RMDs are like colon cancer screenings: You thought they were only for older folks, and ignoring them now could lead to bigger problems down the road.

When you get to the current RMD age of 73 (updated in the SECURE 2.0 Act) and you're forced to take money from your traditional accounts, you're not just paying taxes on that specific RMD dollar amount.

• Your RMD amount likely makes more of your Social Security taxable
• Your RMD amount could force you to pay extra for Medicare through the income-related monthly adjustment amount (IRMAA)
• Your RMD amount could make you lose out on deductions such as the enhanced deduction for older people and the medical expense deduction
• And you could pay an extra 25% tax penalty on RMDs you don't take out on time

Here are the five biggest mistakes I see retirees make with their RMDs. Learn from these mistakes so that you can plan your RMDs ahead of time and hopefully lower their tax bite.

Mistake No. 1: Waiting until age 73 to create a plan

One of the most consistent concerns I hear from retirees is, "How bad am I going to get killed on taxes when my RMDs start?"

They have projected out their future RMD amount of $10,000, $25,000, even $100,000 in future taxable income, and they're concerned about the tax cost.

But then they stop there. They see the problem, but they figure they can't do anything about it.

Thankfully, you can. Go beyond just projecting your RMD amount, but also project your future tax brackets. Then find the tax years between now and 73 when your taxes are likely to be lowest; this is often before you start Social Security.

Then, during those lower projected tax years, do a Roth conversion at that lower tax rate, so that your future RMD is lower and the Roth money can grow tax-free.

Mistake No. 2: Failing to make use of qualified charitable distributions (QCDs)

A retired pastor came to my office for a new client meeting. He brought in his investment statements, and tax return, and he explained that he had roughly a $12,000 RMD each year and that he gave it all away.

I reviewed his tax return and saw the RMD listed as taxable income, and I saw that he wasn't itemizing his deductions — he was paying more taxes than he should have!

I asked the pastor how he took out his RMD each year to give to charity, and he said, "I want to follow the rules, so I take out my RMD as soon as I can each year and put it in the bank. Then at the end of the year, I write out checks to my church and favorite charities."

I showed him that he could do a qualified charitable distribution (QCD) instead, sending the money from the IRA directly to the charities.

I calculated that using the QCD rules on the $12,000 QCD amount to be $2,263 in income tax savings.

And here's a next-level QCD move: You can start doing QCDs at age 70½, even though RMDs don't start until 73 currently. It just might lower this year's taxes, and it will definitely lower your future RMD amounts.

Mistake No. 3: Doing the wrong tax withholding

I just met a retiree who had his first RMD distribution last year. He and his wife make $36,000 from Social Security and $36,000 from his pension.

They don't need their IRA money, which is why they hadn't taken anything out until their first RMD, which came to $40,000.

His investment company sent him the $40,000 at the end of last year, doing the 10% mandatory federal withholding and no state tax withholding because it wasn't required.

It turned out the taxes on his RMD were $6,400 for federal, not the $4,000 that was withheld, and $2,000 for state — and there was nothing withheld for that.

He had to write out two big checks, and he owed even more because of underpayment penalties.

Before you take out your RMD, do a tax projection to get the withholding right — the standard 10% is almost never the right amount.

Mistake No. 4: Not realizing how your RMD income affects the rest of your tax return

You would think that paying taxes on your RMDs is simple. If you're in the 12% tax bracket, and you take out $10,000, then you just pay $1,200 in extra taxes, right? If only it were that simple.

When you take money from your traditional IRA, especially for the first time with your RMD, you're often surprised at how much it affects the rest of your tax return.

The amount of your Social Security that is taxable is based on how much other income you have. When you have more other income from your IRA, your taxable Social Security amount goes up.

That RMD amount could push you into the next tax bracket. The IRS doesn't hand you a card saying, "You're in the 12% tax bracket forever." When your RMDs start, your income goes up, and often your tax bracket goes higher.

Or perhaps that extra income means that you get less medical deductions or less of the enhanced deduction for older people.

I often see RMDs push retirees over the edge so that they are paying extra for Medicare because of the IRMAA. You can read about those IRMAA tax brackets in the Kiplinger article Medicare Premiums 2025: IRMAA Brackets and Surcharges for Parts B and D. And you can see the 2026 brackets in this Kiplinger article.

When it comes to the U.S. tax code, more RMD income often means more other income and fewer deductions, and then you pay more in taxes than you expected.

Before you take your first RMD, make sure you understand how the new taxable income affects the rest of your income and deductions.

Mistake No. 5: Forgetting that the M in RMD means 'minimum,' not 'maximum'

All these tax mistakes add up to a lot of big surprises when you hit RMD age. Perhaps you've resolved to reduce the tax pain by sticking to just the minimum amount for your RMD. But you don't have to restrict your distribution to the minimum.

Often, the solution to your future RMD tax problems is to bite the bullet this year and do a Roth conversion at a tax rate that you're comfortable with so that your future RMDs are lower.

Also, remember that just because you're required to do RMDs at age 73 doesn't mean you can't take out money earlier. The minimum age to withdraw from your IRA without a penalty is 59½, which means you could have 13-plus years to plan for the likely RMD tax pain.

Lower your retirement taxes by creating your RMD strategy today

RMDs might seem like an annoying part of the tax code, but when it comes to retirement taxes, RMDs affect the rest of your retirement:

• Your tax bracket
• Your Social Security taxation
• Your Medicare premiums
• Your investment strategy
• Your charitable giving

The time to start planning for your RMDs is not the year you turn 73, but even before you retire. In your retirement planning, focus not just on your investment growth, but on how that growth will affect your future tax situation.

That's why I put tax planning as step three in my book, Retire Today: Create Your Retirement Master Plan in 5 Simple Steps, even before your investment planning (step four).

A tax-smart retirement gets you ready for your RMDs well ahead of time and works to minimize their tax impact even when you get to RMD age.

Related Content

• How to Calculate RMDs (Required Minimum Distributions) for IRAs
• I'm a Financial Planner: This Is How You Can Get Started With RMDs
• Required Minimum Distributions (RMDs): Rules, Deadlines, and Important Changes to Know
• Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
• New Year's Eve RMD Deadline: What to Know and What to Do

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.

Taxes are a worry for most retirees, even as they put their working years behind them and ease into what should be a more relaxing time.

Taxpayers were expecting to face even more worries at the end of this year, when the Tax Cuts and Jobs Act of 2017 was set to expire.

Fortunately, many of the act's provisions became permanent when Congress passed and the president signed the One Big Beautiful Bill (OBBB).

But the new law has done more than that. It also includes tax changes that are especially amenable to many retirees and near retirees.

However, they aren't all going to last, so it may be wise to take advantage sooner rather than later.

The 65-and-older advantage

One of those changes is that many taxpayers age 65 and older can qualify for an extra $6,000 standard deduction. This not only lowers your tax bill but could also reduce your taxable income enough to avoid taxes on your Social Security benefits.

Yes, up to 85% of your Social Security benefits can be taxed, depending on your income.

If couples filing jointly are both at least 65, they can each qualify for the extra deduction, making it a total of $12,000.

But there are income restrictions on who qualifies. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 (or $150,000 for joint filers).

The deduction also won't be around forever; it lasts only through 2028.

Higher deductions for state and local taxes

Some federal income taxpayers may also be able to take advantage of a higher deduction for what they pay in state and local taxes, the so-called SALT deduction, at least until 2029, when this law expires.

The cap on how much you can deduct has been raised from $10,000 to $40,000, but once again, there are income limits.

In this case, the new cap applies to incomes under $500,000 for those filing jointly, or under $250,000 for individuals or married couples filing separately.

For those whose taxable income is over $500,000, the cap is gradually reduced until it reaches the previous level of $10,000.

This new cap could change whether you decide to itemize your deductions rather than take the standard deduction.

Good opportunity for Roth conversions

In addition to taking advantage of the tax changes, there are other steps to consider during this limited period when your tax liability could be lower.

For example, this would be a great time to consider a Roth conversion if you have been saving money for retirement in a traditional IRA, 401(k) or other tax-deferred accounts.

Those accounts are great for saving money, and you do have immediate tax advantages with them since your yearly contributions aren't taxed.

The downside is that when you retire and start spending the money you saved, your withdrawals are taxed.

Plus, once you reach age 73 (age 75 for those born in 1960 or later), required minimum distributions (RMDs) kick in, forcing you to withdraw a certain percentage each year whether you want to or not.

Roth accounts, on the other hand, grow tax-free, aren't taxed when you make withdrawals and don't have RMDs. You do, however, pay taxes when you make a conversion from a traditional account to a Roth.

But that's one reason these next few years may be a good time to move some of your money to a Roth.

You have some wiggle room in your tax bill, thanks to tax provisions such as the extra deduction for those 65 and older, and you can also take advantage of the higher SALT cap.

Pay less, keep more for yourself

One criticism of the OBBB is that lower taxes could increase the federal deficit and add to the country's growing debt. At some point in the future, that debt will need to be addressed — possibly through higher taxes.

In the meantime, consult with a financial professional to make sure you are getting the most out of the tax advantages currently available to you.

An adviser can review your individual situation, analyze your income sources and any available deductions or financial moves, and help you craft a plan that works best for you.

Yes, taxes are a concern even in retirement. But good planning and an awareness of changes that apply to you can allow you to give Uncle Sam less money and keep more for yourself.

Ronnie Blair contributed to this article.

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

Related Content

• I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term Plan
• Is the One Big Beautiful Bill Really All That Great for Your Retirement?
• ​​What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's Guide
• Your Golden Years Just Got a Tax Break, But There's a Catch

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

One way to determine this is by looking at the average retirement income in the United States, categorized by age group and state.

The breakdown by age, from Empower, looking at the 2025 U.S. Census Current Population Survey, shows how the median and mean annual income for retirees change across different age brackets, from the more active 55 to 59 and 60 to 64 age groups to the later-stage 75-plus age group.

We also examined data on average retirement incomes across all 50 states, provided by Wisevoter and based on the U.S. Census Bureau's American Community Survey.

Knowing the average retirement income for your age bracket and state helps you benchmark your savings progress.

If the median household income for retirees in your state is, for example, $65,000, and your projected income is $40,000, you're below the local benchmark.

To maintain a similar standard of living in your area, you might decide you need to increase your savings or reduce your expected spending.

Retirement income by age, median and mean figures

Social Security provides a vital baseline, but it’s not enough to cover living expenses — especially when faced with rising health care costs and inflation. To bridge that gap, you need a realistic savings target.

By looking at data by age groups, you can see how much the average income drops over the course of retirement. The median income for those ages 60 to 64 is $83,770. That figure drops by $35,980 (nearly 43%) for individuals age 75 and older. This decline is attributed to a reduction in work income and the necessary drawdown of retirement accounts.

The median number is probably more representative of the actual average income in the U.S. than the mean number. This is because households with higher incomes tend to skew the mean calculation toward the high side.

Ultimately, the most important lesson derived from viewing average retirement income by age is recognizing the income deceleration that occurs in later years. The consistent decline in median income after age 59 underscores the financial risk posed by inflation and the cessation of work-related income.

This knowledge can be used to focus on creating a sustainable, tax-efficient withdrawal strategy today — one that accounts for the inevitable drop in income and prioritizes managing your future tax liabilities, such as required minimum distributions (RMDs), to protect the longevity of your portfolio. Your goal isn't just to reach the average, but to outlast it.

Average retirement income by state

Where you live is the single largest determinant of your retirement budget. While the national average retirement income serves as a starting point, it masks vast differences in the cost of living.

A detailed, state-by-state perspective can help you move beyond national generalizations, setting a savings goal informed by the real-world earnings of your counterparts in other states.

For instance, many states offer additional tax breaks for retirees. Some states exempt all retirement income from taxation, while other states offer substantial tax credits to retirees living on fixed incomes.

One reality you can't escape is how the federal government taxes your retirement income and estate. Even if you move to a state that doesn't tax Social Security benefits, pensions or has no inheritance/estate taxes, you will still be subject to federal taxes.

If you're considering a move, note that a state with a much higher average retirement income usually has a proportionally higher cost of living as well. Knowing this can help you assess whether your savings will be more durable in an area characterized by a lower average income and subsequently lower costs.

Planning tip. Only nine states tax Social Security benefits. You might want to take note of this as you're considering a move.

Using data to your advantage

The data show that retirement income is far from uniform; it can shift dramatically by age and geography. While median figures provide a powerful benchmark, your ultimate financial success depends on personalizing this information.

Use these age and state-by-state averages not as a final goal, but as a critical reality check. Suppose that your projected income falls below the average for your age or location. In that case, it’s a clear signal to increase savings, optimize your withdrawal strategy to manage taxes or re-evaluate your geographic future.

The time to plan your specific income strategy is now.

Related Content

• The Average Retirement Savings by Age
• Average Cost of Health Care by Age and US State
• Nine Things You Need for a Complete Retirement
• 6 Changes to IRAs, 401(k)s and HSAs in 2026

No doubt, this retirement savings strategy, which relies on funding your 401(k) up to the contribution limit, can boost the size of your nest egg. But putting every spare penny of savings into a traditional 401(k) is akin to putting on a financial straitjacket.

Just like the downsides of being house rich and cash poor, it’s possible to have a sizable nest egg and still run into liquidity issues or other money-related obstacles that can put stress on your finances.

While there’s no denying that taking advantage of the upfront tax break, tax-deferred growth, a potential employer match and automatic investments that a traditional 401(k) offers, there are also risks to putting all your investable assets in one basket: a 401(k) funded with pre-tax dollars.

Should you max out your 401(k)?

Get the match. No matter what, it’s a given that investors should put enough in a 401(k) to at least earn matching contributions, says Christine Benz, director of personal finance and retirement planning at Morningstar. There’s no reason to leave money on the table.

Know your company plan. The first question you'll need to answer is what the 401(k) match is at your company. Is it generous? (The average match is 4.6% of pay, according to Vanguard.) Do you earn that match from day one, or do you have to work for a few years first? Are you vested right away? If you plan to leave your company before you're eligible for a match, then you might not want to invest in the company's 401(k) plan.

Once you're familiar with your company's 401(k) plan, here's how to determine if you should contribute the maximum allowable amount.

The hidden downsides of maxing out your 401(k)

It’s often said that in life, stuff happens. When financial emergencies strike, or you’re intent on buying a new car or a vacation home, being able to access your money easily and penalty-free is crucial. Having the bulk of your money tied up in a traditional 401(k) can handcuff you.

Before tying up your hard-earned cash, you should understand the drawbacks of traditional 401(k)s (and related accounts such as traditional 403(b)s and 457(b)s). Since distributions are taxed as ordinary income, large 401(k) withdrawals in your retirement years when spending spikes can push you into a higher tax bracket and boost your tax bill.

IRS rules also place restrictions on accessing your money before age 59½. If you do, you'll most likely be hit with a 10% early withdrawal penalty on top of any taxes you incur.

Your traditional 401(k) might also lack a strong lineup of funds to choose from, offer a meager company match or charge hefty fees that bite into your returns.

Financial experts say you should still save as much as you can. The key is to spread your money across different types of accounts to ensure you have the most financial wiggle room for cash flow and taxes, no matter your age.

“One of the biggest downsides is the lack of financial flexibility before you hit your full retirement age,” said retirement expert Roger Young, a thought leadership director at T. Rowe Price.

Many Americans retire early, get laid off late in life or have a large pending purchase or bill. As a result, they might face financial challenges that traditional 401(k)s aren't designed to address. The problem is the inability to withdraw money as needed in a tax-efficient, penalty-free way.

“It is definitely helpful to have money in different places so that you have access to it without penalty,” said Young.

Tax diversification is the winning strategy

Spreading your savings across investment buckets with different tax treatments provides maximum flexibility.

“Having tax diversification is really critical,” said Chris Kampitsis, a financial planner at Barnum Financial Group. “Having some money in a Roth bucket, a brokerage account, and an emergency fund in cash or cash equivalents allows you to call your shots in terms of the tax rate that you’re going to be looking to be in throughout retirement.”

