are made with after-tax dollars (which means you won't get an upfront tax deduction as you would with a traditional 401(k) funded with pre-tax dollars), withdrawals are tax-free.

The upside is that when you take out money in retirement, you'll reap more dollars on an after-tax basis than a traditional 401(k).

For example, if you need to withdraw $48,000 each year, or $4,000 a month, from your Roth 401(k), the total size of the withdrawal will be just $48,000 because none of the income is taxable.

In contrast, if you're in the 22% tax bracket, you'd need to pull out $61,538 from a traditional 401(k) to net $48,000, or $13,538 more than your Roth distribution.

Over a 10-year period, you'd be able to shield $135,000 of your retirement savings balance if your money is in a Roth.

"Millennials have a great chance right now to take advantage of (low tax rates)," said Smith.

One in five millennials is doing just that, as 19.5% say they're contributing to a Roth 401(k), above the 18% of all 401(k) savers, according to Fidelity. Many millennials are saving more, too. Fidelity reports that 11.2% of millennials increased their 401(k) contribution rates in the final three months of 2025.

Millennials with high-deductible health savings plans at work can also take advantage of low tax rates by signing up for a health savings account (HSA). This type of health plan is triple-tax advantaged, as contributions are tax-deductible, your money grows tax-free, and withdrawals are tax-free, too.

Building a financial plan that grows your money while keeping taxes low is a winning formula. "It's not always about the biggest account balance; it's about having an optimized and tax-efficient plan in the years ahead," said Smith.

Employ a savings bucket strategy. Millennials can boost their odds of a successful retirement by using the savings bucket strategy, Smith says. That means separating your money into accounts that provide money you need "now" (to pay bills), money you need "soon" (to pay for a new car, your kid's braces or college tuition) and money you'll need "later" (to fund your retirement).

• Fill the "now" bucket with liquid, cash-like investments that you can tap easily.
• Fill the "soon" bucket with a taxable brokerage account that lets you benefit from the lower long-term capital gains rates (which range from 0% to 20%).
• Finally, fill the "later" bucket with tax-advantaged retirement accounts such as 401(k)s.

If you're participating in a workplace retirement plan, make sure you contribute enough to get your employer match so you don't leave any money on the table.

Don't treat your 401(k) like a piggy bank. It's harder to grow your wealth if you're raiding your 401(k) from time to time to meet some type of financial obligation. Two of 10 (19.7%) millennials currently have an outstanding 401(k) loan, according to Fidelity's fourth-quarter 2025 retirement analysis.

While borrowing money from your 401(k) can help ease short-term cash-flow problems, it hurts your retirement account in the long run in a number of ways.

The money you withdraw loses its ability to benefit from market gains, and the money you use to pay back the loan will be in after-tax dollars; those dollars will be taxed again when you take withdrawals in retirement.

Another downside of borrowing from your 401(k) is that if you lose your job or switch jobs, you might be forced to pay back the outstanding loan balance within 60 days.

"That long-term savings bucket is not something that we necessarily want to access ahead of time," said Smith.

Millennials savings tip: Put your 401(k) on autopilot

The more you automate your retirement savings, the better. The beauty of a 401(k) is that money comes directly out of your paycheck every pay period and goes straight into your 401(k).

But since not every plumber, advertising salesperson, or computer programmer is fluent in finance, investing in a professionally managed target-date fund that determines the assets you own, and how much of each asset, such as stocks and bonds, you own, and rebalances your account for you as you get closer to retirement, is the way to go, says Lee.

"These funds help you achieve more of an autopilot experience," says Lee. "(Saving for retirement) doesn't become as heavy of a lift."

At the end of 2025, 70.2% of millennials had all their savings in a target-date fund, according to Fidelity.

Read More

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• The Average Gen X 401(k) Balance Kind of Bites

While the market is improving, millennials and Gen-Zers have faced a difficult path to homeownership.

For the first time in modern history, these two generations are among the first to be financially worse off than their parents at the same stage of life. Factors such as record-high home prices, lingering inflation and mounting debt, specifically from student loans and credit cards, have created significant challenges for first-time buyers.

In 2025, nearly 27% of Gen-Zers nationwide owned their homes, according to a report from Axios. That rate nearly doubled for millennials with slightly more than 55% owning their homes. However, both generations are still trailing their parents with nearly 73% of Gen Xers and 80% of baby boomers owning their homes.

As housing affordability continues to be a challenge for many, especially for those who are younger, tapping into a 401(k) retirement plan might seem like a practical option, but there are trade-offs. What needs to be considered before a withdrawal is made?

The hidden cost of limiting compounding growth

Pulling from your retirement account to make a down payment seems logical in theory: You're not retiring for several more years, yet you need a roof over your head today.

However, this thought process doesn't account for the power of compounding growth. When money is withdrawn early, it's not just the principal that disappears. It's also the decades of potential growth that money could have generated by remaining in the account. Assuming a modest average annual return of around 7%, withdrawing around $20,000 from a retirement account at age 30 could mean missing out on more than $130,000 by age 65. That's a significant amount of money that could otherwise be used to supplement medical costs, pay for long-term care or used for additional real estate or traveling.

Once money leaves your retirement account, it no longer has the ability to grow with the rest of your investments.

As a result, retirement savings are often seen as one of the most important "protected" accounts in a portfolio. While the funds can be used to solve a short-term problem, withdrawing them early could create future challenges.

Penalties might be waived, but taxes still apply

Another factor that's easily overlooked is the tax implications of withdrawing retirement funds. Even when early withdrawal penalties are waived, money taken from a 401(k) or IRA will be taxed as part of your income. For the average working American, that tax rate can fall from 18% to 32%. A withdrawal of $20,000 could lead to thousands of dollars owed in taxes.

In addition to a hefty tax bill, money withdrawn from a retirement account loses the benefit of tax-deferred growth, significantly reducing the value of those savings long-term.

Evaluating retirement security vs homeownership

Making the decision to use retirement savings to purchase a home typically comes down to balancing two major financial goals: Retirement security and homeownership.

Becoming a homeowner provides stability and gives you the opportunity to build equity over time. For many Americans, it's also viewed as a significant milestone financially and emotionally.

Simultaneously, retirement savings rely largely on time spent in the market and consistent contributions. As a result of compounding, younger Americans in their 20s and 30s generally benefit the most by starting early and saving consistently.

Using retirement funds prematurely eliminates that chance, which can make it much more difficult to build enough savings long term.

Costs of homeownership extend beyond the mortgage

It's common for first-time homebuyers to focus primarily on saving for a down payment, but homeownership costs much more than the price of the home. Beyond your monthly mortgage payment, you'll also have to pay property taxes, insurance, utilities and maintenance, not to mention any unexpected repairs that are needed such as a new roof, HVAC system or appliance.

Many financial experts recommend running a full financial "stress test." The test calculates the total expected monthly costs, including mortgage payments, taxes, insurance premiums and a maintenance reserve, which allows you to see if homeownership is manageable in your current financial situation.

