Retirees Risk 6-Figure Tax Hits by Keeping 70% of Savings in Pre-Tax 401(k)s

1 articles · Updated · 24/7 Wall St. · May 27

60%-70% of many retirees’ assets sit in pre-tax 401(k)s and IRAs, Julia Lembcke said, creating a withdrawal-sequencing problem that can sharply raise lifetime taxes once distributions begin.
$100,000 annual withdrawals taken conventionally from taxable accounts first can leave a traditional IRA near $2 million by age 73, making RMDs large enough to force taxable income retirees may not need.
$40,000 IRA withdrawals paired with $60,000 from brokerage accounts—and $30,000 to $50,000 a year of Roth conversions—can keep income in lower brackets and cut lifetime tax drag by six figures for a $2 million household.
Age 63 is a key threshold because Medicare IRMAA uses a two-year income lookback; a large conversion at 64 can also trigger higher Part B and Part D premiums and the 3.8% net investment income tax.
Lembcke urged households with more than 70% in pre-tax accounts to model blended withdrawals before 63 and keep taxable cash available to pay conversion taxes.

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