Being able to choose between a tax-free Roth withdrawal, a lower capital gains hit from a brokerage account or cash or a traditional 401(k) withdrawal provides ample options, depending on financial circumstances.

There are plenty of options to better manage your tax hit.

“Having assets in a taxable brokerage account, Roth accounts, as well as traditional tax-deferred accounts, gives you more flexibility to control your tax bills on a year-to-year basis,” said Benz.

What you want to avoid, if possible, is having every saved dollar in a traditional 401(k). The reason: Every dollar you withdraw will be taxed at your ordinary income tax rate.

If you don’t max out your 401(k), where should you save money?

Roth accounts. Contributing to a Roth 401(k) (if your company offers it) or a Roth IRA account funded with after-tax dollars offers a few key benefits that traditional 401(k)s do not.

For one, withdrawals are tax-free. That means even if you yank out $100,000 for a down payment on a home, it won’t boost your income by a single penny or increase the amount you owe to the IRS. Since the money you contribute to a Roth has already been taxed by Uncle Sam, you can withdraw your deposits (not your gains) before age 59½ without paying an early withdrawal penalty or taxes on your earnings.

Once your Roth has been open for five years, you have the freedom to do whatever you wish with the money you’ve put in the account without paying taxes.

“You can spend it as freely as you want when you need it,” said Kampitsis.

With the new IRS rule mandating that high-earners in 401(k) plans that offer a Roth 401(k) invest their employer’s matching contributions into a Roth account starting in 2026, there’s an opportunity for many retirement savers to diversify their retirement savings from a tax perspective.

“If you’re a boomer who’s been doing pre-tax, pre-tax, pre-tax contributions (forever), I would try to focus on building up my Roth bucket as much as possible,” said Kampitsis.

Taxable brokerage accounts. In the age of tax-efficient exchange-traded funds (ETFs), parking money in a taxable brokerage account will allow your money to grow without major interference from big tax bills, said Benz.

“ETFs are just a terrific, tax-efficient way to invest taxable dollars,” said Benz. “These accounts can mimic the tax-sheltering features you get with your 401(k) or IRA.”

So-called “asset location” is another key plank in a financial plan looking to reduce tax drag on returns, adds T. Rowe Price’s Young.

“The tax consequences of having a taxable account are not as potentially negative as in the past,” said Young.

Another perk is that investments in taxable accounts are subject to lower capital gains tax rates, adds Kampitsis.

“Building up your brokerage bucket can be tremendously effective,” said Kampitsis. Depending on your income, you could pay as little as 0% on long-term capital gains for assets held at least one year. The highest rate is 20%. But the IRS says most Americans pay 15%.

There are many upsides to saving in brokerage accounts. There are no contribution limits. There are no age limits when it comes to tapping your money penalty-free, unlike traditional 401(k)s that require you to wait until age 59½ to make penalty-free withdrawals.

The “rule of 55” — an IRS provision that allows workers who leave their job in or after age 55 to withdraw from a qualified plan without a 10% penalty — doesn’t apply, either.

With layoffs on the rise, brokerage accounts can be a lifeline.

“Having that reserve of non-401(k) money is critical now more than ever,” said Kampitsis.

When it doesn’t make sense to max out your 401(k)

If it drains too much liquidity. You need money to pay the monthly bills and cover big expenses. Having assets parked in either Roth products, taxable accounts or a cash emergency fund that you can access easily before full retirement age is critical.

When the interest on debt is higher than account earnings. If the debt you’re carrying on credit cards, personal loans or auto loans is higher than the return you’re getting in your 401(k), it might make sense to reduce your retirement plan contributions to service the high-interest debt, says Kampitsis.

“Say you’re saving money to get a 10% return, but you’re paying 27% in interest on credit card bills and you’re only sending in the minimum payment,” said Kampitsis. “It might make sense to restructure your cash flow to accomplish both goals.”

If you plan to retire early. Many people who want to stop working before full retirement age tend to max out their 401(k)s to amass as much money as possible before they retire, says Kampitsis.

The problem is that if most of their savings are in a traditional 401(k), they likely will have to tap their old workplace retirement account and pay the 10% early-withdrawal penalty. What’s more, piling up so much money in a traditional 401(k) can add up to massive required minimum distributions (RMDs) when they turn 73.

Fund your accounts in this order

If you want to spread your retirement dollars around, the pecking order goes like this: Start with your 401(k) and contribute enough to get the match. A Roth IRA is next in line due to its more favorable withdrawal rules before age 59½ and tax-free withdrawals. Finally, funnel money into a taxable brokerage account to fill the third bucket.

“It’s like building blocks,” said Lisa Featherngill, national director of wealth planning at Comerica Wealth Management. “All of these accounts are going towards your retirement nest egg.”

Read More

• Average 401(k) Balance by Age and Generation
• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• I'm 52, make $210K a year and heard I may lose a 401(k) tax break in 2026. Should I max out my 401(k) anyway?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA

1. Annual limits on Roth IRA contributions

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

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

2. Taking the annual RMD and married couples

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

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

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

3. Rollover IRAs and Roth Conversions

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

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

4. SIMPLE IRA and SEP IRA

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

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

5. Converting entire traditional IRA vs. a portion

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

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

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

6. Five-year rules for Roth IRAs

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

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

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

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

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

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

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

About Ask the Editor, Tax Edition

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

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

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

More Reader Questions Answered

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

It doesn’t matter that it means two mortgages. He can still contribute to his 401(k), and although things may be a little tighter, when he does retire, he’ll have two homes that he hopes will have appreciated, along with a plan for where he’ll spend his golden years.

Unconventional? Maybe. After all, the normal trajectory is to save money in a tax-advantaged retirement savings account, retire, and then start your next chapter.

For Rivera, prepaying a portion of his retirement not only gives him peace of mind but presents an opportunity to pass on generational wealth to his two adult children. When he retires, they’ll inherit his current home, and when he passes, his retirement home.

“Even if I’m wrong, you can’t really put a price on that,” said Rivera. “I already know where I want to retire, and that location may not be affordable to me in ten years.”

Prepaying retirement dreams

However, it’s not just retirement homes that people are prepaying.

They are buying new cars as they approach retirement, worrying that they may not get approved for the best financing when they stop collecting a paycheck. Alternatively, they may consider purchasing an RV to encourage themselves to travel the country when they retire, or retrofit their homes pre-retirement to age in place later in life.

Some people are moving into retirement communities long before they stop working, to prepare for the transition into that phase of their lives.

But the question is, from a wealth planning perspective, is that the best approach? Would their money be better served invested elsewhere?

The answer: It depends.

Prepaying retirement is ok if…

Go for it, says Denny Artache, president and CEO of Artache Financial Group, if the purchase meets certain criteria.

To begin with, you need to be able to afford it. If Rivera had purchased the home in Puerto Rico, but as a result, couldn’t afford his first mortgage, Artache would have said, 'Don't do it.'

But Rivera can afford both and plans to have his retirement home paid off before he stops working. At that point, his children will take over his first mortgage, and he’ll live mortgage-free, alleviating a big financial burden in retirement.

“Whenever you look at ‘Should I?,’ ask yourself, ‘can I afford to?'" says Artache. “Don’t go out of your way to finance a pipe dream.”

The cost of financing and depreciation are other things to consider. If your dream is to travel the country in an RV once you retire in five years, and you want to encourage yourself to do it by buying it ahead of time, the cost of ownership comes into play.

If you have to pay interest on a loan to make it a reality now, or if the RV will be worth nothing when you finally use it, you may be better off waiting. You can save more money to avoid financing charges and get a more modern one later on.

Then there’s the investment returns. In the case of Rivera, he purchased real estate that has the potential to appreciate. That may not be true if you prepaid for a boat or RV.

Some people don't care if prepaying a piece of their retirement dream isn’t the smartest financial move; for them, it's about the peace of mind, and that can be priceless.

“If you can afford to have peace of mind, go for it,” says Artache.

Test the waters instead

It’s nice to have a dream and want to prepay for it, but there’s a lot that can go wrong with that, cautions Michael Pumphrey, a wealth advisor at Tanglewood Total Wealth Management.

“One of the big picture things to consider as we guide retirees into the next phase of their life is to have an idea about what retirement might look like, but also that those ideas can change over time,” said Pumphrey.

Rivera may want to live in Puerto Rico now, but who knows if he will still want to in ten years, says Pumphrey. If he changes his mind, he has to deal with trying to sell the property and the potential for losses.

Rather than going all in, Pumphrey advocates a test-the-waters approach in which you take small bites.

“Instead of buying a house in the Caribbean or buying an RV right now, maybe rent an Airbnb or an RV a couple of weeks a year for a few years and see if you like it,” he says. “Even people with these grandiose ideas of how they want to spend all this money decide 'it isn’t for me.'”

Evaluate your reasons for prepaying

Ultimately, your motivation will dictate why you are prepaying your retirement bucket list item. For Rivera, it's a desire to retire to a place he always dreamed of and to pass it on to his kids and maybe grandkids, and he’s ok if it doesn’t make him a fortune.

For someone else, it may be less about legacy and the location and more about spending time with family.

“I always say for people to evaluate really what they value, what's more important to them, and make sure they are prioritizing that in terms of their spending decisions,” said Pumphrey.

Related Content

• Retirement Savings on Track? How Much You Should Have by 50 and 55
• The 'Go Live Your Life' Rule of Retirement Spending
• Avoid These Four Mistakes in the Run Up to Retirement
• Baby Boomers vs Gen X: How They Approach Retirement Differently

This 10-question True/False quiz covers the essential facts you need to maximize your annual contributions and avoid costly mistakes. 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:

• 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

So, what's on deck for 2026? The major changes coming to retirement plans and accounts in 2026 are primarily driven by the SECURE 2.0 Act and the annual inflation adjustments. The most significant change to be aware of involves catch-up contributions for high earners.

1. Catch-up 401(k) contributions for higher earners over 50 must be made to a Roth

This rule requires that certain high-income earners must make their age 50 and older catch-up contributions to their 401(k), 403(b) or governmental 457(b) plans on a Roth or after-tax basis.

The primary change is a shift from an upfront tax deduction to tax-free withdrawals in retirement. This eliminates a significant pre-tax deduction for high-earners nearing retirement, effectively requiring them to pay income tax on the catch-up portion of their savings now rather than in retirement.

Who is affected? The rule applies to any participant who meets both of the following criteria:

• Age: The participant is age 50 or older or will turn 50 during the year
• Wages: The participant's FICA wages (Social Security wages, typically Box 3 of Form W-2) from the employer sponsoring the plan exceeded $150,000 in the prior calendar year.

If you are a high earner, with over $150,000 in FICA wages in 2025, and are 50 or older, you will no longer be able to deduct your catch-up contributions from your current year's taxable income. That income threshold will be adjusted for inflation in the future.

For affected high-earners, any catch-up contributions — $8,000 in 2026 (up $500 from $7,500 in 2025) —made to their employer-sponsored plan must be designated as Roth or after-tax contributions. High-earners lose the option to make those catch-up contributions on a pre-tax basis.

If your employer's plan does not offer a Roth contribution feature, then all participants who are subject to the high-earner rule will be prohibited from making any catch-up contributions to that plan.

Action to consider now: If you are age 50 or older and your income is close to or over the $150,000 threshold, you should consult with your plan administrator, financial or tax adviser to understand how the mandatory Roth catch-up rule will affect your retirement savings strategy for 2026.

2. 401(k), 403(b), and 457(b) plan contributions go up in 2026

The annual announcement of increased contribution limits for employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and 457 plans, is a critical opportunity for employees to accelerate their savings and secure a stronger financial future.

These higher ceilings allow workers — especially those utilizing catch-up contributions as they approach retirement — to defer more income into tax-advantaged accounts, boosting their potential for long-term compound growth and maximizing their immediate tax benefits.

As the Social Security trust fund is on shaky ground, some experts recommend saving more to cover any potential shortfall. How much more? The experts at Pension Bee suggest people save an additional $138,000 in additional savings to generate the same income if Social Security is reduced, based on the 4% withdrawal rule.

3. Traditional and Roth IRA limits for 2026

While there is no income limit when contributing to a traditional IRA, the ability to deduct that contribution is phased out based on your income and whether you (or your spouse) are covered by a workplace retirement plan.

If you are not covered by a workplace plan but your spouse is, you can still take the deduction, but your joint income will affect it.

If neither you nor your spouse is covered by a retirement plan at work, you are not subject to any income limitations and can take a full deduction for your traditional IRA contributions up to the annual limit, regardless of your Modified Adjusted Gross Income (MAGI).

Here are the contribution limits and MAGI phase-out ranges for making deductible contributions to a traditional IRA for the 2026 tax year:

If only one spouse is covered by a workplace retirement plan, you will have a higher phase-out range. For married couples filing jointly:

• Full deduction if MAGI is: $242,000 or less (up from $236,000 in 2025)
• Partial deduction if MAGI is between: $242,001 and $252,000 (up from a range of $236,001 and $246,000 in 2025)
• No deduction if MAGI is: $252,000 or more (up from $246,001 or more in 2025)

4. Expanded savings for small businesses and the self-employed

For small business owners and the self-employed, the annual increase in retirement plan contribution limits is a powerful development that offers significant opportunities to boost tax-advantaged savings.

The higher contribution ceilings for plans like the SEP IRA, Solo 401(k), and SIMPLE IRA allow business owners to defer greater amounts of income for both themselves and their employees.

This move is key for maximizing retirement readiness, benefiting from larger immediate tax deductions and making their plans more competitive for attracting and retaining talent.

For solo 401(k) accounts. You're also allowed to contribute up to 25% of compensation (after Social Security and Medicare taxes) as the employer profit-sharing contribution. The employer (profit-sharing) contribution limit remains up to 25% of compensation, with an overall compensation cap of $360,000 for 2026.

5. Paper statement requirement

You may find something new in your mailbox in 2026. Defined contribution plans, such as 401(k)s), must provide their participants with at least one paper statement per calendar year, unless the you specifically elect to receive statements electronically. Defined benefit plans must provide one every three years.

6. Health savings accounts (HSAs)

Paying for health care can be challenging before and after retirement. One way to save ahead for medical expenses in retirement is by contributing to a health savings account (HSA) before you enroll in Medicare. These accounts offer a triple tax benefit because contributions are made pre-tax (or are tax-deductible if you contribute after-tax), your contributions grow tax-free, and withdrawals are tax-free when used for qualified medical expenses.

After age 65, you can withdraw funds for any non-medical reason without a penalty; the withdrawals will simply be taxed as ordinary income, similar to a traditional IRA.

The limits below determine if your health plan is eligible to be paired with an HSA.

The catch-up contribution is available to an individual who is age 55 or older by the end of the tax year and is not enrolled in Medicare. If both spouses are 55 or older and not enrolled in Medicare, they can each contribute the $1,000 catch-up amount, but they must do so in separate HSA accounts.

Here are the official contribution limits, minimum deductible and maximum out-of-pocket limits for an HSA-qualified high deductible health plan (HDHP) in 2026:

Tip: You can use HSA distributions to reimburse yourself for your Medicare Part B and D premiums, co-pays, deductibles and coinsurance. However, Medigap premiums aren't considered qualified medical expenses and would be subject to income tax.

2025 year-end deadlines

Take a moment to review your retirement accounts before 2025 ends. See where you still have opportunities to invest or correct some potentially costly errors.

• 401(k) Contribution limits and deadlines. For most 401(k) plans, the deadline to contribute is December 31, 2025. This deadline also applies to participants who are 50 or older at the end of the calendar year 2025.
• IRA Conversion deadline. The deadline for converting a traditional IRA to a Roth IRA is December 31, 2025.
• Excess contributions. If you exceed the 2025 IRA contribution limit, you can withdraw excess contributions from your account by the due date of your tax return (including extensions). If you don't, you must pay a 6% tax each year on the excess amounts left in your account.
• Required minimum distributions (RMDs). Remember that you face an excise tax on any RMD that you fail to take on time. You must calculate the RMD separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount from one or more of your non-Roth IRAs.