Other options to consider

Before targeting retirement accounts, first-time buyers should explore other lower-risk alternatives.

One option is to build a dedicated down payment fund by regularly setting aside money from each paycheck. Automating contributions to a separate account can help accelerate the process, while keeping you disciplined. Utilizing tax refunds, bonuses or scaling back discretionary spending can also help grow savings.

Family gifting might also be a possibility. Current tax laws allow a person to give significant amounts each year without triggering gift taxes. This can help supplement any gaps in savings.

Depending on where you live, many states, organizations and housing agencies might offer down-payment assistance through programs such as FHA, VA or USDA. These programs are designed to help buyers break into the housing market without sacrificing long-term savings.

What to consider before making an early retirement-savings withdrawal

For first-time buyers considering pulling retirement funds to help purchase a home, it's worth asking: Does this withdrawal create a gap in my retirement savings that might be difficult to recover from later?

IRAs, 401(k)s and other retirement accounts are specifically designed to grow over decades of time. Once money is taken out, its ability to compound stops.

While buying a home might feel urgent and the benefits can be rewarding, protecting long-term financial security might be the better option.

Most of the time, it's better to borrow for a home instead of taking from your future 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.

To Roth, or not to Roth? That's the question facing millions of retirees and pre-retirees this year.

For many, a Roth conversion is a great way to defuse the 'tax bomb' of future Required Minimum Distributions (RMDs). But paying taxes upfront is a bad deal if the strategy doesn't fit your long-term goals. If you're currently debating a conversion, start by asking yourself these three questions to make sure you're making a choice that will save you money in the long run.

While there are pros to having your retirement savings in a Roth IRA — tax-free withdrawals in retirement, the elimination of future RMDs, and tax-free inheritance for your beneficiaries, sometimes having it in a traditional account is better. That's particularly true if you're a high earner and want to lower your income bracket, or you can't afford the tax hit from converting to a Roth.

It's a conundrum lots of people wrestle with. Timing is everything when it comes to a Roth conversion. If the conversion pushes you into a higher tax bracket, you might not only have to pay Uncle Sam more money, but you could see an impact on your retirement benefits, such as Medicare and Social Security.

But a conversion can also be a boon, as it can mean tax-free growth and withdrawals later on. "Ultimately, it's about when you choose to pay taxes: now or later," says Deryck Gryne, a certified retirement counselor at Ally Invest. "It’s about flexibility and tax diversification."

If you're thinking that paying taxes now through a Roth conversion might be the better option, ask yourself these three questions first before you make a move.

1. Will my tax rate likely be higher in the future?

When it comes to converting to a Roth, this is the foundation of the decision, says Gryne. That's because the money you withdraw from your traditional retirement account to convert to a Roth is added to your modified adjusted gross income (MAGI) for the year.

If you're in a low-income bracket, then it might be a non-issue, but if the additional income pushes you into a higher tax bracket, the conversion could create a host of problems beyond paying more in taxes.

Depending on your MAGI, the conversion might trigger the Income-Related Monthly Adjustment Amount, or IRMAA. The IRMAA is an extra charge added to the monthly premiums for Medicare Part B and Part D if your MAGI from the two years prior exceeds certain limits. Because IRMAA is a two-year look-back, a 2026 conversion could affect your 2028 Medicare premiums. Plus, a conversion might mean you have to pay more taxes on your Social Security payments.

By the time you are in your mid-50s, you have likely hit your highest career tax bracket. During these peak earning years, it might be smarter to keep the money in traditional retirement accounts to lower your income and current tax bill. Converting to a Roth at this stage basically forces you to pay the highest possible tax rate on that money.

Pro tip: If you are doing a Roth conversion, Greg Welborn, principal and president of First Financial Consulting, says to fill up your tax bracket.

"Don't be concerned about the 10% and 12% bracket, but be concerned about the 12% and the 22% bracket," he says. You should aim to convert just enough to hit the top of your current bracket without any money spilling over and pushing you into higher tax territory.

2. Can I afford the tax bill without using retirement funds?

When doing a Roth conversion, the money you withdraw from your traditional retirement account is treated as ordinary income, which means you must pay taxes on it.

If you can't afford those taxes without using money in your retirement account, then you might want to rethink the conversion. After all, if you withdraw money from the account, it lowers your balance, which means less capital to grow and compound.

Plus, if you are under 59½ and have taxes withheld directly from your IRA during the conversion, the IRS will consider that an early withdrawal and slap a 10% penalty on the amount taken out for taxes.

"The mathematics of conversion improves dramatically when you cover the taxes from taxable resources rather than withholding from the converted amount," says Brad Coyle Jr., partner, managing director at Steward Partners.

Pro tip: To maximize the benefit of a conversion, Coyle says to make sure you have sufficient liquid, after-tax assets to fund any tax liability without creating a cash flow strain or forcing you to liquidate positions at inopportune times.

This is particularly risky if the market declines early in your retirement, as every dollar you withdraw has twice the negative impact over time. This is known as sequence-of-returns risk: By selling when the market is low, you're cashing out your savings faster than they can recover. Without that higher nest egg in place, your savings won't be able to benefit as much from an eventual market rebound.

"Don't let the tax tail wag the dog," Coyle says.

3. Do I know what I'm going to do with the money?

Converting to a Roth is one thing, but what you plan to do with that money is equally important. If you don't allocate it properly, you could miss the whole purpose of the conversion — tax-free growth, says Welborn.

"We find too few people are being strategic with their asset allocation," says Welborn. "They either have a bunch of accounts all over the place with random allocations, or they have the same allocation for every account. Having the same asset allocation for a taxable IRA and a Roth doesn't make sense."

The Roth should be the last place you withdraw money from, he says.

Pro tip: Since withdrawals from your Roth will be tax-free, Welborn says your allocation, while diversified, should be more aggressive in your Roth than in a taxable one. "The Roth should be positioned for the greatest amount of growth," he says.

Seek the help of a trusted adviser

Deciding if and when to convert to a Roth is complicated. While these three questions can steer you in the right direction, a trusted financial adviser can provide the precise modeling needed to make a final decision.

In 2026, the tax landscape is more nuanced than ever, and a move that saves you money in one area could inadvertently affect your Medicare premiums or Social Security benefits in another.

Everyone’s situation is different, and what works for you might not work for someone else. Remember that you worked hard to amass your retirement nest egg. You'll eventually have to pay the tax man; the only question is whether you choose to do it now or later.

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

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

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

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

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

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

The plan generally works

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

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

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

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

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

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

An early market downturn is the biggest risk

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

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

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

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

Be mindful of taxes

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

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

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

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

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

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

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

It's all about planning

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

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

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A Roth IRA is a powerful account:

• Qualified withdrawals can be tax-free
• There are no required minimum distributions (RMDs) during the owner's lifetime
• The account can be a flexible part of retirement and legacy planning

That power can create a common mistake. People treat the Roth as a "best account," then put everything into it.

