"A traditional 401(k) contribution saves you taxes at your marginal rate today. But every dollar withdrawn in retirement comes out as ordinary income. The math works in your favor only when your retirement tax rate is lower than your current marginal rate."
"If that total lands you in the same bracket you are in today, the traditional 401(k) is a tax-neutral vehicle, not a tax-reduction tool."
"Large RMDs push MAGI above IRMAA thresholds trigger surcharges on top of the standard 2026 Part B premium of approximately $203 per month."
"The two-year lookback makes this costly and irreversible. A large RMD in 2033 sets your Medicare premiums in 2035. You cannot retroactively undo it."
High earners in the 35% federal tax bracket should reconsider standard tax planning advice. Traditional 401(k) contributions save taxes today but result in ordinary income withdrawals in retirement. Estimating taxable income at age 75 is crucial; if it remains the same, the 401(k) is tax-neutral. Large required minimum distributions (RMDs) can push income above Medicare thresholds, leading to significant IRMAA surcharges. This two-year lookback can create costly and irreversible impacts on Medicare premiums.
Read at 24/7 Wall St.
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