Related Content

• Six Changes Coming to Social Security in 2026
• 9 Medicare Changes Coming in 2026
• Nine Things You Need For a Complete Retirement Plan
• New IRS Start Date for Mandatory Roth Catch-Up Contributions

The immediate tax trade-off from an IRA to a Roth is relatively clear: With a traditional retirement account, you pay taxes when you take a distribution; with a Roth, you pay taxes now on the funds you contribute.

Converting to a Roth means you must pay the income tax on contributions in the year of conversion. Still, the potential tax benefits could be worth the upfront cost, especially if one of the following scenarios applies to you.

Here are six tax reasons you may convert your IRA to a Roth — and when you probably shouldn’t.

Roth IRA tax benefits

1. Get tax-free growth and withdrawals in retirement with a Roth

One major reason to convert your traditional IRA or 401(k) into a Roth is for tax-free growth. Because taxes are paid on your conversion upfront, all future qualified distributions are withdrawn tax-free, leading to significant trickle-down benefits.

• For example, once you reach age 65, you might have to pay Medicare’s income-related monthly adjustment amount (IRMAA). This amount is based on your modified adjusted gross income (MAGI). Because tax-free Roth earnings are excluded from your MAGI, you might avoid higher Medicare premiums on your retirement income.
• Other taxes, such as those on capital gains and the net investment income tax (NIIT), depend on your MAGI in the year of withdrawal. By withdrawing future earnings tax-free with a Roth, you might indirectly minimize or even avoid these taxes altogether.

Timing your Roth conversion is also important for maximizing tax-free growth. For example, you can convert to a Roth when the market is down and your IRA balance is temporarily low. This allows you to pay the tax on a smaller valuation, so when the market inevitably rebounds, your tax-free earnings might more easily recoup your upfront conversion tax bill (more later on conversion timings).

2. Set up flexible retirement income with Roths

Roth conversions from a traditional IRA account might also be ideal for those who want the final say in how they spend their retirement savings account income.

With a traditional IRA, Uncle Sam dictates when and how much you need to withdraw from your retirement account every year.

With a Roth, you’re not forced to take out a certain distribution during specific years, meaning you can freely avoid late-withdrawal penalties and flex your retirement account savings.

However, before your Roth IRA earnings become entirely tax-free and penalty-free, you must meet two requirements for a qualified withdrawal:

1. The 5-year rule. Your Roth IRA must have been open for at least five full years.
2. The age or life event rule. You must be at least 59½ years old, or the withdrawal must be due to disability, a first-time home purchase (up to $10,000), or death.

If you withdraw the earnings before you meet the rules above, that money could be subject to both income tax and a 10% early withdrawal penalty. But by flexing your retirement IRA distributions, you can make strategic withdrawals and help manage your taxable income, even lowering your federal tax bracket altogether.

Roth conversion timing

3. Take advantage of a low tax bracket with Roth accounts

The final months of the year are often the most popular time to execute a Roth conversion. Why? By late fall, most taxpayers have a firm grasp of their projected taxable income and, consequently, their federal tax bracket.

If you expect this bracket to be lower than the one you'll be in future years, converting your IRA to a Roth now could be advantageous. This strategic move allows you to lock in a lower tax rate and significantly reduce your immediate tax bill on the conversion.

If you're fortunate enough to have a lower tax bracket in 2025 than you anticipate in the future, here are the specific times and scenarios when converting your traditional IRA into a Roth might make sense:

• You’re not close to retirement. If retirement age is still 10 or more years away (and you expect to earn more in retirement), now might be a good time to convert your IRA to a Roth, so you can maximize your tax-free growth.
• You expect to live longer. Do you know any relatives who have reached their 90s and are still in good health? Required minimum distributions (RMDs) on traditional IRAs are calculated based on life expectancy tables, which might not fit your family’s expected lifespan. A Roth account offers lifetime tax-free savings, potentially providing a cushion of funds for many years.
• You’re retired and recently transitioned from married filing jointly to a single filer. Single filers generally have a lower income threshold for paying Medicare surcharges, making them susceptible to higher tax bills in the future. By converting to a Roth account, you can potentially avoid those higher tax brackets by preventing the Medicare surcharges on IRA distributions.

The most “ideal” time to convert to a Roth depends on a case-by-case basis, so consult a qualified tax professional before the conversion to see if it’s right for you.

4. Avoid RMD taxes with a Roth IRA

Retirees are likely already familiar with the concept of a RMDs. But if you’re new to the retirement game, here’s the scoop:

• RMDs are money that must be withdrawn from your 401(k), 403(b) or traditional IRA every year after you reach a certain age (right now, that’s likely age 73).*
• Failure to make the withdrawal typically results in a 25% penalty on the amount not distributed.

RMDs can increase your taxable retirement income in a variety of ways. For instance, they can raise the taxable portion of your Social Security benefits by increasing your provisional income or pushing your taxable income into a higher federal tax bracket.

A key advantage of converting to a Roth IRA is the lack of RMDs during the original owner’s lifetime.

Because Roth accounts typically don’t have RMDs, you might be able to avoid taking distributions from your Roth during years of high taxable income, while withdrawing more funds tax-free during low-tax years. This is particularly ideal for high-earners who anticipate higher tax rates in the future.

*Note: If you are 73 or older at the time of the conversion, you must first take your RMD from your traditional IRA in the year of the switch.

Retirement and Estate Planning for Roths

5. Start a Roth IRA after you retire to avoid future high tax rates

If you’re newly retired, now might be the optimal time to convert your 401(k), 403(b) or other traditional IRA into a Roth. Your tax bracket might be lower than it's been while you were working, and you’re not yet taking Social Security or are required to take an RMD (which can push you into a higher tax bracket).

This retirement “sweet spot” is when federal tax rates are at their lowest, which might help create a couple of ideal scenarios for a Roth conversion:

• For instance, if your pension or annuity hasn’t kicked in yet, now might be a great time to convert your traditional IRA or 401(k) while taxable income is low.
• If you plan to receive a large lump sum from an employee stock ownership plan (ESOP) or other retirement investment, converting to a Roth now could save you future taxes when your taxable income is higher.

As reported by Kiplinger, some financial planners also speculate that the changes made in the Trump/GOP 2025 tax and spending bill have placed taxpayers in “one of the lowest-income-tax environments in history.” If that applies to you, consider converting now to a Roth before future tax rates potentially increase.

For more information, check out Kiplinger’s report on Timing Roth Conversions.

6. Give tax-free assets as inheritance to your kids with a Roth

Withdrawals from a traditional IRA or 401(k) are always taxable, no matter who’s taking the funds. Unfortunately, that means your kids could pay the price if you leave them your IRA.

That’s where another tax advantage of converting your IRA into a Roth comes in handy: Your heirs could inherit those funds income tax-free.

Not only that, but inherited Roth earnings continue to grow tax-free, meaning your heirs have more flexibility on when to withdraw.

However, your nonspouse heirs generally have to withdraw all funds from an inherited Roth within 10 years of your death (this also applies to traditional IRAs and is commonly referred to as the 10-year rule). Once more, inherited Roth IRAs have RMDs for some heirs (such as children), though spouses who inherit a Roth might not be subject to RMD rules.

For more information on the 10-year rule and inherited Roth accounts, check out Kiplinger’s report, Inherited an IRA? Key Distribution Rules to Know for 2025.

When you shouldn’t convert to a Roth

Although we covered six tax reasons for converting your IRA to a Roth, there are times when a Roth conversion can be financially detrimental. Here are a few scenarios when you wouldn’t convert a traditional IRA to a Roth.

• You expect your 2026 income tax rate (or later) to be lower (or the same). If you think your future federal tax rate will be lower than your current rate, you might not want to convert a traditional IRA to a Roth, as doing so would mean paying higher tax rates later.
• You have to use IRA funds just to pay the conversion tax bill. Since the Roth conversion tax is due upfront, you must pay it immediately. If you're forced to use the IRA funds themselves to cover the tax bill, that withdrawal becomes taxable and could trigger an early withdrawal penalty (if you're under 59½). This might significantly diminish your retirement savings and undercut the primary benefit of the Roth: Tax-free growth.
• You need to use the converted funds within five years. If you’re under 59½, you can’t use your funds for five years after a traditional IRA to Roth conversion. Otherwise, you could be subject to a 10% early withdrawal penalty. (Yet if you’re older than 59½, you might withdraw the funds penalty-free before the five years are completed, though any earnings on those funds will be subject to income tax.)
• You’re retiring soon. If you’re retiring within the next five years, your Roth account will not have a lot of time to grow tax-free, so you might not want to convert your IRA into a Roth. Otherwise, your upfront conversion tax bill might never be recouped.

Deciding if and when to convert your traditional IRA to a Roth account should be part of a comprehensive tax strategy that considers your various income streams and retirement time horizon.

For example, converting to a Roth might seem like a good idea for generating tax-free growth, but the increase to your taxable income in the year of conversion could have ripple effects. Higher taxable income might preclude you from claiming tax breaks that you’re eligible for, such as the tip tax deduction or $6,000 bonus deduction for older adults.

You don’t have to make an IRA to Roth conversion all at once. You can decide to minimize the impact of your conversion taxes by spreading out a Roth conversion gradually, if at all.

Ultimately, Roth conversions are irreversible: Exercise caution. Once you’ve made one, you’re stuck with the upfront tax bill and the Roth account for a lifetime.

Read More

• Roth IRA Contribution Limits for 2025
• 10 Retirement Tax Plan Moves to Make Before December 31
• The Rubber Duck Rule of Retirement Tax Planning
• 3 Ways High-Earners Can Maximize Their Charitable Donations in 2025

That’s the conclusion of two recent surveys, which found that the cost of lending parents a hand is making it tough for many adult children to reach their own money goals and leaves some of them feeling conflicted about the help they’re giving.

About three-fourths of those helping out parents, a partner’s parents or both with expenses such as groceries, housing and medical bills said that doing so prevents them from paying off debt, building an emergency fund and achieving other key financial goals, according to a survey this summer from LendingTree, an online lending marketplace.

In addition, 38% of the respondents providing support or who expect to in the future said that either they or someone in their family had to quit a job or reduce work hours because of their caregiving responsibilities.

“In my family, my wife has had to dial back some of her hours to help her father,” says Matt Schulz, LendingTree’s chief consumer finance analyst. When you find yourself helping your parents, Schulz says, “it just takes a huge toll, both financially and emotionally.”

The pinch can be especially painful for those who are helping aging parents while raising children, according to a September survey from Allianz Life, a financial services provider.

In the survey, roughly six in 10 of the caregivers with children younger than age 18 said they had reduced or stopped contributing to their retirement plans as a result of the assistance they’re providing.

That could backfire. “Stopping contributions to your retirement can magnify problems for your kids [when they grow up] because they may then need to help you in the future,” says Kelly LaVigne, vice president of consumer insights at Allianz Life.

Adult children who are helping their parents, or plan to, are of two minds about it, LendingTree learned. Eighty-four percent believe providing financial support is their responsibility, but nearly half admitted feeling resentment about the financial burden.

“This shows the tug-of-war going on,” Schulz says. “When you’re in the trenches managing an elderly parent, there’s a side of you that is grateful you have the opportunity and financial wherewithal, but there’s also the side that’s like, 'Man, this is really hard, and I wish I weren’t in this position.'”

If caring for a parent is putting a strain on your finances, experts suggest taking these steps:

Get a grip on debt. Nearly six in 10 adult children helping aging parents have gone into debt as a result, LendingTree found. More than half borrowed at least $5,000; 13% have taken on $25,000 or more in debt.

It’s imperative to whittle down your debt, especially if you borrowed via a credit card (average rate: 22%), experts say. A smart first step: Ask your issuer for a lower rate — a strategy that LendingTree found is successful 83% of the time.

Let others help. Talk to your siblings to see whether they can chip in. It’s also a good idea to talk with a financial adviser. Even a one-time session with a fee-only planner can help you review spending, manage debt and identify sources of additional funds for caregiving costs. Find one at NAPFA.org.

Tap community resources. The National Council on Aging’s free online Benefits Checkup tool lets you type in a ZIP code to find local programs that could help your parents (or you) better afford food, housing, health care and more.

If you’re not helping out parents now but think you might need to provide assistance in the future, talk with them about their financial situation soon.

Says Schulz, “It’s not an easy thing to do, but it’s so important, because the more you know, the better able you are to start thinking through what you may need to do going forward.”

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.

Related Content

• Four Financial Steps That Can Help the Sandwich Generation Cope
• How to Support Your Parents Without Derailing Your Finances
• Caring for Aging Parents: An Expert Guide to Easing the Financial and Emotional Strain

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

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

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

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

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

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

It pays to have an open mind

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

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

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

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

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

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

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

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

There may be some wiggle room

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Don’t rush into a decision

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

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

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

Read More

• The Seven Best-Paying Side Gigs for Retirees
• Home Office Tax Deductions: Work From Home Write-Offs
• I'm 68 and Health Issues Forced Me to Retire. Should I Claim Social Security or Use My Savings Until I'm 70?
• I'm 51 and My Portfolio Is Up. I'm Planning to Retire at 60 and Want to Start Moving out of Stocks. Is That Smart?

From the tax implications on the conversion itself to the separate withdrawal rules that apply, understanding this financial maneuver is essential for optimizing your tax bill in retirement. Take this 10-question True/False quiz to determine if you truly understand the powerful mechanics of this tax-smart retirement strategy.

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

More on Roth IRAs and Conversions:

• 6 Changes to IRAs, 401(k)s and HSAs in 2026
• Roth IRAs: What They Are and How They Work
• Want to Avoid the IRMAA? Consider a Roth Conversion
• Should You Convert a Traditional IRA to a Roth after 60?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Backdoor Roth IRAs: Help Your Kids Keep More of Their Inheritance
• Roth IRA Contribution Limits for 2026
• Average IRA Balance by Age and Generation

Answer: Making the leap from a salaried position to self-employment can be challenging. However, there are also several benefits.

For one thing, being self-employed allows you to work from your location of choice. If you’re 54, you may no longer have the energy to deal with a lengthy commute. As more companies call employees back to the office full-time, transitioning to self-employment could mean getting to work from home and avoiding the hassle of daily commuting.

Or, it may be that you’re moving into self-employment to follow your passion. If you no longer have kids living under your roof and have a solid financial cushion, your mid-50s could be a good time to pursue a line of work you find more rewarding.

If you’re 54 with $320,000 in your IRA, you’re ahead of the game on the retirement savings front compared to the typical American your age. As of the second quarter of 2025, the average IRA balance for savers in their 50s was $129,222.

Still, that doesn’t mean you should necessarily be done saving for retirement. If you were to leave your $320,000 invested at a yearly 8% return until age 67, which is your full retirement age for Social Security, you could end up with around $870,000. That’s a nice-sized nest egg, but you may want more.

Becoming self-employed might make saving for retirement more challenging, at least initially. But it’s important to make it a priority.

Aim to save 15% of your income — once things stabilize

When you’re transitioning into self-employment, you might go through a period of income volatility. It’s okay to pause retirement plan contributions at the onset as long as you commit to starting back up again once your income stabilizes, says Brennan Decima, Founder and Managing Director at Decima Wealth Consulting.

“First, focus on creating six months of cash flow security to give some cushion for your variable income,” he says. “Once that is in place, I suggest to my clients to try and save at least 15% of their income towards retirement.”

Brian Heckert, Founder and Wealth Manager at FSM Wealth, Inc., agrees.

“Having been self-employed for the last 40 years, I have gone from boom to bust with the economy and market cycles,” he says. “Assuming everything is working well, and the $120,000 [annual income] is net of expenses, I would like to see them continue at least as much as they have been saving as an employee — hopefully at least 10-15% of the net income.”

Use the right retirement savings account

Being self-employed gives you more options when it comes to retirement savings plans.

“There are three qualified plan options available for a self-employed person – a Solo 401(k), a SEP IRA, and a SIMPLE IRA,” says Heckert. “All three plans are flexible from year to year, and the contributions can be made up until the tax deadlines.”

If you’re aiming to save 15% of a $120,000 income, or $18,000, all three of these accounts allow for a contribution that large at age 54, Heckert explains.

Decima happens to be a fan of the Solo 401(k) because it gives people “the flexibility of making tax-deductible contributions in years their income is higher, or doing Roth contributions in years where income is low.”