In reality, Roth space is limited. A better approach is to think in terms of asset location, which is placing different investments in the account types in which they are most efficient.

This is not an all-or-nothing list. These are categories often better outside a Roth IRA, depending on your household's goals, tax picture and time horizon.

1. Municipal bonds

Municipal bonds are generally designed to deliver tax-advantaged interest in a taxable account. Putting them in a Roth often adds little benefit, since the interest was already structured to be tax efficient.

In many cases, using Roth space for an asset that's already tax-advantaged creates an opportunity cost. Roth dollars are scarce, so they're often reserved for assets in which tax-free growth has the biggest impact over time.

2. Highly speculative individual positions

If a concentrated, high-risk position goes to zero inside a Roth, the loss is not just the dollars; you also lose the limited Roth contribution "space" that created the tax-free compounding opportunity in the first place.

For those who want a small speculative sleeve, many investors prefer keeping it in taxable accounts where losses may be used for tax purposes.

A related issue is behavioral. Speculative positions tend to invite frequent monitoring and reactive decisions. That pattern can be especially harmful in a Roth, where the long-term benefit is compounded growth.

3. Assets you may need before age 59½

Roth contributions can be withdrawn without tax or penalty, but the rules around early withdrawals of earnings can be complex and restrictive.

If the goal is flexibility for a goal that might happen before retirement age, a taxable account can be a better fit for at least part of that money.

In practical terms, this category includes down-payment funds, a potential business investment or any goal with an uncertain timeline.

The goal is not to avoid the Roth entirely. The goal is to avoid putting "short-horizon money" into a structure designed for long-horizon compounding.

4. Investments that are likely to generate meaningful losses

Tax-loss harvesting works only in taxable accounts. Losses inside retirement accounts generally don't provide the same tax benefit.

If you're intentionally holding a higher-volatility strategy in which losses are a real possibility, you may want that position in an account in which losses can potentially be used.

This is most relevant when the risk is not incidental. If the strategy assumes meaningful drawdowns or uses a concentrated approach, it may be worth asking whether the Roth is the right home.

5. Appreciated assets you plan to donate

Donating appreciated securities from a taxable account is often a highly tax-efficient way to give. The core benefit is avoiding capital gains taxes on the appreciation.

Since Roth assets are already in a tax-advantaged wrapper, they generally do not create the same giving advantage.

If charitable giving is part of the plan, it can be helpful to intentionally "build" future donation positions in taxable accounts, rather than accidentally giving from whatever happens to be easiest to sell.

6. Highly tax-efficient index funds and ETFs

Many broad index funds and ETFs are already designed to be tax-efficient, which is part of what makes them strong candidates for taxable accounts.

If you're deciding where to place assets, Roth space is often best reserved for holdings in which tax-free growth provides a larger advantage.

This point is often misunderstood. It doesn't mean index funds are "bad" in a Roth. It means index funds usually don't need a Roth to be efficient. That distinction matters when contribution limits force tradeoffs.

7. Illiquid or complex alternative investments

Some alternative investments can involve high fees, valuation complexity and liquidity constraints. They can also introduce rules risk if held improperly in a retirement account.

Even when the potential upside is attractive, the operational risk and the lack of flexibility may make these a better fit outside a Roth for many households.

This category can also create planning headaches later. If an investment can't be easily valued or liquidated, it can complicate rebalancing decisions and future distribution planning.

The bottom line

A Roth IRA is valuable precisely because it's scarce. The goal is not to avoid any asset category completely.

The goal is to place each asset where it is most tax-efficient and most practical, while keeping the overall portfolio diversified and aligned with the household's plan.

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• 7 Tax Blunders to Avoid in Your First Year of 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.

Reality does kind of bite for Gen X, the generation that grew up watching music videos on MTV. Now nearing retirement, they are closely monitoring their 401(k) balances to see if they're on track to retire.

Born between 1965 and 1980 and ranging in age from 46 to 61, Gen Xers are the first generation of American workers to rely on their own 401(k) savings to fund the bulk of their retirement, rather than on traditional pensions.

Gen X, dubbed the "sandwich generation" due to the pressure of supporting their kids while also caring for aging parents, has faced financial challenges along the way. They lived through the 2000 dot-com stock bust, the 2008-2009 financial crisis, the COVID pandemic in 2020, and the 2022 inflation scare. Today, Gen Xers' 401(k) balances are being pushed lower by soaring energy prices and economic uncertainty caused by the U.S. war with Iran.

Now, with Gen Xers nearing retirement, the size of their nest eggs is growing in importance, and they are falling short of the mark. Americans think the "magic number" for a comfortable retirement is $1.46 million, up $200,000 from 2025, according to Northwestern Mutual's "2026 Planning & Progress Study" released on April 1, 2026.

"The new 'magic number' reflects a convergence of factors — from persistent inflation and longer life expectancies to uncertainty about the future of Social Security," said John Roberts, chief field officer at Northwestern Mutual.

What is the average 401(k) balance for Gen X?

So, has the sandwich generation saved anything close to the magic number? The average Gen X 401(k) balance is $222,100, according to Fidelity Investments' fourth-quarter 2025 analysis of its 24.8 million plan participants. Only Baby Boomers, who've been saving much longer, have larger balances ($270,800). Similarly, the average account balance of someone in their 50s — which constitutes the largest cohort of Gen X savers — is $246,700, Fidelity data show.

Source: Fidelity 2025 Q4 Retirement Analysis.

While the average Gen Xer has nearly a quarter of a million dollars saved, that's far less than the $1.46 million Americans say they'll need to retire comfortably.

There is some good news and not-so-good news for Gen X in the latest account balance data.

On the plus side, Gen X workers, on average, are socking away 15.4% of their pay annually (including their company's matching contribution), topping Fidelity's suggested 15% annual savings rate. In the final quarter of 2025, Gen X increased their 401(k) contributions by 10.7%.

Gen Xers who have been saving in the same retirement account for the past five, 10, and 15 years have also accumulated more money in their 401(k)s than any other generation, according to Fidelity's 4Q25 data.

For example, Gen X savers who invested in the same 401(k) for 15 years have balances of nearly $700,000, roughly $80,000 more than the average 401(k) balance across all generations, at $617,600.

"The consistency so many Americans show in maintaining responsible savings behaviors and keeping a long-term perspective will serve them well in retirement," said Sharon Brovelli, president of workplace investing at Fidelity.

Why many Gen Xers face a retirement savings shortfall

While there is no universal retirement number, Northwestern Mutual recommends following the "80% rule," or aiming to replace about 80% of pre-retirement income.

That high hurdle is likely one reason why Gen Xers nearing retirement are the "least confident" of all generations in their retirement preparedness, according to Northwestern Mutual. In fact, one in five Gen Xers say financial challenges or concerns have already caused them to delay retirement, the insurer's study found.

Source: Northwestern Mutual.

In another sign of financial stress, one in four (25.8%) Gen Xers has an outstanding 401(k) loan, the highest rate of any generation and well above the 19.4% average, according to Fidelity's 4Q25 analysis of its 401(k) plans.

To estimate the size of the retirement shortfall the average Gen X saver faces, let's see how they are faring using Fidelity Investments' savings rule of thumb. Fidelity says savers should have six times their salary saved by age 50 and eight times their salary socked away by age 60.

The analysis by Northwestern Mutual found that only 29% of Gen Xers have saved six times or more of their salary. And just 19% have saved eight times or more of their salary.

Source: Northwestern Mutual.

One reason why Gen X is behind in their retirement savings is that they got a late start. They didn't start saving until age 32, on average, which is 4 years later than Millennials and 10 years later than Gen Z, according to Northwestern Mutual. The late start means they have had fewer years to save and benefit from the power of compounding.

Moreover, with life expectancies on the rise, half of Gen X savers say it is likely that they will outlive their savings. "The prospect of a longer retirement comes with additional financial pressures," said Bruce Palmieri, partner and wealth management advisor at Northwestern Mutual.

Those savings figures suggest that most Gen Xers are facing a retirement funding shortfall. Still, the fact that half (49%) of Gen Xers have saved at least four times their current annual salary is reassuring, as that is an improvement over last year, when only 41% said they had four times their salary saved. "They have made some progress," the Northwestern Mutual study noted.

How Gen X can catch up on retirement savings

If you're a Gen Xer reading this, there's still likely time to get better prepared for retirement.

• Boost your savings rate. Beefing up a 401(k) plan starts with saving more, says Palmieri. To bolster your 401(k), spend less and funnel any extra cash you get via a raise or bonus to your nest egg. Younger Gen Xers still have 20 years until retirement, so there's ample time for their contributions to grow. "The power of compounding interest will work on your side," said Palmieri. "We recommend workers increase their savings every year."
• Save enough to get your company match. Don't leave a single penny on the table. Make sure you contribute enough to your 401(k) to receive your employer's matching contribution.
• Take advantage of catch-up contributions. Gen Xers over age 50 should not only try to max out their regular 2026 401(k) contribution limit ($24,500), but also take advantage of the $8,000 catch-up contribution the IRS allows, Palmieri advises. And if you are a Gen X saver aged 60 or 61, try to also fund the additional "super catch-up contribution" of $3,250, which is available to Americans ages 60 through 63, thanks to a change in the SECURE 2.0 Act.
• Invest for growth. You won't be able to fill the savings gap by putting your money into a low-interest savings account. You'll need to invest in growth-oriented assets like stocks, which are more volatile but have historically generated higher returns. "Be as aggressive as you can be with every dollar," said Palmieri. Younger Gen X savers, such as those with two decades until retirement, should have roughly 80% of their assets invested in stocks, says Palmieri. Those closer to retirement should allocate about 65% of their portfolio to equities.
• Downsize. If the savings gap is too big to close with 401(k) contributions, consider downsizing to a smaller home or moving to a less-expensive area of the country, adds Palmieri. "You can invest any freed-up home equity to help boost your retirement assets," said Palmieri.

Finally, you could always delay retirement a year or two. That will allow you to avoid tapping your 401(k) for a few more years and enable your money to continue to compound. Earning a salary for a few more years and continuing to contribute to your 401(k) is another plus. "This strategy could make a several hundred thousand dollar difference over a number of years," said Palmieri.

Read More

• Average Net Worth by Age: How Do You Measure Up?
• Roth 401(k) vs Traditional 401(k): Which Is Right for You?
• Should You Max Out Your 401(k)? We've Got Answers

Question: I’m 55 and married with a $1.5 million 401(k) balance. I earn about $150,000 a year and expect to remain in my job until I retire. I’m planning a major home improvement project, but I lack the immediate cash to cover it.

Since the interest rate on most credit cards is astronomically high, I’m considering a 401(k) loan instead. Is this a sound strategy for someone of my age, or will it harm my future retirement?

Answer: When it comes to borrowing against your traditional 401(k) or Roth 401(k), the conventional wisdom is to avoid it at all costs. After all, it's less money in your account that can grow and compound.

But in some circumstances, borrowing against your 401(k) may not be a bad move, especially if you have a sizable retirement savings, are planning to remain in your job for a while and can afford to pay it back.

"Generally speaking, we advise clients to allow it to grow tax-free, at least while you are employed, but from time to time, it makes sense to take out a 401(k) loan," says Stephanie Williams, senior wealth advisor at AlphaCore Wealth Advisors.

"If you have an urgent home repair that needs to be done right away, a medical expense or funeral costs, it can make sense to take a loan provided you have strong job stability and plan to repay it quickly."

Start by asking three key questions.

1. Are your savings on track?

Take your retirement savings balance for starters. With $1.5 million already saved, you are ahead of many Americans.

According to JPMorgan Chase, a 65-year-old making $150,000 should have $1.34 million saved to live comfortably, and you already exceeded that amount, 10 years early. That means you have ample time to save even more for your golden years.

2. Is your job secure?

Then there is your job stability. When you borrow against your 401(k), you can spread out repayments over five years if you want to, but if you leave your job, you typically have until the tax filing deadline, including any extensions, to pay it back.

If you don't, that loan will be treated as ordinary income and taxed at your marginal rate, which, for your income level, would be 22% in 2026. That's why financial advisers say it makes sense only if you have high job security.

3. What is the 401(k) loan's interest rate?

Finally, there is the interest rate to consider. With a 401(k) loan, the interest rate tends to be much lower than if you used a typical credit card. At last check, the average APR on a credit card is 19.58%, according to Bankrate, while the average interest charged on a 401(k) loan is currently around 7.75%.

Most 401(k) loans set their interest rate at the Prime Rate plus 1%, which tends to fluctuate. As of March 2026, the Prime Rate, the base interest rate that commercial banks charge their most creditworthy corporate customers, is 6.75%, resulting in a loan rate of around 7.75%.

Plus, with a 401(k) loan, that interest isn't going to a bank or credit card issuer; it's paid back to your own 401(k). You are paying yourself interest, but using it with after-tax dollars.

Keep in mind that every retirement plan will differ. Check with your plan administrator to determine the terms and interest rate before you take out a loan.

It's worth noting that 401(k) loans are usually capped at $50,000. If your home improvement needs are greater, you will have to find the balance elsewhere.

Advantages of a 401(k) loan

There are other benefits to borrowing against your 401(k) instead of charging the cost of the home improvement.

For starters, it won't impact your credit score because it doesn't show up in your credit report. If you plan to finance a big-ticket item in the future, you won't have to worry about paying more in interest.

It can also be quick and easy to take out a loan. You can often have the money in your bank account within three to five days without filling out paperwork or explaining the purpose of the loan.