If you’re self-employed and pay yourself a salary, a Solo 401(k) may allow for higher contributions than other retirement plans. However, it’s best to consult a tax professional for advice on your specific situation, as there may be variables to consider outside of your self-employment income.

Make the process automatic

Once you get into a steady income flow, you may want to automate the process of funding a retirement account rather than write your savings a big check at the end of the year.

“It’s really easy to spend money when it comes directly to our bank accounts,” Decima says. “Automating the savings where it goes directly to the 401(k) conditions you to pay yourself first, making it easier to stay on track and reach your future goals."

One thing you may want to consider is automating a baseline contribution each month, and then assessing your net income at the end of each year. If your income allows for more savings, you can always make an additional contribution. But this way, your retirement account will have been funded throughout the year.

Don’t let fear hold you back

If you’ve been a salaried employee for most of your career, giving up the security of a stable paycheck can be daunting. But your 50s are actually a great time to take a chance on yourself, Decima insists.

"I recently left a high-paying job of almost 20 years to start my own company as well,” he explains. “The leap was both revitalizing and intimidating.”

If you end up in a self-employment situation that’s mentally and financially rewarding, it may be something you can continue doing during retirement. That could be a great way to stay busy later in life while boosting your income. In the near term, the key is to give yourself grace with retirement plan contributions initially while you adjust, but then prioritize them as soon as you’re in a good place income-wise.

Read More

• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Home Office Tax Deductions: Work From Home Write-Offs
• I'm 51 and My Portfolio Is Up. I'm Planning to Retire at 60 and Want to Start Moving out of Stocks. Is That Smart?
• I Want to Retire, but I Have to Keep Working so My Adult Kids Have Insurance

Clients often ask whether they should convert funds in tax-deferred retirement accounts into Roth accounts.

Roth conversions are a crucial part of your retirement picture, and there's typically little downside to protecting your wealth from the government in retirement.

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

However, there are ripple effects that can impact many aspects of your financial life to consider. They need to be approached strategically before developing a plan.

Evaluate future tax rates

Taxes are the reason why you should consider funding a Roth account, whether it's through conversions or contributions. Any money in a tax-deferred account means only a portion of that money is yours; the rest is due to the IRS.

Future taxation is one of the keys to developing the right Roth strategy for you. We want as much tax-free money as we can to block Uncle Sam and the government from our finances, but it's important to look at it through a strategic lens.

If you're early in retirement and taxes are expected to go down in the future, converting to a Roth at the moment would be a poor choice. But if they're expected to go up, taking advantage of today's low tax rates could be a good choice.

Tax rates are currently low — the top federal income tax rate is 37%, compared with 70% in 1980. The Social Security Trust fund is shrinking, and the federal deficit continues to grow.

Despite the One Big Beautiful Bill Act (OBBB) making 2017's tax cuts "permanent," many experts believe taxes are likely to increase under future administrations. That means it could be a good idea to pay taxes now through Roth conversion and capitalize on growth without the burden of taxes looming over it.

Another factor is how much money you'll make in the future. If you expect to earn more, will it lead to a higher tax rate down the road? That's different for each family, but it needs to be considered.

Pay attention to the ripple effects

Future tax rates are just one piece of how Roth conversions could impact your finances. There could be significant financial consequences if you don't pay close attention.

Accidentally jumping to a higher tax bracket in the present is a common mistake. Each transfer adds to your taxable income and could lead to a higher tax rate, and it can make a substantial difference.

For example, couples with a taxable income from $23,850 to $96,950 have a tax rate of 12%, but that jumps to 22% on any income earned above that range. Avoid this by strategically spacing out your Roth conversions across multiple taxable years.

There are also nuances that can be complicated. If you open a new Roth IRA account, you must wait five years from the beginning of the first taxable year you contributed to withdraw without a 10% penalty.

That means even if you open a new account after you turn 59½ and use a Roth conversion to contribute, you must still wait to withdraw funds penalty-free.

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

Other consequences of converting too much to a Roth include incurring a Medicare surcharge, higher taxation on your Social Security and the loss of the marketplace health insurance tax break (if those subsidies are renewed — that's up in the air during the government shutdown).

These are easy mistakes to make, and they can also be easily avoided with proper planning.

Work with a professional

I often hear from people caught in the trap of reading an article with a blanket recommendation about a specific Roth conversion strategy, and they want to follow that advice. Don't do that — it truly depends on your unique circumstances.

Roth conversion decisions shouldn't be made in a matter of months, but years in advance. As a financial professional, it's my job to evaluate your financial picture and understand these nuances.

If you work with accountants and CPAs, they might understand the tax implications, but they don't understand the long-term financial planning aspect of Roth conversions.

Roth conversions are a big deal, and for something as important as your retirement, don't mess around. Consider converting your savings into tax-free wealth and think about working with a financial adviser to help you navigate that strategy.

Insurance products are offered through the insurance business Medalist Wealth Management. Medalist Wealth Management is also an Investment Advisory practice that offers products and services through Impact Partnership Wealth, LLC (IPW), a Registered Investment Adviser. IPW does not offer insurance products. The insurance products offered by Medalist Wealth Management are not subject to Investment Advisor requirements. Investing involves risk, including the potential loss of principal. Guarantees and protections provided by insurance products, including annuities, are backed by the financial strength and claims-paying ability of the issuing insurance carrier. Any media logos and/or trademarks contained herein are the property of their respective owners and no endorsement by those owners of Matthew Eilers or Medalist Wealth Management is stated or implied. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Medalist Wealth Management is not affiliated with or endorsed by the U.S. Government or any governmental agency. Market Guard ® is a firm that provides investment signals, as well as portfolio allocation recommendations, for a wide variety of model portfolios. Market Guard ® does not offer advice or enter into fiduciary relationships. 4857030-09/25

Related Content

• Timing Is Everything for Roth Conversions: An Expert's Guide to the Right Strategy
• Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for Retirees
• A Tax Strategy Now Helps Make Retirement Less Expensive Later
• Why Smart Retirees Are Ditching Traditional Financial Plans
• Should You Claim Social Security Early or Late? A Financial Adviser Weighs In

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.

Many Medicare Advantage (MA) enrollees are issued flex cards — preloaded debit cards that can be used for certain health- and wellness-related expenses that MA plans might not cover outright. These expenses can include over-the-counter (OTC) medicines and supplies, hearing, dental and vision services and more.

If your Medicare Advantage plan includes a flex card allowance, you have until the end of 2025 to use the funds. These cards operate on a "use-it-or-lose-it" basis, and any balance remaining on the card when the clock strikes midnight on December 31 will be forfeited.

Don't miss your final opportunity to cash in on benefits you've already paid for, ensuring you maximize every dollar intended for your health and wellness.

What are Medicare Advantage flex cards?

A flex card is a prepaid debit card offered by some private insurance companies through their Medicare Advantage (Part C) plans. Flex Cards are a supplemental benefit offered by private insurers, not by the federal government or original Medicare.

The card is preloaded with a specific dollar amount (an allowance), which can be added monthly, quarterly or annually, depending on your specific plan. Allowances typically range from a few hundred dollars to over a thousand annually.

Use of the card is restricted. The card can only be used for a list of approved, health-related expenses designated by your plan.

The card only works at participating retailers, such as pharmacies, grocery stores, dentists or eye doctors that accept the card's network. If you try to buy an ineligible item or shop at a nonparticipating store, the card will be declined.

Most Flex Card allowances don't roll over. Funds usually expire at the end of the calendar year (December 31), or, in some cases, at the end of the quarter or month they were issued.

Covered expenses vary by plan

Although most MA enrollees are in plans that offer dental (98%), vision (100%), hearing (96%), and OTC medication (88%) benefits, according to the Commonwealth Fund, findings show that many of these enrollees do not report using them.

Medicare Advantage plans were supposed to begin sending plan participants midyear reminders, “Mid-Year Enrollee Notification of Unused Supplemental Benefits,” this past July. However, this rule has been paused by the Centers for Medicare and Medicaid due to industry concerns and requests for guidance.

Don't let the opportunity to access additional resources go unused. Use some of our suggestions, or use the list as a jumping-off point to find goods or services that would better suit your needs.

What to buy before the end of the year

Since most flex card allowances operate on a strict "use-it-or-lose-it" basis by December 31, it's essential to spend any remaining balance before the deadline.

Beneficiaries should focus on buying non-perishable health essentials that they know they will use in the first few months of the new year or services not otherwise covered by their Medicare Advantage plans.

One easy way to exhaust your remaining flex card benefit is to stock up on non-perishable over-the-counter (OTC) items:

• Vitamins/supplements: Purchase common daily vitamins such as vitamin D, C, multivitamins or fish oil
• Over-the-counter medications: Stock up on pain relievers, cold/flu medication, allergy meds, antacids and laxatives
• First aid supplies: What's running low or missing from your kit? See if you need bandages, gauze, antiseptic wipes, antibiotic ointments, heating pads or cold packs.
• Personal care supplies: Replenish your supply of toothpaste, toothbrushes, denture cream and contact lens solution.

If you have a large remaining balance, consider buying more expensive medical equipment that's durable, such as a walker or cane. You might also want to purchase a shower chair or grab bars for bathroom safety.

Other options could include a new blood pressure monitor, glucose monitor or replacement batteries for hearing aids. If your plan covers it, consider getting a low-cost fitness tracker or some light exercise equipment.

Check with your Medicare Advantage plan for the details

Don't let this benefit go to waste. I've given you the general outlines of how flex cards work; you should investigate to find out the details of how your particular benefit works. Contact your Medicare Advantage plan or check their website for help. Information you need to fully understand your benefit:

1- Check the expiration date: Call your Medicare Advantage plan or check your member portal immediately to confirm the exact expiration date of your remaining balance.

2- Verify your balance: Find your current exact balance. Don't rely on memory.

3- Review the approved list: Re-read your plan's benefit guide or check the list of approved retailers and goods to ensure your final purchases will be covered at the store you plan to visit

Related Content

• Medicare Premiums Projected to Jump in 2026
• Seven Medicare Changes Coming in 2026
• Medicare Premiums 2026: Projected IRMAA Brackets and Surcharges for Parts B and D
• Your Medicare Costs Are Set to Soar: What to Expect Over the Next Decade

Changes under the SECURE 2.0 Act have (among other things) shifted the starting age, introduced new rules for inherited accounts, and changed rules for Roth 401(k)s.

Then there are common RMD mistakes, like missing the deadline for your first RMD or miscalculating the withdrawal from an inherited IRA, which can trigger a penalty.

Can you confidently navigate the RMD rules that govern your retirement nest egg?

Take our quiz to identify your knowledge gaps and protect your tax-deferred savings.

Read More About RMDs

• Common RMD Mistakes to Avoid This Year
• Required Minimum Distributions: What Every Retiree Should Know
• Retirement Taxes Quiz: Test Your Knowledge

Answer: The nice thing about owning a home is getting to build equity in a place that’s yours. Eventually, that could mean cashing in that equity to improve your financial life or simply enjoying the stability of staying put as long as you keep up with your mortgage payments and property taxes.

The downside of owning a home, though, is that expensive repairs can arise when you least expect them.

A home equity line of credit (HELOC) is a common source of funding that many homeowners rely on for large home repairs. However, the average U.S. HELOC interest rate remains high, at 7.82% as of November 5, according to Bankrate. A newer loan option is a home-equity-backed card, which might offer a slightly lower interest rate than a HELOC for borrowers with excellent credit, but still upwards of 6%.

If you’re 61 and need $50,000 to cover home repairs you can’t put off, you might be wondering if it pays to dip into your savings or borrow the money given today’s elevated interest rates. The answer might depend on how much savings you have.

With a $3 million nest egg, taking a $50,000 withdrawal might seem like a no-brainer. With a $950,000 balance in your 401(k), it becomes a much tougher question. It’s important to review your options carefully.

Use the tool below to explore some of today's top rates, powered by Bankrate:

It could be a good time to capitalize on 401(k) gains

Any funds you take out of your 401(k) is money that can no longer continue growing in a tax-advantaged fashion. When you have a pile of available money and borrowing rates are high, it could make more sense to tap your 401(k) rather than take on an expensive loan you might struggle to pay back.

Additionally, if your 401(k) balance is high, now might be an especially good time to take a withdrawal.

"The market’s near an all-time high," says Prudence Zhu, CPA, CFP, and Founder and CEO at Enso Financial. "With borrowing rates outside your 401(k) shooting up, grabbing a slice of those gains today means you can fix that leaky roof or creaky furnace without gambling on a market downturn."

That said, Zhu warns that if you have a traditional 401(k), as opposed to a Roth, your withdrawals aren't tax-free. Rather, they're taxed as ordinary income. If you're still working, says Zhu, the combination of your paycheck and a large 401(k) withdrawal could bump you into a higher tax bracket.

Zhu also points out that while you might not be covered by Medicare if you're only 61, you could have a spouse who's on Medicare, or who will be in a couple of years. If so, your higher income this year could impact their Medicare premium costs in two years and potentially subject them to IRMAAs.

A 401(k) loan could be a better option than a withdrawal

If you're still employed and plan to continue working, Zhu advises considering a 401(k) loan instead of a withdrawal. These loans allow you to pay yourself back with interest instead of an outside lender.

"That interest actually goes right back into your investments, so you’re essentially dollar-cost averaging your repayments," Zhu explains.

The danger of taking out a 401(k) loan is that if you switch jobs and can't repay it, the remaining balance is treated as a withdrawal. That could trigger a big tax bill.

But if taking a withdrawal in the first place is something you’re considering, a loan might be a fairly low-risk option if you’ve accepted the fact that you might be looking at a huge tax bill and are able to plan for it accordingly.

You’ll need to run the numbers carefully

Taking money out of a 401(k) at age 61 isn't necessarily a bad idea. Since you're beyond age 59½, you won't have to worry about facing an early withdrawal penalty on your money.

One thing to keep in mind is that the more money you withdraw from your 401(k) ahead of retirement, the less annual income your nest egg might provide you with. Additionally, as Joseph Patrick Roop, president at Belmont Capital Advisors, points out, depending on your tax bracket, if you need $50,000 to cover home repairs, you'll need to take a larger distribution.

"I will assume they are working and in the 22% federal and 5% state tax brackets," he says. In that case, "to take a distribution and net 50,000, you will need to take a total distribution of approximately $68,500."

Let’s say you don’t tap your 401(k) for home repair money and you retire with $950,000. Using the popular 4% rule, you'd garner an annual income of $38,000, not accounting for inflation-related adjustments.

If you whittle your nest egg down to $881,500, you’re looking at a baseline income of $35,260 instead. You’ll need to decide if you’re OK with that, based on your projected retirement income needs.

Do what’s best for your peace of mind

If you need money for a home repair, you'll either have to come to terms with taking it from your 401(k) or borrowing it and repaying the loan. For this reason, Zhu suggests you might want to choose whichever option sits best with you mentally.

“Given the hassle and uncertainty of job security plus the risks of loan repayment, sometimes the simplest fix is the best fix,” she says. “A direct withdrawal might just buy you the peace of mind you need, especially when it means a safer, happier home.”

Read More

• 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?
• You May Not Want to Downsize in Retirement: Here's Why
• Tax-Deductible Home Improvements in Retirement
• I Claimed Social Security Six Months Ago at 62, but My Checks Are Too Small. What Are my Options?

The rules that govern these mandatory retirement account withdrawals have always been confusing.

And because RMDs don't start until you're in your 70s, it can be tempting to put off worrying about their impact until other, more pressing planning decisions are made.

Most people are far more anxious about getting their Social Security and Medicare benefits squared away than preparing for RMDs.

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

But putting RMD planning on the back burner can have significant consequences — especially if, like most Americans, you've stashed all or a large portion of your savings into one or more tax-deferred retirement accounts, such as a 401(k), 403(b) or traditional IRA.

Every saver should know the basics of how RMDs work. Here's a quick Q&A to help you get your planning started.

What is an RMD?

The IRS doesn't allow savers to keep the money in their tax-deferred retirement accounts indefinitely.