Since you are using the loan for home improvement, the outcome will be to increase your home's value and build equity. (Some home improvement projects have a higher return on investment than others, so do your research first.) Certain renovations can be added to your home's cost basis or the total amount invested in your home, which could reduce your capital gains taxes if and when you sell the home, provided the gain exceeds the $500,000 exclusion for married couples.

It's also better than a 401(k) withdrawal because of your age. You won't have to pay the 10% penalty that is associated with withdrawals when you are under 59½. (However, since you are 55, you might not have to pay the 10% penalty for a 401(k) withdrawal under the "rule of 55," but only if you decide to leave your job.)

One caveat: Make sure your plan doesn't suspend the ability to receive the company match while the loan is outstanding. If it does, you are walking away from free money. In that case, you'll have to do the calculations to see if the lower interest rate from a 401(k) loan is worth it.

Options other than a 401(k) loan

Judging from your question, your options may be limited when it comes to borrowing money for your home improvement project, but if you have a home, a good credit score and equity built up, there could be cheaper ways to access capital.

For instance, a Home Equity Line of Credit (HELOC) allows you to borrow against a portion of your home’s equity. You pay interest only on the amount you withdraw.

Keep in mind that HELOCs typically have a variable interest rate during the draw period, which means the interest can fluctuate. Since your home is used as collateral, you could face foreclosure if you can't pay it back.

If you have a good credit score, you could take out a credit card with a 0% introductory rate to finance part of your loan, but only if you are certain you can repay the loan within the time frame allotted. (And there's no guarantee you can get a credit limit high enough to cover the cost of your project.) Otherwise, the rate will reset and could be much higher than the 401(k) loan interest rate.

When a 401(k) loan doesn't make sense

A 401(k) loan may work for you, but there are instances when it isn't worth it.

If you borrow from your tax-advantaged retirement plan and stop making contributions to pay back the loan, it will be a double hit. There is no new money coming in, and the amount you borrowed is no longer growing. If you're doing this to consolidate debt, which you aren't, and rack up more, you could end up with a 401(k) loan plus new credit card balances.

"Borrowing from your 401(K) is an option that we educate all clients on," says Williams. "It depends on the rate and your personal situation. Consult with a financial adviser who can guide you through the process."

Related content

• I'm 61 and need $50,000 for home repairs. Should I borrow, given today's rates, or withdraw from my $950,000 401(k)?
• Is a 401(k) Worth It? Here are the Pros and Cons
• Five Ways to Make Your Home More Age-Friendly
• The 401(k) Mistake That Could Cost You Millions in Retirement Savings

As a financial adviser, I often meet investors who are confused about Roth conversions.

They get bounced between a certified public accountant (CPA) and a financial planner, each deferring to the other on whether converting a traditional IRA to a Roth makes sense.

The result is that there is no clear direction on a crucial decision.

This siloed approach leads to half-baked recommendations.

I've heard advisers say, "Sure, convert $20,000," or the opposite, "No, don't bother," with little analysis. These answers usually consider only the immediate tax hit and ignore other factors.

A Roth conversion can affect your Medicare premiums, trigger additional taxes or alter your estate plan. Any advice that overlooks these implications is incomplete.

Why do many advisers avoid detailed Roth advice? It's complicated. Most advisers aren't trained for in-depth tax planning, and many CPAs focus on last year's taxes rather than future projections.

It's easier to give a quick yes-or-no answer than to crunch all the numbers. But without doing the math, you're essentially flying blind.

A real-world example of what's missing

Here's a common example: A couple in their late 60s has about $500,000 in a traditional IRA. A previous adviser has already reviewed their Roth conversions and told them that it wouldn't really make a difference.

On the surface, this advice seems reasonable. Whether they convert now or take required minimum distributions (RMDs) later, the total income tax looks about the same.

But that conclusion only tells part of the story.

When we step back and do a deeper review, several important costs have been left out of the equation.

For one, larger IRA withdrawals can push income high enough to trigger higher Medicare Part B and Part D premiums, known as the IRMAA. Those increases don't show up on a tax return, but they absolutely affect a retiree's cash flow.

Then there's the issue of required minimum distributions (RMDs). The couple doesn't need all the money they'd be forced to withdraw. That excess would likely end up in a taxable account, creating a new layer of taxes each year on interest, dividends and investment gains.

Finally, we would look at what would happen down the road. Any money left in the couple's traditional IRA would eventually go to their children, along with a tax bill. In contrast, assets moved to a Roth IRA could be inherited tax-free, which could make a meaningful difference to their family.

Once we put all of those pieces together, the picture changes. Converting part of the IRA now means paying a single, known tax bill. Doing nothing means facing several smaller, less obvious taxes over time: Higher Medicare costs, ongoing investment taxes and a potentially large tax burden for their heirs.

With the full analysis in front of them, the couple can choose a carefully planned Roth conversion, confident that it will reduce their total tax exposure and better support their long-term family goals.

Get a comprehensive plan in writing

This example shows that Roth conversions have many moving parts. You need a holistic plan that examines all the angles, ideally documented in writing, so you can review it.

If an adviser gives you a yes-or-no answer on a conversion without a thorough written analysis, it's a red flag.

You deserve to see the numbers behind the advice.

Every Roth conversion recommendation I make comes with a detailed tax projection. I run scenarios to see the ways in which different conversion amounts would impact not just your current tax bill, but also future Medicare costs, investment taxes, RMDs and even what your heirs might owe.

It's work-intensive, but it's the only way to get a reliable answer. This thorough approach ensures that all the angles are covered, not just one.

How can you make sure you're getting this level of analysis? Ask your adviser if you can get a model Roth conversion in writing.

If they can't or won't provide one, consider seeking a second opinion from someone who will. The goal is to have all the facts before you decide, so there are no surprises later.

Focus on the 'who,' not the 'how'

Focus on the "who," not the "how." You don't need to become a tax expert to figure out Roth conversions. You need the right expert who can guide you.

Rather than trying to learn every tax rule yourself, ask, "Who has the expertise to handle this for me?"

For Roth conversions, that "who" could be an adviser with advanced tax training (for example, a Certified Tax Specialist) or a team that includes a CPA. Once you find that person, they'll handle the "how" and give you a clear plan.

Don't settle for vague advice on a Roth conversion. Find an adviser who will crunch the numbers and show you the complete picture.

By focusing on the right "who," you'll get the right strategy — one that's grounded in solid analysis and tailored to your goals.

Ezra Byer 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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• Should You Jump on the Roth Conversion Bandwagon? A Financial Adviser Weighs In
• Quiz: Understanding Roth Conversions

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.

Financial mistakes tend to fall into two categories: Small missteps and major crises. Miss a credit card payment and get hit with a late fee? Misstep. Lock in major losses during a market crash? Crisis.

Retirement is different. Decades-long timelines turn routine decisions into make-or-break moments, and the consequences are not always clear. Common 401(k) and IRA mistakes can be a gateway to compounding losses. The most dangerous of these mistakes is deceptively simple.

While the retirement industry has made strides in getting people to save, we are failing them on the most critical next step: Putting that money to work.

The biggest threat to the American nest egg isn't a market crash — it's a parking lot.

When cash becomes a six-figure mistake

Millions of Americans roll over their 401(k) plans into IRAs each year. Both accounts hold similar investments and investment potential, but more than one in four people who roll over into an IRA end up stuck in cash. The mistake is common, and the cost is staggering.

Consider two identical savers who each roll over $50,000 into an IRA at age 35:

• Saver A left their funds in cash (earning 2%), ending up with over $90,000
• Saver B invested in a diversified portfolio (earning 7%), ending up with roughly $400,000 by retirement

After 30 years of compounding, cash costs $300k. This is a steep penalty to pay, especially when you consider that the Employee Benefit Research Institute (EBRI) estimates the average IRA balance is just $114,000.

The risks of job mobility

Most Americans are forced to make complex rollover decisions repeatedly. Each job transition is a new opportunity to tick the wrong box and end up with retirement assets that are working against you rather than for you.

But in some cases, Americans are moved into cash without ticking any box at all.

The most recent EBRI data on the topic confirms that nearly a quarter (24%) of IRAs are "overallocated" in cash, or less than 10% invested in equities. The report suggests many of these accounts may represent the silently growing category of Safe Harbor IRAs.

Each year, employers routinely shift left-behind 401(k)s into cash-like accounts called Safe Harbor IRAs.

Recent industry research found that roughly 2 million accounts are transferred each year. Although these accounts are meant to be temporary, 75% remain in Safe Harbors for at least three years. Worse, the average account holder is in their early to mid-40s and decades from retirement.

The cost of confusion

The U.S. used to guarantee retirement through pensions, much like other countries continue to do today. But while individuals now bear primary responsibility for their retirement outcomes, the path is still far from user-friendly.

Not only is the system opaque, but all of us will need to navigate it — regardless of background, interest and aptitude for finance. Everyday savers shouldn't need the literacy of a fund manager just to guarantee a simple path toward a happy retirement.

As Americans continue to change jobs frequently, the number of accounts transferred to cash may continue to rise. By 2030, there will be more than $43 billion stuck in Safe Harbor IRAs alone.

Cash-heavy retirement accounts held by people nowhere near retirement age reflect confusion, not preference. Until we have a system that favors simplicity, taking control of the pieces can help:

• Audit your accounts. Log in to every old 401(k) or IRA and check your "asset allocation." If it says "money market" or "cash," you are losing ground to inflation every single day.
• Simplify and consolidate. Multiple small accounts lead to oversight gaps. Moving your funds into a single IRA or 401(k) can make things easier to track and manage.
• Choose a "set and forget" strategy. Use target-date funds. These automatically rebalance your investments based on your age, ensuring you stay invested for growth while gradually adjusting risk over time.

When what's "safe" can slash your nest egg by three quarters, it's worth taking a second look at every box you tick.

Related Content

• Four Reasons to Roll Over Your 401(k) into an IRA (And Four Reasons Not To)
• What to Do With Your 401(k) When You Leave Your Job
• Doing This With Your 401(k) Could Cost You $18,000
• The Costly Mistake You Might Be Making With Your First 401(k)
• What Would Happen if You Put Your Tax Refund in an IRA?

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.

Over the past decade, retirement investing has undergone a quiet but powerful transformation. Investors are no longer satisfied with portfolios limited to mutual funds and traditional market exposure.

Instead, many are seeking diversification, control and access to alternative assets — a shift that is accelerating the growth of self-directed IRAs (SDIRAs) and other flexible retirement structures.

A recent survey sent to more than 27,000 clients of the retirement platform IRA Financial, with more than 6,000 responses, offers a revealing look at how today's investors are thinking about their portfolios.

The results suggest that demand for alternative investments is not a niche trend but part of a broader evolution in how Americans approach retirement planning.

Investors want access to alternative assets — without giving up public markets

Perhaps the most striking takeaway from the survey is that investors are not abandoning traditional markets — they are expanding beyond them.

When asked what investments they were most interested in for 2026, respondents showed strong demand across both alternative and public asset classes:

• Real estate: 58.5%
• Public stocks and ETFs: 39.6%
• Cryptocurrency: 32.2%
• Private equity: 31.1%
• Gold and precious metals: 28.5%
• Promissory notes: 12.4%

The data reflects a growing belief that diversification now means blending traditional investments with alternative opportunities rather than choosing one over the other.

Real estate remains the most popular category, but interest in crypto, private equity and precious metals highlights how investors are seeking assets that may hedge inflation or offer differentiated return profiles.

This shift is influencing how retirement platforms evolve.

For example, in response to client demand, IRA Financial is launching an integrated investment experience in partnership with Interactive Brokers this month that allows investors to hold stocks, ETFs and alternative assets within one account.

Control and access — the primary drivers behind self-direction

The survey also revealed why investors first explored self-directed retirement strategies.

A significant 71.2% of respondents said they turned to self-direction because they wanted to invest in specific assets that traditional plans did not allow.

Another 46.1% cited the desire for greater control over investment decisions, while others pointed to diversification, fee reduction or referrals from trusted advisers.

These responses highlight a broader trend: Investors increasingly view retirement accounts as active investment vehicles rather than passive savings accounts. Traditional custodial restrictions, once considered standard, are now seen as barriers to opportunity.

Alternative assets are growing — but investors still value balance

Despite strong interest in alternatives, most respondents are not allocating their entire portfolios to non-traditional investments:

• 41.2% hold less than 25% of their assets in alternatives
• 30.6% allocate between 25% and 50%
• Only 11.3% report portfolios heavily concentrated in alternatives

This distribution suggests that investors are not chasing speculation — they are building balanced portfolios that incorporate alternatives alongside traditional holdings.

A similar trend appears when looking at retirement account allocations. Nearly half of respondents reported holding between 25% and 75% of their total investments inside retirement accounts, indicating that tax-advantaged structures remain central to long-term planning.

Not just accredited investors — a broader investor base is emerging

One of the most interesting findings from the survey is the diversity of investor backgrounds.

While 56.4% of respondents identified as accredited investors, nearly half did not, demonstrating that interest in alternative assets is no longer limited to ultra-high-net-worth individuals.

Many investors who may not qualify for traditional private placements are still seeking exposure to real estate, crypto and other non-traditional investments through accessible structures.

Additionally, 77% of respondents described themselves as intermediate or advanced investors, reflecting a growing level of financial literacy among retirement savers.

Meanwhile, 35.1% of participants reported being retired, underscoring how self-direction is being used not just for growth but also for income generation and portfolio management later in life.

Why demand for self-directed IRAs is accelerating

Taken together, the survey results reveal several underlying forces driving the expansion of self-directed retirement investing.