Once you reach the age when RMDs start (currently 73), you must begin withdrawing at least a minimum amount annually and pay income taxes on that money.

The amount you're required to withdraw each year will be based on your age and the balance of your account (or accounts) at the end of the previous year.

What accounts require minimum distributions?

The RMD rules apply to all employer-sponsored retirement plans, such as 401(k), 403(b) and 457(b) plans, as well as profit-sharing plans.

Owners of traditional IRAs and IRA-based plans, including Simplified Employee Pension Plans (SEPs), Salary Reduction Simplified Employee Pension Plans (SARSEPs) and Savings Incentive Match Plan for Employees (SIMPLE IRAs), must also take RMDs.

The RMD rules don't apply to Roth IRAs or designated Roth accounts while the owner is alive, because Roth owners have already paid taxes on their contributions. But beneficiaries of these accounts do have to abide by RMD rules.

When is my first RMD due?

For most people, their first RMD is due on April 1 of the year following the calendar year in which they turn 73.

For example, if you're turning 73 in 2026, your first RMD — based on your account balance at the end of 2025 — won't be due until April 1, 2027.

But here's where things can get tricky.

After that first withdrawal, the due date for all future RMDs switches to December 31. That means if you wait until the April 1, 2027, due date to make the first withdrawal and then make your second withdrawal by December 31, 2027, you'll pay taxes on two RMDs in the same year.

If that works for you, great. But you may find that it makes more sense to take those disbursements in two separate tax years. For this example, that would mean taking the first RMD by December 31, 2026, and the second by December 31, 2027.

Your financial adviser or tax professional can help you run the numbers to determine which is the better strategy for you, but do that planning well in advance of your first RMD.

If you don't take your RMDs at the appropriate time, or you withdraw the wrong amount, you may face a hefty penalty.

What if I'm still working?

If you're turning 73 but you're still employed, and you own less than 5% of the company you work for, the IRS will let you delay taking RMDs from your workplace retirement plan — as long as your plan allows it.

However, if you own retirement accounts outside your current workplace (a traditional IRA with your bank, for example, or a 401(k) with a former employer), you'll have to calculate RMDs for those accounts.

How do I calculate my RMDs?

Your retirement account custodian will determine your RMD amount automatically each year and provide you with that information. But it's your responsibility as the account owner to make sure the amount is correct and the distribution is made.

You can calculate your RMDs using this guide or the Required Minimum Distribution Calculator at Investor.gov.

Or you can do the math yourself and divide your previous year-end account balance by the life expectancy distribution factor next to your age on the IRS Uniform Lifetime Table.

As you age, the distribution factor will decrease, which means your RMDs may grow as you get older, depending on the size of your account balance.

Planning for that potential impact now, by converting some funds to a Roth account or employing other strategies, could help you minimize future taxes.

What if I have more than one tax-advantaged account?

As mentioned previously, you may need to calculate multiple RMD amounts each year if you have more than one account. But, depending on the types of accounts, you can be strategic with your withdrawals.

For example, after calculating the RMD separately for each traditional IRA you own, you can add up the amounts and withdraw the total from just one of your IRAs.

However, RMDs for some types of retirement plans, such as 401(k) and 457(b) plans, must be calculated and withdrawn separately from each of those accounts.

What if I don't want or need the money?

Although you're required to take RMDs every year once you turn 73, you aren't obligated to spend the money. You can always choose to reinvest those funds elsewhere.

That might mean opening or adding to a brokerage account, buying an investment property, paying down high-interest credit card debt, or contributing to a 529 plan for a child or grandchild.

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

Or you could consider the tax benefits of an RMD-reduction strategy, such as a qualified charitable distribution (QCD) or a qualified longevity annuity contract (QLAC).

Again, your adviser or tax professional can help you understand each strategy's implications for your situation.

RMD rules keep evolving

Even if you think RMDs won't be an issue for you, keep them on your retirement planning radar.

The rules that govern the timing of RMDs — including the age when they begin and how they might affect those who inherit your accounts — have gone through significant changes in recent years.

These and other regulations will likely continue to evolve, so the information you rely on should be well-sourced and up to date.

You don't have to (and shouldn't) wait until you're in your 70s to familiarize yourself with the RMD rules, which can be found on the IRS website.

And if you have questions, don't hesitate to contact a financial professional, preferably a retirement specialist, for guidance.

Insurance and Advisory services are offered through Heckman Financial & Insurance Services, Inc. HFIS, Inc., an SEC Registered Investment Adviser. Heckman Financial & Insurance Services is not affiliated with or endorsed by the Social Security Administration or any government agency. CA Insurance License #OE89971

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.

Related Content

• Required Minimum Distributions (RMDs): Rules, Deadlines, and Important Changes to Know
• Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
• Lower Your Retirement Taxes: Seven Common RMD Mistakes to Avoid
• New Year's Eve RMD Deadline: What to Know and What to Do
• Avoid Estimated Tax Payments in Retirement With RMD Withholding

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 jubilation is limited, though, so take advantage while you can before the opportunity to reduce your tax bill slips away.

Changes to certain income tax rules and deductions were included in what President Donald Trump referred to as the One Big Beautiful Bill (OBBB), which was signed into law July 4, 2025, and amended the Tax Cuts and Jobs Act of 2017.

About that extra deduction

The most notable change directed at older Americans is an extra $6,000 deduction for those who are 65 and older. The $6,000 is added to the standard deduction and applies to each individual, so married couples filing jointly can reduce their taxable income by an extra $12,000 if both spouses meet the age requirement.

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

The deduction applies to taxpayers whether they itemize deductions or not, but it has limits based on income.

Those with higher incomes don't qualify for the full deduction, which begins phasing out for taxpayers with a modified adjusted gross income of more than $75,000 for individual filers or more than $150,000 for joint filers.

The deduction is not available for individuals with incomes of $175,000 and couples with $250,000 or more.

This extra $6,000 deduction is not going to be around forever, or even all that long. It sunsets after 2028, but for the next few years, it's a golden opportunity for retirees and other older taxpayers to reduce their tax bills.

That's more important for some retirees than they anticipate as they approach retirement.

Taxes don't end with retirement

Taxes follow people throughout life, even into retirement. Although people often expect to be in a lower tax bracket when they retire, that isn't always the case.

Sometimes retirees can get bumped into a higher bracket. For example, many Americans save for retirement through tax-deferred accounts, such as a traditional IRA or 401(k). They weren't taxed on the money they contributed to those accounts.

But after they reach retirement, the money is taxed when they start withdrawing it. The federal government isn't going to wait forever for its money.

Once the people who hold these accounts reach age 73 or age 75, depending on their birth year, required minimum distributions (RMDs) kick in, forcing the account holder to withdraw a certain percentage of their money each year whether they want or need to.

Those RMDs sometimes are enough to bump taxpayers into a higher tax bracket.

A good time for Roth conversions

Clearly, if people aren't careful with their tax planning, they can become trapped as these RMDs come due.

But the good news is there is a way to avoid RMDs, or at least reduce the amount of your savings that's subject to them. The recent tax changes make the next few years an opportune time to take advantage of this strategy.

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

The strategy: convert the money you have in a traditional IRA or 401(k) account into a Roth IRA. A Roth grows tax-free, and there are no RMDs. You also don't pay taxes when you withdraw money from them.

You do pay taxes when you make the conversion, but that's why this is a better-than-usual time to move the money into a Roth.

That extra $6,000 tax deduction that will lower your taxable income in the next few years provides a window in which the Roth conversion will have less of an impact than it would without the added deduction.

The key is to make sure you take advantage of this or any other tax change that affects you while you can.

Another bit of good news is that you don't have to figure it out all alone. A financial professional can help you understand how this and other tax changes might apply to your situation and recommend steps you can take to capitalize on them.

So while taxes don't disappear in retirement, there's no need to pay anything above and beyond what you owe.

Investment advisory services offered through Redhawk Wealth Advisors, Inc., an SEC Registered Investment Advisor. SEC Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. Some Investment Advisor Representatives of Redhawk may market their advisory services under the name of Top Rank Advisors, an unaffiliated and separate legal entity. The information presented in this article is the opinion of Top Rank Advisors and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources, but no liability is accepted for any inaccuracies. This is for informational purposes only and its contents should not be construed as investment, tax, or legal advice. Past performance of investments is no indication of future results.

Ronnie Blair contributed to this article.

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

Related Content

• Thanks to the OBBB, Now Could Be the Best Tax-Planning Window We've Had: 12 Things You Should Know
• What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's Guide
• Your Golden Years Just Got a Tax Break, But There's a Catch
• Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on Retirement
• Is the One Big Beautiful Bill Really All That Great for Your 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.

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

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

Yes, they will.

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

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

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

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

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

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

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

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

Don’t delay investing. In one survey, 85% of women investors said they wish they had started earlier. And women are ideal investors because they take time to make decisions, they stick with them, and they trade stocks less often, all of which result in lower costs and higher returns. Your workplace retirement account is a convenient place to start investing (see “Money Smart Women,” Dec. 2024).

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

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

Related Content

• Estate Planning for Women: Married, Single or Divorced
• The Pink Tax: How Much Does Price Discrimination Cost Women
• How to Pay Off Credit Card Debt

That "downtime" can be a smart window to convert part of a pre-tax IRA to a Roth IRA — paying tax at today's lower rate, so future growth inside the Roth can be tax-free forever.

Starting in 2025, the math may be even better for some older adults because of larger standard deductions.

A few years ago, my father, Bruce, became a caregiver for his mother and found deep joy working alongside his four siblings to care for her in her final years.

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

After a fall and a fractured hip led to her placement in a care facility, the demands of caregiving increased markedly — my father made the 45-minute drive each way nearly every day for almost a year.

That steadfast devotion is the truest definition of a giving heart. Grandma passed away last September at age 96.

One year later, my younger brother Jake and his wife welcomed their first child, a baby girl. Mom took maternity leave and Dad a shorter paternity leave.

Though my father and brother occupy very different stages of life, both served in caregiving roles. Those roles often surface tax-planning opportunities that can be eclipsed by the immediacy of the life event.

One such opportunity, in years when your income is reduced because of parenting or caregiving, is a Roth conversion.

Why Roth conversions work in years you work less

You can "fill up" lower tax brackets with a conversion of the right size while your earned income is temporarily lower.

For example, if you are normally in the 22% tax bracket, but drop to the 12% tax bracket, that is a great opportunity to convert retirement savings from a traditional IRA to a Roth.

You may even find it desirable to convert if you drop from the 32% bracket to 24%, especially if you expect tax brackets to go up in the future or if you expect your income to stay elevated after caregiving years.

Conversions add to ordinary income, but your standard deduction cushions the tax hit.

If you're 65-plus, the age-based deduction and temporary bonus deduction further reduce taxable income.

How to do a Roth conversion

Estimate your 2025 income. Project wages, interest/dividends and any part-year earnings.

Subtract the standard deduction from your estimated 2025 income. (In 2025, that's $15,750 for single filers and $31,500 if you're married filing jointly.)

If you're 65 or older, subtract two additional deductions from your estimated 2025 income:

• The age-based deduction. $2,000 for single filers and $1,600 per spouse age 65+ for those married filing jointly ($3,200 if both qualify).
• The bonus deduction for those 65 and older. From 2025 to 2028, the OBBBA allows retirees over age 65 to benefit from a powerful but temporary tax break — an extra $12,000 deduction per married couple ($6,000 per individual). To qualify, you must be 65 or older and have adjusted gross income (AGI) under $150,000 for married filers (under $75,000 for single filers).

Open the right accounts. You need a traditional IRA, 401k, or other tax-deferred account (source), and a Roth IRA (destination). If you don't have a Roth yet, open one.

Initiate the conversion with a trustee-to-trustee transfer. Ask your custodian to move dollars directly from the traditional IRA (tax-deferred account) to the Roth IRA (after-tax account) to avoid 60-day rollover pitfalls.

Handle taxes smartly. Consider 0% withholding on the conversion and pay the tax from cash using quarterly estimates so more money lands in the Roth.

If you are under age 59½, you must pay withholding outside the conversion (from a checking/savings or non-qualified brokerage account) to avoid a 10% early withdrawal penalty. File Form 8606 with your tax return to report the conversion.

Watch the calendar. Conversions must be completed by December 31 of the tax year (some custodians have earlier processing cutoffs).

Withdrawing funds from your Roth

Each Roth conversion starts a five-year clock for penalty-free access to converted amounts. This clock matters only if you're younger than 59½. After 59½, you can withdraw principal without the 10% penalty.

Separately, Roth earnings have their own five-year rule and are tax-free after your Roth has been open for five tax years (since your first Roth account) and are accessible after age 59½ or for another qualified reason.

Age 65-plus Medicare reminder

If you're on Medicare (or within two years of it), run the numbers before you convert so you don't trigger an unwanted IRMAA jump. IRMAA surcharges are based on modified adjusted gross income (MAGI) from two years prior — for example, a 2025 conversion can affect your 2027 Medicare Part B and D premiums.

IRMAA brackets are not progressive like tax brackets — if you go $1 over, you are fully in the higher premium tier.

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

Tax deductions mentioned above will lower taxable income, but not MAGI, so deductions won't shelter a large conversion from IRMAA surcharges. Keep conversions sized to your IRMAA comfort zone.

Used well, a low-income year can be a once-in-a-decade chance to move money into a Roth at attractive tax rates.

Coordinate with your tax pro or a seasoned wealth adviser to tailor the conversion size and timing to your situation.

The information, suggestions, and recommendations included in this material is for informational purposes only and cannot be relied upon for any financial, legal or insurance purposes. Madrona Financial Services will not be held responsible for any detrimental reliance you place on this information. It is agreed that use of this information shall be on an "as is" basis and entirely at your own risk. Additionally, Madrona Financial Services cannot and does not guarantee the performance of any investment or insurance product. Insurance products are offered through Madrona Insurance Services, LLC, a licensed insurance agency and affiliate of Madrona Financial Services. Madrona Insurance Services and individual advisors affiliated with Madrona Insurance Services and Madrona Financial Services receives commissions on the sale of insurance products. Clients are not required to purchase insurance products recommended or to otherwise implement financial advice through Madrona affiliates. When we refer to preparation and filing of tax returns, tax returns are prepared and filed by our wholly-owned sister company Bauer Evans, Inc. P.S., a licensed certified public accounting firm. Madrona Financial Services, LLC is a registered investment adviser with the SEC. Our registration with the SEC or with any state securities authority does not imply a certain level of skill or training. Madrona Financial & CPAs is a registered trade name used singly and collectively for the affiliated entities Madrona Financial Services, LLC ("Madrona") and Bauer Evans, Inc., P.C. ("Bauer Evans"). Investment advisory services are provided through Madrona. CPA services are provided through Bauer Evans. While it's essential to optimize your tax situation, it's equally important to comply with tax laws and regulations. Always ensure that your tax-saving strategies are legal and appropriate for your financial situation.

Related Content

• The Average IRA Balance by Age
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Weighing a Roth Conversion? Don't Overlook These Five Factors
• Five Ways to Cash In On the $6,000 'Senior Bonus' Deduction
• Is the One Big Beautiful Bill Really All That Great for Your 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.

While many plan administrators were hoping for additional time, the IRS did not extend the nonenforcement period with respect to the Roth catch-up requirement for higher earners, which must still be implemented by 2026.

This means that beginning January 1, 2026, if you participate in a governmental 457(b) plan, are age 50 and older and earned more than $145,000 (indexed annually) in the prior calendar year, you must make age-50 catch-up contributions on a Roth basis.

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

The change affects not only you as a plan participant, but also your employer and the plan administrator responsible for tracking wages, managing elections and ensuring proper tax reporting.

For governmental plans, especially those with multiple participating employers or those that may not have offered Roth contributions before, the Roth catch-up requirement introduces new complexity.

Identifying a higher earner

The Roth catch-up requirement applies to participants whose Federal Insurance Contributions Act (FICA) wages exceeded $145,000 (indexed annually) in the prior calendar year.

The Treasury regulations clarified that this threshold is based on Box 3 Social Security wages, not Box 5 Medicare wages. In other words, if you do not participate in Social Security and, therefore, do not receive FICA wages from your employer, then you are exempt from the Roth catch-up requirement.

If you do participate in Social Security, however, the Roth requirement applies to you if your actual FICA wages exceed the $145,000 (indexed annually) threshold for the prior year.

This determination is made separately for each common-law employer, meaning that in a multiple-employer plan, each employer must evaluate the application of the rule to its own employees independently.

If you are an age-50 participant and worked for two different employers in the same year and one employer paid FICA wages that exceeded the threshold while the other did not, only catch-up deferrals made from the wages paid by the employer that exceeded the threshold must be made as Roth. This may impact the employer through which you elect to make your catch-up contributions.

While the default rule requires each employer to assess the threshold independently, the Treasury regulations introduce two circumstances in which an employer can voluntarily aggregate with another employer for purposes of this rule:

• Common paymaster arrangements. If the common-law employer uses a common paymaster, it may be treated as a single employer together with other employers that also use the same common paymaster.
• Controlled group aggregation. Some or all of the employers that are in the same controlled group, as defined under Internal Revenue Code §414(b), (c), (m) or (o), can also be treated as a single employer.

In either case, the plan document must provide for this aggregation. It will be important to understand if the 457(b) plan in which you participate has adopted either of these voluntary aggregation rules.

Deemed Roth elections

To help simplify administration, the Treasury regulations allow a plan to provide that a higher earner within the meaning of this new rule is "deemed" to have irrevocably designated any age-50 catch-up contributions as designated Roth contributions.

In other words, if you, as a higher earner, elected on your salary reduction agreement to make pretax deferrals that exceeded the regular deferral limit ($23,500 for 2025), the plan could provide that any deferrals that exceed the limit — the age-50 catch-up contributions — are "deemed" to have been designated as Roth contributions.

This ensures that your catch-up contributions do not stop during the year, unless you choose to stop them.

Plans that adopt deemed Roth provisions may choose between two approaches for applying the deemed Roth rule:

• Pretax threshold approach. The deemed Roth election applies once a participant's pretax elective deferrals reach the regular IRS limit. This method considers your prior Roth contributions when determining how much of the age-50 catch-up must be Roth.
• Total deferral threshold approach. The deemed Roth election applies once a participant's total elective deferrals (including Roth) reach the regular IRS limit. This may be easier to administer because the plan does not have to look at your earlier deferrals to determine how much of the age-50 catch-up must be made as Roth.

Regardless of the method chosen, plans must ensure that participants have an effective opportunity to make a different election. The IRS does not require a specific notice, but participants must be informed through online portals, plan guides or other communications that they can opt out of the deemed Roth treatment.

It will be important for you to understand how your 457(b) plan chooses to address this new rule, which will dictate how proactive you need to be.

The deemed Roth election is not required to apply until after the participant's elective deferrals exceed the special catch-up limit, if applicable. The special catch-up permits an eligible participant to make deferrals up to twice the regular deferral limit for the three taxable years prior to their normal retirement date. This catch-up can still be made pretax.

New correction methods

Generally, if an age-50 catch-up contribution is made as a pretax contribution when it should have been made as a Roth contribution, the correction is to distribute the age-50 catch-up contribution from the plan to the participant in accordance with the correction method for correcting 457(b) limit failures.

However, so long as the plan provides that age-50 catch-up contributions are "deemed" Roth for higher earners, the Treasury regulations outline two additional available correction methods that allows the contributions to remain in the plan consistent with participant expectations:

Form W-2 correction method. The pretax age 50 catch-up contribution that should have been made as Roth can be transferred (after adjusting for earnings/losses) to the higher earner's Roth account.

The contribution (not adjusted for earnings/losses) must be included in the participant's gross income for the year in which it was made to the plan and reported on Form W-2 as if it had been made correctly as a Roth contribution.

This correction method recharacterizes the pretax age 50 catch-up contribution as if it had properly been made as a Roth age 50 catch-up contribution. This method is available only if the correction is made before your Form W-2 for that year has been issued or filed.

In-plan Roth rollover method. Alternatively, a plan can correct a pretax age 50 catch-up contribution that should have been made as Roth by making an in-plan Roth rollover of the elective deferral (adjusted for earnings/losses) from the higher earner's pretax account to the participant's designated Roth account.

The in-plan Roth rollover would be reported on Form 1099-R, and the contribution (adjusted for earnings/losses) would be included in the participant's gross income for the year of the rollover. This correction is available through the end of the calendar year following the year of the error.

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

The same correction method must be applied to all similarly situated participants within the plan year. Plans must have reasonable procedures in place to prevent Roth catch-up errors, which include "deeming" age-50 catch-up contributions to be Roth for higher earners.

No correction is required if the error amount is $250 or less, or if the participant was incorrectly classified as a higher earner owing to a W-2 error that was corrected after the correction deadline passed.

Next steps

To prepare for the upcoming changes, plan sponsors and administrators will need to consider taking the following actions:

• Review payroll systems to ensure accurate tracking of FICA wages.
• Determine whether the plan will adopt an optional aggregation rule for FICA wages.
• Consider adopting a deemed Roth catch-up election provision and determine which design approach is best supported by the plan's administrative processes.
• Review plan materials to ensure the Roth catch-up rules for higher-earner participants (including application of a deemed election) are adequately communicated to them.
• Update correction procedures for noncompliant contributions, including the special correction methods for plans that adopt a deemed Roth catch-up provision.
• Coordinate with recordkeepers and payroll providers to ensure accurate tax reporting and implementation of deemed Roth catch-ups.
• Document plan operation and accurately reflect it in a plan amendment that is adopted before the SECURE 2.0 amendment deadline.

Plan participants, on the other hand, will need to consider taking the following actions:

• Determine whether the new Roth rule will apply to them in 2026 and, if so, whether making their age-50 catch-up contributions as Roth fits within their retirement savings strategy.
• Review plan materials and/or talk to their benefits manager regarding whether an affirmative election to continue deferrals as Roth once the regular limit is met for the year will be required.
• If the plan has adopted deemed Roth provisions, whether their deferrals will be deemed Roth when their pretax deferrals reach the regular limit or their total deferrals reach the regular limit.

Tara Schulstad Sciscoe is a partner at Ice Miller, where she advises employers, plans and trusts on the design and compliance of their employee benefit programs.

Shalina Schaefer is a partner at Ice Miller, where she practices employee benefits with a primary focus on retirement plans of tax-exempt and governmental entities, welfare benefit plans, and church plans.

Lindsay Knowles is of counsel at Ice Miller, where she advises state governments, municipalities and other public entities on a wide range of employee benefits matters.

Related Content

• Roth or Traditional? Seven Considerations for High Earners
• 457 Plan Contribution Limits for 2025
• IRA and 401(k) Contribution Limit Changes for 2025: What to Know
• New SECURE 2.0 Super 401(k) Catch-Up Contribution for Ages 60-63
• How to Correct Errors on Your Social Security Statement and Collect Your Maximum Benefit

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.

When done right, year-end planning can reduce taxes, align finances with family goals and set the stage for greater confidence heading into the new year.

Year-end planning shouldn't be seen as a scramble for last-minute tax breaks. Instead, planning is most effective when it's proactive, tax-aware and rooted in long-term values.

Families are best served when strategies are connected to their most important goals, whether they're maximizing charitable impact, preparing for the next generation or simply confirming lifestyle stability in uncertain times.

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

Here are seven moves high-net-worth families should consider before December 31.

1. Charitable giving with a donor-advised fund

A donor-advised fund (DAF) is a charitable account that lets you contribute cash or appreciated assets, take an immediate tax deduction and invest the funds to grow tax-free until you decide which charities to support.

It provides flexibility to separate the timing of your tax deduction from your actual giving, allowing for more strategic philanthropy over time.

A DAF can appeal to families focused on long-term charitable planning, particularly those facing a high-income year or a liquidity event.

In 2025, deduction limits were adjusted by the OBBBA, which means contribution plans should be reviewed carefully to ensure every dollar counts.

For those over age 70½, a qualified charitable distribution (QCD) from an IRA may be an even more efficient way to give, as it can reduce taxes on required withdrawals.

Choosing between a DAF and a QCD depends on age, income and philanthropic intent.

2. Use Roth conversions to unlock tax-free growth

A Roth conversion moves assets from a traditional IRA into a Roth IRA, creating a tax bill now in exchange for tax-free growth and withdrawals later.

This strategy is most beneficial during years of lower income, such as the period after retirement but before Social Security benefits and required minimum distributions (RMDs) begin.

The key is weighing the near-term tax hit against the long-term flexibility it provides.

Converting gradually over multiple years can help avoid large spikes in taxable income while building more predictable tax-free income streams for the future.

3. Harvest losses to manage taxes

Tax-loss harvesting may help reduce overall tax liability while keeping a portfolio aligned with long-term investment goals.

When markets have performed strongly, reviewing portfolios for losses that can be used to offset taxable gains is a prudent step.

This approach is particularly relevant after a business sale or other liquidity event that triggers significant capital gains.

In some cases, it may also make sense to spread sales across two calendar years. The goal is to manage the tax impact and take advantage of the opportunity to rebalance holdings with an eye toward future needs.

4. Do not miss retirement contribution and RMD deadlines

December 31 is the firm deadline for RMDs if you are age 73 or older and for beneficiaries with inherited IRAs. Missing this date can result in significant penalties.

It is also important to understand the different deadlines for retirement account contributions. Contributions to employer-sponsored plans such as 401(k)s must be made by December 31, 2025, to count for the 2025 tax year.

By contrast, contributions to IRAs (traditional or Roth) can be made up until the tax filing deadline of April 15, 2026.

Regardless of the deadline, year-end is the time to make sure contributions are on track. At a minimum, families should contribute enough to capture any employer match, but higher contributions may make sense depending on cash flow and tax planning goals.

Acting early and setting reminders helps avoid the year-end rush and ensures opportunities are not missed.

5. Revisit estate and gifting strategies

The OBBBA permanently made estate exemptions higher, which will be set at $15 million per person beginning in 2026. Even with these higher thresholds, year-end remains an important time to consider gifting strategies.

Families may want to take advantage of the annual gift tax exclusion, which allows $19,000 per person in 2025, enabling wealth transfer to children, grandchildren or other loved ones without dipping into lifetime exemption amounts.

While not every family will face estate taxes, intentional gifting helps reinforce family values and encourages multigenerational stewardship.

6. Review liquidity and cash flow for 2026

Looking ahead to next year's goals and expenses is an essential year-end step. Identifying upcoming needs, such as tuition payments, philanthropy or large purchases, provides the opportunity to align cash flow with tax planning.

For example, it may make sense to realize gains or take distributions in 2025 to fund 2026 expenses, especially if doing so fits within current tax brackets.

This forward-looking exercise eases stress and provides clarity, ensuring families enter the new year with a solid financial foundation.

7. Business owners and executives should plan ahead

Business owners and executives often face unique year-end decisions. Concentrated stock positions, restricted stock units (RSUs) and deferred compensation all require careful evaluation.

For executives, managing the timing of RSU sales after vesting events can help reduce tax burdens while also diversifying holdings.

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

Business owners nearing retirement may want to gradually reduce exposure to their own company stock to better align assets with long-term investment goals.

Those with options to defer income must weigh the pros and cons of recognizing income now vs later. Each choice should be made in the context of long-term financial security and broader life goals.

The bigger picture

Year-end planning is not just about wrapping up 2025. It's about entering 2026 with clarity and confidence.

By taking time now to align tax strategies, gifting, savings and cash flow with long-term goals, families create the flexibility to handle both expected milestones and unexpected surprises.

Closing out the year with intention lays the groundwork for financial decisions that feel less reactive and more purposeful. A thoughtful December can make the year ahead less stressful, more strategic and ultimately more successful.

Related Content

• How the One Big Beautiful Bill Will Change Charitable Giving
• Claiming the Standard Deduction? Here Are 10 Tax Breaks For Middle-Class Families in 2025
• Energy Efficient Home Improvement Tax Credits — Get 'Em While You Can
• 12 Education Tax Credits and Deductions to Know
• Best States for Middle-Class Families Who Hate Paying Taxes

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.

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

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

What is a backdoor Roth IRA?

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

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

The catch? There are income limits that preclude folks who earn too much from contributing directly to a Roth IRA via “the front door.” In 2025, for example, you’re not eligible to contribute to a Roth IRA if you are a single filer with modified adjusted gross income (MAGI) of more than $165,000 or are a married couple filing jointly with a MAGI over $246,000.

Enter the backdoor Roth IRA.

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

How a backdoor Roth IRA works

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

First, open a traditional IRA and fund it with non-deductible after-tax dollars (not pre-tax dollars). A non-deductible IRA has no income limitations. Next, convert the traditional IRA to a Roth IRA soon after. Since you didn’t get a deduction on the contributions to the traditional IRA, you’ll have zero taxes on the conversion amount, although you are subject to tax on gains. (To prove your initial IRA deposits were made with after-tax dollars, you’ll need to fill out Tax Form 8606.)

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

Contributions through the so-called backdoor are subject to the same limits as other IRAs. In 2025, the max is $7,000 for savers younger than 50 and $8,000 for those 50 and older.

How a backdoor Roth IRA benefits heirs

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

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

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

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

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

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

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

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

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

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

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

Read More

• Qualify for Roth IRA Contributions by Lowering Your Income
• Should You Convert a Traditional IRA to a Roth After 60?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Six Changes to IRAs and 401(k)s in 2025

1. Present and future tax rates

A Roth conversion is a taxable event in the year of the switch. So, if you expect that the income tax rate you will pay in retirement will be equal to or higher than the rate on conversion, then switching to a Roth IRA can pay off taxwise. If your tax rate in retirement will be lower, then tax-free Roth distributions are less advantageous.

2. Roths offer several advantages

You can withdraw contributions at any time tax-free. Distributions of Roth earnings are tax-free, provided you are 59½ or older and at least five years have passed since you first put funds in any Roth IRA. Roth IRAs don’t have required minimum distributions (RMDs), so the money can stay in the account, generating tax-free earnings. Also, conversions by the original IRA owner can ease the pain of the 10-year cleanout rule for inherited IRAs. Many non-spouse beneficiaries of inherited Roth IRAs would still have to empty the accounts within 10 years, but the money would be tax-free to them, unlike beneficiaries of traditional IRAs.

3. Multi-year strategy

It’s best to look at Roth conversions as a multi-year planning tool and not as a one-time-only decision. Doing conversions in increments over time helps you space out the tax hit. Review your income and deductions each year and determine with your financial adviser the optimal amount of traditional IRA money to convert so that the conversion doesn’t move you into a higher tax bracket or cause you to lose out on tax breaks.

4. Your adjusted gross income matters

Adjusted gross income, or more specifically, modified adjusted gross income (MAGI), is often used to determine eligibility for certain tax benefits or tax breaks or to determine if you are subject to surtaxes or surcharges. For example, it’s used to see if you qualify for any of these five new temporary tax breaks in the “One Big Beautiful Bill:” The $6,000 senior deduction for people age 65 and older, the $40,000 cap on deducting state and local taxes (SALT) on Schedule A, the deduction for up to $25,000 of tips, the deduction for up to $12,500 of overtime pay, and the deduction for up to $10,000 of car loan interest.

All five tax breaks or benefits begin to phase out at modified adjusted gross income levels above a certain threshold. Your modified adjusted gross income also determines whether you will be hit with the 3.8% surtax on net investment income and whether your Social Security benefits are taxed. You don’t want the additional income from a Roth conversion to cause you to lose deductions and credits you could otherwise be entitled to. Using a multi-year strategy and doing incremental conversions can help you manage this.

5. Medicare premiums

The additional income from a Roth conversion can trigger higher Medicare premiums, known as IRMAA. Individuals with 2023 modified adjusted gross incomes over $212,000 for joint filers and $106,000 for singles pay a monthly surcharge in 2025 for Parts B and D coverage on top of their regular premiums. These figures will rise a bit for 2025 modified adjusted gross income used for figuring 2027 monthly Medicare premium surcharges. Modified adjusted gross income includes income from a Roth conversion.