First, investors want flexibility. They are looking for platforms that allow both traditional securities and alternative assets without requiring multiple accounts.

Second, they are increasingly aware of the role diversification plays in managing inflation, market volatility and long-term wealth preservation.

Finally, technology and education have lowered the barrier to entry, making self-direction more accessible than ever before.

A new era of retirement investing

The data from the survey paints a clear picture: Retirement investing is evolving. Investors are moving toward hybrid portfolios that combine public markets with real estate, crypto, private equity and other alternative assets, all within tax-advantaged structures.

As platforms continue to innovate, including new integrated solutions launching in 2026, the gap between traditional brokerage investing and self-directed strategies is likely to narrow even further.

For many investors, the future of retirement planning is not about choosing between stocks and alternatives. It is about having the freedom to invest in both, in one place, with full control over how their portfolios evolve over time.

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• What to Consider Before You Invest in Alternatives
• A Wealth Adviser's 7 Savvy Tips on Alternative Investments
• Alternative Investments Under Trump: What You Need to Know
• The Pros and Cons of Investing in Private Debt
• I'm a Wealth Adviser: These Are the Pros and Cons of Alternative Investments in Workplace Retirement Accounts

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.

Software stocks are getting annihilated so far this year. That is my highly technical description of companies, like Salesforce and others, many of which are down more than 50% from their highs.

The opinion or theory of some: AI is going to make these exorbitant subscriptions unnecessary. I am not naïve enough to think I will be the last man standing as robots power the global economy and my friends have all involuntarily "retired."

But there is one thing that gives me hope about my job security — the never-ending, mind-boggling changes to the Internal Revenue Code.

In this article, I will cover four recent developments that have come about as a result of the OBBBA and SECURE 2.0. Most of the One Big Beautiful Bill went into effect in 2025. SECURE 2.0 was written to roll out in stages, and some provisions will begin in 2026.

1. Enhanced deduction for older people

What is it? This essentially adds a $6,000 deduction for every taxpayer 65 or older. It can add to your itemized deductions or to your standard deduction.

The major catches? It has an income phaseout that starts at $75,000 for individual filers and $150,000 for joint filers.

The deduction is temporary. It will "sunset" (Washington's fancy term for "expire," meaning that it may go away but just as likely change or stay the same and hopefully keep me employed) on December 31, 2028.

What does it mean for planning? Think of this as a small three-year tax sale for those 65 and wiser. It is especially advantageous for those who are either in their peak earnings years or in their lowest tax years. I know, those two things sound at odds. Hear me out.

In your peak earnings years, this deduction will lessen the blow and, all else being equal, should result in less tax due from 2025 through 2029.

If you are between retirement and claiming Social Security and taking required minimum distributions (RMDs), your taxes have likely dropped.

This will drive your taxes even lower, which provides more opportunity to reduce or even eliminate capital gains taxes as well as increase the opportunity for Roth conversions.

In the tax module of the financial planning software that we use, there are calibrations that will show the amount of room available each year to recognize capital gains or income before you jump into the next tax bracket.

We rely on this and our tax planning software heavily to recognize the long-term tax trends and do the associated calculations. You can access a free version of the financial planning software we use.

2. SALT cap expansion up to $40,400

What is it? SALT stands for "state income and local property taxes." These are deducted for those who itemize on a Schedule A. Starting in 2018, the deduction was capped. I live in an expensive city where I exceed that cap just with my property taxes.

People like me, often living on the coasts, hate the SALT cap. This change expands the cap for those making $500,000 or less from $10,000 to $40,000.

This expires one year later than the enhanced deduction for older people, on December 31, 2029.

What does it mean for planning? The benefits are similar to those of the enhanced deduction, but without the obvious age requirement. This will make the biggest difference for those in high-tax states.

Here's a complicated twist: Many states have yet to conform to the OBBBA, which means you may want professional help to figure out whether you should itemize or take the standard deduction. We will look for opportunities to convert to Roth IRAs and to recognize capital gains at low or no tax.

These next two are specifically for those who are near retirement.

3. Roth catch-up contributions

What are these? These had a delayed start date from SECURE 2.0. It starts this year, but is based on 2025 W-2 wages.

If your 2025 W-2 wages were more than $150,000 and you're age 50-plus, catch-up contributions must be made into the Roth component of your employer-based retirement plan.

What does this mean for planning? I don't like this one, because we are often seeking to maximize deductions for our clients near retirement.

In other words, I'd rather have my clients who are in their peak earnings years and, thus, peak tax years, delay recognizing income. When they retire, we recognize income via capital gains or Roth conversions.

This new rule means that we will be advising some of our clients to stop catching up and, instead, direct those savings into non-retirement accounts.

This will allow them to live off these funds when they retire and hopefully be able to get the money into a Roth via conversion at a lower rate than they would pay while working.

4. Extra catch-up contributions

What are these? If you are between 60 and 63, your catch-up contribution goes from $8,000 to $11,250. Therefore, folks who are in this bracket can contribute $35,750 each year to their employer plan.

If their previous year's wages were over $150,000, the $11,250 will have to go into the Roth component.

What does this mean for planning? This one is complicated because you must figure out how current tax rates compare to future tax rates.

Let's say you are in your peak earnings years, per my point on the Roth catch-up in number three. If so, you might not want to take advantage of this.

Let's say the flip side is true: You are scaling into retirement, and your earnings are low this year. In that case, you may want to put the entire $35,750 into the Roth.

The financial planning software mentioned earlier and/or tax planning software can help figure out what makes sense for you.

Related Content

• Should You Do Your Own Taxes This Year or Hire a Pro?
• Three Reasons to Skip the 401(k) Super Catch-Up
• 3 Retirement Changes to Watch in 2026: Tax Edition
• 5 Mistakes to Avoid in the 5 Years Before You Retire, From a Financial Planner
• Six Financial Actions to Take the Year Before You Retire, From a Financial Planner

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 of us assume our retirement savings are untouchable, but the law isn't always that simple. Depending on the type of IRA you own and/or how you inherited it, your "safe" money might actually be on the table for creditors. Take this 10-question quiz to see if your hard-earned savings are truly protected — or if you're sitting on a hidden risk.

Don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on IRAs, from the Kiplinger team:

• Is Your IRA Protected from Creditors in Bankruptcy?
• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• The Average Retirement Savings by Age
• Roth IRAs: What They Are and How They Work
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Roth IRA Contribution Limits for 2026
• SEP IRA Contribution Limits for 2026

There's nothing like a paycheck. Steady income pays the bills. Not to mention fun stuff like dinners out or a European getaway. But when you retire, the paychecks stop. The challenge, of course, is to turn your retirement nest egg into a steady paycheck that lasts a lifetime.

Let's say you’ve socked away $1 million. How do you turn that seven-figure account balance into a lifetime income machine that is able to fund the lifestyle you envision in retirement?