6. Paying the tax on converted funds

A Roth conversion is treated as a taxable distribution from your traditional IRA when those IRA funds are contributed to the Roth. By default, the IRA custodian will withhold 10% federal income tax. This withheld amount is treated as a distribution to you on which you must pay tax, in addition to the actual money moved to the Roth. In essence, you lose out on a portion of the IRA money being converted into the Roth. This is why financial experts advise you to pay tax owed on the conversion with non-IRA funds, if possible, and you ask the IRA custodian to withhold 0% from the converted funds.

7. IRA owners of RMD age

If you are of RMD age (73 or older for now, though RMD age will gradually rise over the next few years), you must take your annual RMD from your traditional IRA before doing a Roth conversion for the year. This applies whether you convert the full IRA or just a portion. There is another rule for owners of multiple traditional IRAs. You must withdraw your total aggregate IRA RMD for the year before doing a Roth conversion.

8. You can't undo a Roth conversion

Prior to 2018, if you did a Roth conversion, you could undo it and eliminate the tax bill by transferring the funds back to your traditional IRA. This made sense if the Roth lost money shortly after the conversion. Now if you do a conversion, you are stuck with your tax bill.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

Read More

• The Retirement Rule of $1 More: Retirement Thresholds Can Cost You
• The Average IRA Balance by Age
• Should You Convert a Traditional IRA to a Roth IRA After 60?
• Qualify for Roth IRA Contributions by Lowering Your Income

Answer: The more money you're able to sock away in your 401(k), the more financial flexibility you might enjoy in retirement. And whether you're on track with your savings or trying to make up for lost time, you may be eager to take advantage of your plan's catch-up contributions, which are available to savers ages 50 and over.

If you’re 52 years old and earning $210,000 a year, you may be in a strong position to max out your 401(k) at the catch-up level. This year, 52-year-olds (and anyone aged 50 and older) can contribute up to $31,000 to a 401(k), and that number is likely to rise in 2026 in line with inflation.

But there’s a new rule that will apply to 401(k) catch-ups for higher earners, taking effect in 2026. And it’s a change that may leave you rethinking your plan to max out your contributions.

Higher earners lose a near-term tax break

For higher earners, traditional 401(k) catch-ups are a great way to not only build stronger nest eggs, but also capture more tax savings up front. The rules are changing in 2026.

As Jim Davis, CFP and Senior Wealth Advisor at Aspen Wealth Management, explains, “Starting in 2026, anyone earning over $145,000 who wants to make 401(k) catch-up contributions will need to put those extra dollars into a Roth account. That means paying taxes up front instead of getting the immediate deduction.”

The $145,000 threshold applies to income earned in the previous year. So if you have a $210,000 salary in 2025, it means you’ll be barred from making a pre-tax 401(k) catch-up in the new year.

It also means that if your company’s 401(k) plan doesn’t offer a Roth component, you may be barred from making catch-up contributions. However, this may only be a problem for a small percentage of savers. As of 2023, 93% of 401(k) plans had a Roth option, according to the Plan Sponsor Council of America.

There are still benefits to making 401(k) catch-ups

As a general rule of thumb, Roth contributions make sense when you expect to be in a higher tax bracket in retirement than you’re in today. It’s for this reason that higher earners often opt out of a Roth and choose to save in traditional retirement plans instead.

But just because the rules are changing with regard to catch-up contributions does not mean higher earners should forgo them. As Davis points out, with a Roth 401(k), “the money grows tax-free and withdrawals in retirement won’t be taxed.”

Brian Harrison, CFP and President at SAVVI Financial, thinks higher earners should recognize the value of getting to grow their money tax-free.

“The power of Roth contributions is something to consider, particularly as retirees are living longer,” he insists. “That tax-free growth decades down the line can make a big impact.”

Sherman Standberry, CPA and Managing Partner at My CPA Coach, agrees.

“I continue to inform high-earning clients that catch-up contributions are still a smart strategy,” he says. “Although this [change] results in higher taxable income, the trade-off is the ability to enjoy tax-free growth and withdrawals during retirement. This can create valuable tax diversification across pre-tax and Roth accounts.”

Standberry also points out that tax rates may increase in the future. Having a portion of savings in a Roth account helps protect against that.

Davis, meanwhile, points out that there may be some less obvious benefits to having money in a Roth.

"You also need to consider other moving parts in your plan," he explains. "Higher income can affect required minimum distributions, Social Security, and Medicare premiums, especially IRMAA."

A change worth embracing

The requirement for higher earners to make 401(k) catch-ups as Roth contributions might initially seem like a penalty of sorts. But Davis says they can still be useful to higher earners.

“The key is to view catch-ups as one piece of your overall plan,” he says. “How do they fit with your tax strategy, retirement income, and long-term cash flow?”

Of course, anyone who’s used to making 401(k) catch-ups on a pre-tax basis should work with a financial adviser or tax professional to adjust to this change. That could mean implementing other strategies to avoid a larger tax bill in the near term.

But that doesn’t mean higher earners should eschew 401(k) catch-ups in 2026 or beyond. At the end of the day, any money that sits and grows in a 401(k) — traditional or otherwise — gets special tax treatment, and there’s a real value in that.

As Davis says, “When used thoughtfully, catch-ups can help you save smarter — not just more — and keep more of what you’ve worked for as you move toward retirement.”

Read More

• The Average 401(k) Balance by Age
• Roth 401(k) vs. 401(k): Which Is Right for You?
• Three Reasons to Skip the 401(k) Super Catch-Up
• I'm 57 With $4.1 Million and Plan to Retire Abroad in a Few Years. Can I Stop Contributing to My 401(k)?

The Trump administration has issued an executive order loosening regulations around company-sponsored retirement plans, which means Americans invested in a 401(k) or other workplace plan might soon be able to diversify into alternative investments such as private equity, private credit and real estate.

Is this good for the average investor? While there's still a lot to learn, the general idea of opening alternative assets to a wider investor base outside of accredited investors is certainly positive.

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

In the past 30 years, the number of public companies has fallen dramatically, from a peak of about 7,000 in 1996 to roughly 4,000 in recent years.

This shrinking public market universe means investors today are more concentrated than ever, with many index funds dominated by a handful of megacap Magnificent 7 stocks.

A path to wider diversification

That's why expanding access to private equity, credit and real estate funds could provide valuable diversification.

There are pros and cons to diversifying into alternative investments. If the Department of Labor and SEC, which are ultimately responsible for carrying out the executive order, give the green light to allow the rule change, employees who want to invest in alternatives through their workplace retirement plans should speak with an experienced financial adviser about the following:

Investment vehicles. The world of alternative investments is wide and deep, encompassing everything from private equity and credit to commodities, venture capital and real estate investment trusts (REITs), among others.

While there's still a lot we don't know, one thing is certain: Employees won't be able to use their retirement savings to invest in a one-off real estate project or a single private-equity deal.

Instead, large fund managers will likely package alternatives into diversified vehicles, similar to mutual funds, helping reduce single-deal risk. It's important to understand all the aspects related to the investment — liquidity, fees, etc. — to ensure it's right for you.

Age-related considerations. Unlike public markets, alternative investments have longer lock-up periods, which helps provide a buffer to short-term market volatility.

Most employee-sponsored retirement plans use target-date funds to place individuals in age-appropriate vehicles, and my guess is that they'll follow the same formula for alternatives, with the percentage of alternative investments getting smaller as the investor ages.

If that's the case, individuals won't have to think too hard about the ratio of stocks to bonds and alternatives, as it'll be baked into the formula.

Even so, it's a good idea to speak about the options with someone who has experience in alternative investments, as human resources departments often fail to serve as an effective conduit between a fund administrator and employee.

Fee structure. While alternative investments offer access to untapped markets that can help diversify portfolios, they traditionally come with higher fees.

Are the higher fees offset by the potentially outsized returns? A financial adviser can help you determine if the pluses of alternatives — namely, diversification and higher returns — outweigh the heftier fees.

A logical next step

While the financial services industry is abuzz about potentially allowing alternatives into company-sponsored retirement plans, the rule change isn't particularly novel or radical.

IRA holders and investors in solo 401(k)s can already access these types of opportunities, so any change will broaden these options to a larger investor pool.

Allowing alternatives into company-sponsored retirement accounts is a logical next step. Retirement plans have longer time horizons, which make them ideal vehicles for illiquid assets such as private equity and real estate.

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

These vehicles also provide access to opportunities that were once limited to institutions and ultra-wealthy families.

Ultimately, investors considering diversifying into alternatives should consult with an experienced and knowledgeable financial adviser who can help them fully understand their options and whether it makes sense to allocate through a retirement account or a self-directed option.

It will also be critical to formulate how much exposure makes sense for each individual's financial goals and timeline.

Except where otherwise indicated, the information contained in this article is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution or any future date. It does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations. Recipients should not rely on this material in making any future investment decision. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to consult with the professional adviser of their choosing.

Related Content

• The 401(k) Shake-Up: Private Equity's Role and Risks
• Your 401(k) Options Just Got More Complicated: Here's What You Need to Know
• An Investment Strategist Takes a Practical Look at Alternative Investments
• A Wealth Adviser's Seven Savvy Tips on Alternative Investments
• My Five-Step Estate Planning Guide to Protect Your Family

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 the idea sounds strange, you might not have spoken with a computer programmer in recent decades.

A book, “The Pragmatic Programmer,” written in 1999 by Andrew Hunt and David Thomas, tells how a rubber duck can help solve some pretty sophisticated issues.

Since the book’s publication, millions of programmers have learned that if they explain a problem piece of computer code to a squeaky confidant, they may well spot errors and find a solution.

Though the rubber duck technique started in programming, its value goes far beyond debugging code.

Studies show that simply talking through your thought process, whether to an actual rubber duck or just out loud, can uncover hidden flaws or assumptions in your thinking.

And when it comes to retirement tax planning, for example, where rules can be complicated and personal situations vary, the rubber duck rule might help you catch mistakes or missed opportunities before they impact your wallet.

Here’s more to know about how the “rubber duck rule” may help with your retirement tax planning.

This article discusses questions surrounding federal income taxes. For state returns, retirement tax issues may vary.

How does the Rubber Duck Rule of retirement tax planning work?

“Rubber duck debugging” is actually an application of an older psychological phenomenon: The “self-explanation effect.”

By methodically explaining a problem to an inanimate object like a rubber duck, you can cement knowledge in your brain, identify gaps in your understanding, and potentially discover new insights.

That's because talking to a non-judgmental listener can help people explore ideas more freely without the fear of seeming silly or incompetent, according to a Michigan Technological University computer news blog. (You'll likely only seem silly to yourself for talking to a rubber duck.)

Thus, it stands to reason that this retirement “rule” could be useful when it comes to common tax planning skills like:

Challenging assumptions. By visualizing what a new learner might ask about a problem, you may challenge your own assumptions on a subject.

For example, some folks assume there’s a specific age when you stop paying Social Security benefit taxes. But there’s no such cutoff. In actuality, up to 85% of your benefits can be taxable if your combined income exceeds a certain amount.

A new, novice listener might challenge that assumption by asking, “Wait, aren't Social Security benefits taxed?"

Uncovering gaps. When a problem only exists in your head, it’s easy to get murky on details. Verbalizing the reasoning behind your retirement tax plan ideas can prompt you to clarify areas you hadn’t thought about before.

Imagine you’re explaining your retirement plan to a friend, and they ask, What if one of you passes away — what happens to the IRA? Suddenly, you realize you’ve never thought through whether the survivor should roll it into their own IRA or keep it as an inherited account. The difference could mean paying taxes sooner versus later.

Talking it out forces you to notice that gap before it impacts your tax burden.

Finding new insights. Explaining your retirement tax plan to an outside listener can help you to structure your planning into easy-to-follow steps.

This may produce new insights, as some research shows talking aloud also activates different parts of your brain than silent thinking alone.

Kiplinger interviewed three financial planning experts to gain further insight into how retirees can identify potential issues with their retirement tax plans before consulting a tax professional. Read on.

Challenge assumptions on RMDs, SS, 401(k), and Medicare

If you aren’t sure whether you have any underlying assumptions when it comes to retirement tax planning, you might try the rubber duck rule. Vocalizing your thoughts to a tiny sentinel (aka whatever object of your choosing) can help you uncover deeply ingrained speculations — even those that aren’t true.

Steve Parrish, JD, professor of retirement planning at The American College of Financial Services, highlights common, incorrect assumptions people often make regarding retirement tax planning.

One assumption is that retirement taxes work similarly to employment taxes.

In fact, retirees have greater flexibility regarding when to withdraw income and often receive a wider variety of income sources than those who are still employed. That flexibility underscores the idea that “retirement is not only a journey in time, but also an event,” as Parrish told Kiplinger.

For example, taking a 401(k) as a lump sum, or failing to file for Medicare on a timely basis, can “increase expenses for the remainder of the retiree’s life," Parrish explains.

Dave Alison, CFP®, president of Prosperity Capital Advisors, adds that folks may be tempted to assume they’ll be in a lower tax bracket in retirement, but that isn’t always the case.

Items like Required Minimum Distributions (RMDs), Social Security benefits, and Medicare surcharges can push you into a higher effective income tax bracket than initially planned.

Three retirement tax plan gaps to avoid in 2026

Talking through your retirement tax plan with a patient listener may also help you discover whether you are “missing something.”

As Alison points out, “It might surface the question of, ‘What happens to our taxes if one of us passes away?’ or ‘How would this Roth conversion affect our income?"

Those or similar questions may lead you to uncover potential retirement “surprises” that can impact your tax bill.

Alison notes some retirement planning areas that people often overlook:

• The “Widow’s Penalty.” Taxes can significantly rise for the surviving spouse after their spouse's death. This typically occurs through tax bracket creep. (e.g., Alison notes your bracket could jump from 12% to 22%.) The widow/widower can also see a dramatic increase in Social Security benefit taxation, resulting in a high income tax burden.
• “IRMAA Shock.” Medicare premiums can be tied to events that significantly increase taxable income, like selling a highly appreciated home or executing a large Roth conversion. Retirees may be surprised by a spike in higher Medicare premiums two years after the event happened, and feel blindsided by surcharges.
• Missed Charitable Giving Opportunities. Retirees who donate sometimes miss out on making Qualified Charitable Distributions (QCDs) once they reach age 70½. As Kiplinger has reported, this direct contribution from an IRA may lower taxable income in the current year while meeting RMD requirements.

In short, by explaining your retirement tax plan to an outsider, even a rubber duck, you may uncover some of these (or similar) gaps in your retirement tax plan.

Tax planning in 2026: Discover your best retirement strategy

New insights might lead to the discovery of an important “truth” in retirement tax planning.

“The truth is that retirement tax planning is less about minimizing taxes in a single year and more about smoothing taxes across a lifetime," Alison says. "A proactive approach — like strategically timing Roth conversions or coordinating withdrawals across different account types — can help retirees avoid unpleasant surprises and create more predictable outcomes.”

But a duck (or even a family member) may only get you so far.

All three of the experts interviewed by Kiplinger warned against relying solely on trusted confidants for new insights.

• Alison points out, “Strategic tax management is not intuitive….advice from friends or family, though well-intentioned, may not apply to [your] situation.”
• Parrish adds a word of warning: “Talking with a spouse or friend may help in understanding the issues, but unless they are professionals, they may still be providing bad advice.”

Last but not least, Dean Shahan, CFP®, executive vice president at CapWealth, describes how some expert advice may be only available through financial advisors due to the technology they possess.

“[We] visually show clients that, based on their current assets and savings plan, they can retire at X age and spend X dollars a year. I also test clients’ situations using 1,000 different potential investment returns.”

Shahan told Kiplinger that this specialized advisor technology can take worst-case investment returns into consideration, giving clients a “tremendous amount of peace" about their financial situation.

So while starting with a rubber duck may be beneficial, ending with a qualified tax planner could be the best way forward.

At the very least, you’ll have the duck to thank for the important questions you ask at your first (or next) financial advisory meeting.

Read More

• Three Creative Ways to Lower Your Retirement Taxes
• Test Your Retirement Tax IQ: How Much Do You Know?
• 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)
• Will You Get a ‘Surprise’ Tax Bill on Your Social Security Benefits?