It starts with a game plan, says Nilay Gandhi, senior wealth adviser at Vanguard. "A lot of clients want to know whether what they have saved will be enough," says Gandhi. "But retirement security doesn't come in the form of a number. There needs to be a plan in place to help determine if they'll have sufficient funds."

The starting line: know your number

Before building your income machine, you must figure out how much income you'll need after your working days are over.

If you've already done this exercise (as many Kiplinger readers have), jump to the next section on the "Five Ds."

Gandhi suggests a simple three-step audit.

First, add up your monthly must-pay expenses in retirement (housing, healthcare, car payments, etc.).

Next, build a realistic budget for "mad money" (travel, entertainment). Develop a budget and spending plan that is doable and allows you to withdraw what you need without outliving your money.

Finally, figure out where you will get the income to cover your expenses, such as Social Security, investments, rental income and the like. "You must layer all of those income pieces together and coordinate it so that you're able to turn those savings streams into a dream retirement," says Gandhi.

Once you know how much your portfolio needs to bridge, you can apply the "Five Ds" strategy.

The 'Five Ds' to turn your 401(k) into retirement income

When building a retirement income plan, there are five things that go into the decision and that you should think about, says Lindsay Theodore, a thought leadership senior manager at T. Rowe Price specializing in retirement and personal finance.

You want to make sure you have all the key bases covered so your income-generation plan holds up even in times of market stress.

Theodore refers to this income stream framework as the "Five Ds":

1. Diversification

The more diversified your income sources are, the better. "Social Security plays a big role," says Theodore. These government benefits are guaranteed, adjusted for inflation, and last for as long as you live. That's why waiting as long as possible to turn on Social Security and boosting your monthly benefit is a key plank in a retiree's income plan. Waiting until age 70 to take benefits provides 77% more in monthly income compared to claiming at age 62, according to the Social Security Administration.

But relying on Social Security alone will result in a sizable income gap. "You need a mix of income sources," says Theodore. You can also generate income from, say, your target-date fund in your 401(k) that holds a mix of stocks and bonds. Or equity and fixed-income funds you own in a taxable brokerage account. Traditional pensions can also provide a steady stream of income. Finally, an annuity that turns a lump-sum payment you make to an insurer into a guaranteed income stream also falls into this category. If you own rental properties, that income stream can be added to the pot, too.

2. Duration

You need your money to last, ideally through your entire lifespan. That's why income sources need to fill short-, medium-, and long-term buckets.

Your short-term bucket should be sitting in low-volatility assets that are not impacted by market swings and that you can access easily. Examples include high-yield savings accounts, money market accounts, short-term U.S. Treasury bonds, or CDs.

The medium bucket looks out three to 10 years and includes assets such as high-quality bonds and bond funds that can deliver some income while also dampening volatility.

Your long-term bucket, or growth bucket, should consist of well-diversified stock funds and exchange-traded funds (ETFs) that deliver long-term growth and inflation protection.

3. Downside protection

If you want to generate consistent income and not prematurely drain your account balance, make sure you don't have all the assets you can pull from invested in stocks or other assets that are susceptible to steep price declines. You want plenty of money in a so-called rainy-day type of fund that holds its value in down markets and can be withdrawn easily. Having this cash handy means you won't have to sell assets in a declining market to raise money to pay the bills.

"You need guaranteed income from conservative assets," says Theodore. "We recommend retirees have 13 months to 24 months of cash (or cash-like equivalents) on hand."

Having that amount of cash available will help retirees ride out most stock bear markets without having to tap their stock holdings when prices are depressed. That unfortunate effect is known as the sequence of returns risk.

Going back to 1929, the 12 "garden-variety" bear markets, or downdrafts between 20% and 39.99%, have averaged total declines of 27.6% for the S&P 500 stock market, according to S&P Capital IQ. The good news? The market recovered all its losses in 13 months, on average.

4. Discretion

The ability to access assets at a moment's notice to pay for a non-budgeted expense or other type of financial emergency is also key to a sound retirement income plan. Discretion refers to how liquid a retirement account balance really is. Retirees need to easily access their savings when they need to.

"Having withdrawal flexibility is important," says Theodore. "With these types of withdrawals in mind, it could help you determine how much you want to allocate to each of your sources of income in retirement." For example, you don't want 100% of your assets in stocks, which are volatile and can suffer sharp drops from time to time.

5. Drag

You want to avoid so-called tax drag and high fees that eat into your account balance. "You especially want to minimize taxes," says Theodore. That's why it's important that you are mindful of the tax impact of any withdrawals you make in retirement.

A withdrawal from a traditional 401(k) funded with pre-tax dollars, for example, will be taxed at your ordinary tax rate. In contrast, a withdrawal from a Roth IRA or Roth 401(k), is tax-free as your initial contributions were made with post-tax dollars. The less you pay in taxes, the more money that stays in your accounts. "(Smart) withdrawals can help your money last longer," says Theodore.

This is where tactical withdrawals come in. You might consider, for example, drawing down your tax-deferred retirement accounts and delaying taking Social Security. The benefit is two-fold. First, by drawing down on your 401(k) assets that are taxed as ordinary income, you will reduce the amount of required minimum distributions (RMDs) you will have to take at 73 and, therefore, the amount of income you’ll have to pay taxes on. The second benefit is that you can potentially wait until age 70 to start taking Social Security benefits, which will ensure that you will have a much higher monthly benefit than if you turn on benefits at age 62 or even at full retirement age.

How much should you withdraw from your nest egg in retirement?

The rule of thumb is to take 4% from your retirement savings each year to supplement your guaranteed income streams and ensure your money lasts at least 30 years. So, if your retirement account balance is $1 million, a 4% withdrawal rate will net $40,000 in income annually.

Here's an example of how you can create a paycheck from your $1 million savings.

Let's say you need $80,000 in annual income and expect to receive $40,000 in guaranteed Social Security income. That leaves you with a $40,000 savings gap.

The rest of the money will come from your own savings. Here's how it might work.

Let's say you follow the advice of personal finance experts and have a variety of income streams to pull from. You have 60%, or $600,000, of your $1 million nest egg invested in a target-date retirement fund; 10%, or $100,000, in an annuity earning 6.5%; 10% in a core bond fund yielding 5%; 10% in a money market paying 3.5% interest; and 10% in growth investments that earn 10%.

This diversified approach of pulling income from different buckets will generate $49,000 in income, or $9,000 more than you need. That extra $9,000 could fund a fun vacation but also serve as a cushion against inflation or a health care emergency.

The key is to make use of all the different income streams you have and to coordinate the withdrawals from the buckets in a way that will make your money last as long as possible, says Vanguard's Gandhi.

What's the biggest mistake retirees make that puts their revenue stream at risk over time?

"(They lack) withdrawal discipline," says Gandhi. In other words, they spend too much, which forces them to take much larger distributions than their plan calls for.

"You need to stick to spending rules," says Gandhi. "Money can be emotional. But you can't let your emotions rule."

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