Answer: The nice thing about saving for retirement in a traditional IRA or 401(k) is getting to enjoy an immediate tax break on your contributions. If you found yourself in a higher tax bracket during your career, a traditional retirement account probably made more sense for you than a Roth.

But what if you're older and are now regretting that decision because you’re on the hook for a $22,000 required minimum distribution (RMD) you don’t need?

If you don’t take that distribution by year-end, you could be looking at a 25% penalty for a missed RMD that amounts to $5,500. That’s a lot of money to throw away.

A better idea? Find a good use for that money — even if it requires you to get creative. Here are some options.

Wipe out or reduce your tax liability with charitable contributions

RMDs can sting when you don’t need the money, since you’re increasing your tax burden for what might seem like no good reason. One way to potentially cancel that tax bill is to donate funds directly from your retirement account to charity in the form of a qualified charitable distribution (QCD).

As James Hutchens, national practice lead for Wealth Advisory at Northern Trust, explains, “If you’re 70½ or older, you can make a qualified charitable distribution directly from your IRA — up to $108,000 in 2025 — to a qualified nonprofit. This satisfies your RMD and avoids adding the withdrawal to your taxable income.”

You should also know that from a tax perspective, QCDs can be beneficial because they're not itemized, but simply excluded from your taxable income. This means you can still take the standard deduction, which might be your preferred route if you’re no longer paying off a mortgage and don’t have many deductions to itemize.

To be clear, a QCD must go directly from your IRA to a registered charity, and you can't make a QCD directly from a 401(k). However, you can roll funds from a 401(k) into an IRA, then make your QCD from that account to satisfy your RMD.

Along these lines, Mark Gelbman, financial adviser and owner at Strategic Wealth Solutions, says that if you’re forced to take an RMD and are looking to donate the money, it could pay to think outside the box.

“Look at organizations that you’re passionate about and figure out if you can do some good while also minimizing your tax burden,” he says. “Maybe it’s a high school or college that you attended or a community theater that you’re passionate about. Think about those under-funded institutions that are consistently looking for resources but don’t necessarily have deep-pocketed donors.”

Gelbman also says you can look at setting up a family foundation. This generally won’t allow you to do a QCD. However, as he explains, “That could be a great opportunity to get younger generations into a more charitable mindset so they’re more likely to be charitable in their legacy planning.”

Create a living inheritance

A living inheritance allows you to transfer assets to your loved ones while you’re alive rather than bequeath them upon your death. As Hutchens explains, “Many families earmark RMDs for meaningful experiences, from multigenerational vacations to home upgrades, or use the annual gift tax exclusion to pass wealth directly to their heirs.”

If you don’t need to spend your RMD on yourself, it might bring you great joy to see that your money is being used to better a loved one’s financial situation.

Hutchens also suggests using the money to pay for a loved one's education.

"Some clients use RMDs to contribute to 529 plans for grandchildren, which can grow tax-free when used for education and may provide a state tax deduction."

Earmark the money for special experiences

If you don’t need your RMD, you might be inclined to take it as late in the year as possible. But Robert Jeter, a certified financial planner and founder at Back Bay Financial Planning & Investments, says you might want to adopt a different approach — namely, quarterly withdrawals.

“If done quarterly, it represents a special sort of income that can be spent on a really nice dinner with a spouse or a vacation every three months,” he explains.

Jeter says that while you could take the money out monthly, in that situation, “it just becomes more income to spend or re-allocate elsewhere.”

If you have a spouse or partner, you might want to sit down together once every three months to make a list of fun activities you could do with the money. If you have events or trips to look forward to, you might not resent having to take that money out of your retirement account.

Jeter also suggests talking with retired friends to see what new activities they’ve taken up since they stopped working.

“Neighbors or others in your community or retirement groups are great places to brainstorm these types of ideas or activities,” he says.

Read More

• New RMD Rules: Starting Age, Penalties, Roth 401(k)s, and More
• Year-End RMDs: Should You Invest, Spend or Donate Them?
• I'm 60 with $4 Million — Can I Have a Luxury Retirement?
• I'm 58 and Just Sold Some Stock to Lock in Gains. I Made a Killing, But I'll Have a Big Tax Bill. What's My Next Move?

1. Itemizing and doing a QCD

Question: Can I itemize on Schedule A of the Form 1040 and do a qualified charitable distribution (QCD) this year? And does this make sense?

Joy Taylor: People age 70½ and older can transfer up to $108,000 in 2025 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.

You can itemize on Schedule A and do a QCD, but you can’t deduct the QCD as a charitable contribution on Schedule A. QCDs are nontaxable and aren't included in your adjusted gross income (AGI). And they can count toward your required minimum distribution (RMD), thus reducing the taxable amount of the RMD, provided you do the QCD before withdrawing your full RMD for the year.

Because QCDs aren't included in adjusted gross income, they aren't counted in calculating your 2025 AGI for figuring out whether you would owe monthly surcharges on Medicare premiums for 2027. The fact that QCDs don't increase AGI has even more upside now because of the various new tax breaks in the "One Big Beautiful Bill" (enacted in July 2025) that begin to phase out at modified AGIs above a certain amount. These include the new $6,000 senior deduction for filers age 65 and older, the deductions for up to $25,000 of tips and $12,500 of overtime pay, the deduction for up to $10,000 of interest paid on an auto loan to buy a new vehicle, and the $40,000 cap on deducting state and local taxes on Schedule A. Depending on your circumstances and your income, you might be able to use the QCD strategy to keep your AGI below the various levels.

2. How to do a QCD

Question: I have check-writing privileges on my IRA. If I write a check from my IRA account to a charity and send it to the organization, will this qualify as a QCD?

Joy Taylor: It depends on the IRA custodian. It is true that only transfers from your IRA directly to charity are considered QCDs, but different IRA custodians have their own procedures for complying with this. Some will require that the check goes directly from the custodian to the charity. Others will, at the account owner’s request, have the check written from the IRA account and send the check to the IRA owner to forward to the charity. And others will allow IRA account owners with check-writing privileges to write the check and send it directly to the charity. Check with your IRA custodian to see what it sanctions before doing a QCD.

Note that it’s not acceptable for the custodian to write the check to the IRA owner, who then deposits the money and writes a check from his or her own account to the charity. It’s also not acceptable for an IRA owner with check-writing privileges to write a check from the IRA account to himself or herself and then make a donation to charity.

3. QCDs greater than the annual RMD

Question: I am of RMD age. Does it make sense to donate more money through a QCD over and above my annual RMD amount?

Joy Taylor: The answer depends on several factors. I'll discuss two of them here. First, if you are itemizing on Schedule A, then you would be able to deduct normal charitable contributions (those not made through a QCD). This is tax beneficial because it would reduce your taxable income and the amount of tax you would owe. Note that deducting a charitable contribution on Schedule A would not reduce your adjusted gross income. If you are not itemizing and you want to donate to charity, then doing a QCD over the RMD amount makes lots of sense.

Second, doing a QCD that exceeds your RMD would reduce your IRA balance for figuring RMDs in later years, which is a good thing.

For more information, I would suggest that you discuss with your financial advisor and a tax accountant whether it would be beneficial for you tax-wise to do a QCD in excess of your annual RMD.

4. Deductible IRA contributions and QCD

Question: I have made deductible contributions to my traditional IRA for the past few years. I am now 77. Do all of my post 70½ deductible IRA contributions count against me when attempting a QCD? Also, what about my wife’s post-70½ deductible contributions to her traditional IRA, which I have now inherited because she passed away? Do her deductible IRA contributions count against a QCD?

Joy Taylor: There’s a special rule if you do a QCD and you make tax-deductible contributions to a traditional IRA after 70½. Essentially, these post-70½ contributions reduce your allowable tax-free QCD amount until used up. Post-70½ deductible contributions to a SEP, SIMPLE IRA or a workplace retirement account aren’t affected by this rule.

Let’s take a simple example. A 75-year-old working man is planning to do a QCD for the first time in 2025. For 2021, 2022, 2023 and 2024, he made tax-deductible contributions to his traditional IRA totaling $23,000. In 2025, the man does a QCD and transfers $20,000 from his IRA directly to charity. He would owe income tax on the full $20,000 because it is less than the $23,000 of post-70½ tax-deductible IRA contributions. Let’s say that in 2026, he then transfers another $15,000 to charity directly from his IRA. $12,000 will be a nontaxable QCD, and $3,000 will be treated as a normal distribution.

Any post-2019 deductible contributions made to your IRAs when you were 70½ or older will reduce your allowable tax-free QCD amount until they are used up. Unfortunately, this rule applies to your original IRA and to the IRA you inherited from your wife (so her post-70½ deductible contributions would also reduce the tax-free QCD amount). IRS Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs)” has a QCD worksheet, titled "Appendix D Qualified Charitable Deduction (QCD) Adjustment Worksheet" that includes a line for reducing your QCD amount by the post-70½ deductible contributions made to the IRA.

Note that if you have already done what you thought was a QCD this year, and it turns out it is not a tax-free QCD because of your post-70½ deductible contributions, then the distribution would be taxable to you. But if you itemize, you can take a charitable deduction on Schedule A of your Form 1040.

5. 401(k) contributions and QCDs

Question: I am 76 and still working. I contribute to my employer-sponsored 401(k) account every year. I have also done QCDs from my traditional IRA since I turned 72 and was required to start taking required minimum distributions from the IRA. Can I get the full advantage of my QCDs even though I also contribute to my 401(k)?

Joy Taylor: As discussed in the answer to question 4 above, there is a special rule if you do a QCD and you make tax-deductible contributions to a traditional IRA after 70½. Essentially, these post-70½ contributions reduce your allowable tax-free QCD amount until used up. Post-70½ deductible contributions to a SEP, SIMPLE IRA or a workplace retirement account aren’t affected by this rule, so you don’t need to worry about it. Your 401(k) contributions won’t impact the QCD.

6. Documentation substantiating a QCD

Question: I’m planning to do a QCD for the first time this year. What documentation do I need from the charity to show that I made the donation from my IRA?

Joy Taylor: When you do a QCD, you will want to receive a letter from the charity acknowledging the gift and stating that you didn't receive anything in exchange for your charitable donation. This is similar to what you would receive from a charity if you made a normal charitable contribution of cash. The letter from the charity doesn’t need to specifically state that the donation was made through a QCD, and likely won’t include that language. Also, be sure to keep a copy of the check or electronic transfer you sent to the charity.

7. Reporting QCDs on your tax return

Question: I have a traditional IRA that I currently take RMDs from. Last year, I did a QCD from that IRA for the first time. The Form 1099-R that I received from my IRA custodian doesn’t separate the QCD amount from the remaining RMD. How do I report the QCD on my Form 1040?

Joy Taylor: It is true that if you do a QCD, the Form 1099-R that you receive won’t reflect the distribution as a QCD. It will show only the total amount of your distributions because IRA custodians lack firsthand knowledge to discern whether a particular distribution from a traditional IRA meets the QCD rules. This is normal procedure.

The IRS is aware of this, and the Form 1040 instructions explain how to report the QCD on your tax return. When filling out the 2024 Form 1040, you would include on line 4a the total amount of distributions reported on Form 1099-R. Then you subtract the amount that was transferred directly to charity (the QCD portion) and report the remainder, even if zero, on line 4b. Write “QCD” next to line 4b so that the IRS knows why the numbers don’t match. If using tax software, the program should do this for you once you report the 1099-R distribution and let the program know about the QCD.

For example, here is an explanation from TurboTax: "To report a qualified charitable distribution on your Form 1040 tax return, you'll use the 1099-R (even though there's no indication that it was a QCD). Enter the info as a 1099-R and you'll be asked in one of the follow-up questions if it was a Qualified Charitable Distribution. TurboTax includes the full amount of the distribution reported on your Form 1099-R on line 4a (IRA Distributions) of your Form 1040 or 1040-SR. The taxable amount reported on Line 4b will be the total distribution less the QCD amount and will have 'QCD' entered next to it."

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 related to the One Big Beautiful Bill and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

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

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: Questions on Capital Gains
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on Home Sales and Taxes

This is Newton's description of inertia — and it's also a law referenced recently at the Center for Retirement Research, by research fellow, Geoffrey T. Sanzenbacher, who is also a professor of economics at Boston College. Sanzenbacher unpacked recent research on how inertia can affect retirement savings efforts.

Ultimately, he found that inertia can both help and hurt your efforts in saving for your future — it all depends on the way you're managing your accounts.

The 'Newton rule' shows that inertia can help you save for retirement

As the Center for Retirement Research explains, inertia can either work for you or against you. Because people tend to stick to the status quo, employers are trying to help workers by automating best practices, detailed below.

The key is for the default, or the easy option, to be the one that sets people up for success in retirement, rather than leaving them to fail.

If your employer has followed these best practices, you can probably sit back and relax. If not, read on, because maybe it's in your interest to stay on the couch.

Inertia might help you avoid investing mistakes

The Center for Retirement Research identified another way that inertia can help bolster your retirement savings. It saves people from their instinct to become overly conservative in their investments as they age and approach retirement.

Becoming more risk-averse as you get nearer to your retirement years can be a good thing. You don't want to have your entire portfolio in stocks (or equities) when you need to start making withdrawals in a year or two. That kind of asset allocation could backfire in the event of a market crash, forcing you to withdraw money at a bad time and lock in losses — a retirement fumble known as the sequence of returns risk.

However, research into how older savers view equity investing and whether they act on their beliefs revealed that retirement savers often failed to properly gauge market risk. In a survey of U.S. adults ages 48 to 78 with $100,000 or more in investable assets, researchers found that these individuals were often overly pessimistic about the stock market. They would choose a far more conservative portfolio than they should.

The chart below shows three commonly recommended glide paths for target date funds for the 20 years before and after retirement: aggressive, moderate and conservative.

"Glide paths" are set formulas for how a portfolio will gradually reduce the percentage of investments in stocks and increase the percentage of safer investments over time. Vertical lines show that people want to invest in a lower percentage of stocks than the glide paths recommend, especially early in their careers.

As Sanzenbacher pointed out, if older investors followed their desired investment asset allocation plan based on their level of risk aversion, their investment mix would be below the most conservative recommended glide path. This is true even among pre-retirees who are relatively aggressive in their preferred investment strategy compared with older investors.

Sanzenbacher said that "If these savers acted like they said that they would like to, their pessimism would be causing them to give up valuable returns."

The good news, however, is that most people don't adjust their asset allocation to reflect their risk tolerance. In fact, while participants on the whole said they wanted 37% of their retirement assets in equities, the average they actually had invested was higher and was much closer to the recommended moderate glide path.

Pre-retirees, in other words, benefited by not adjusting their portfolios to their preferred asset allocation — and that's most likely because of inertia. Since many of the plan participants were invested in target date funds, they stayed in those funds with the appropriate investment mix instead of switching to the more conservative investments they claimed they preferred.

A lack of action saved these investors from their own fear of the market and allowed them to remain appropriately invested.

Can — and should — you make inertia work for you?

Doing nothing can be helpful in many ways in retirement investing.

If you set up large automatic 401(k) contributions early and make auto-increases the default, you'll be more likely to hit your investment goals.

You're also less likely to panic sell if the market starts to decline. Since investing for the long-term is one of the best and most proven strategies for growing wealth, you're probably more likely than very active investors to win in the market.

At the same time, a target date fund does come with higher fees than many other investments and isn't necessarily as effective in helping you to achieve your retirement targets as a personalized plan would be.

Ultimately, it comes down to how confident you are that you can make the right moves, rather than acting based on fear, emotion or short-term thinking.

If you're working with a financial planner or investment adviser to refine your goals, optimize your finances, and select the right investments, being more active in growing your retirement savings could leave you better off. If you're acting on your own and making choices based on emotion, then inertia or inaction could serve you better.

Before you decide whether to act upon your retirement savings, carefully consider whether the moves you're making are better than no moves at all.

Read More Retirement Rules

• The 'Me First' Rule of Retirement Spending
• The Rule of the Shrinking Dollar in Retirement
• The '120 Minus You Rule' of Retirement
• The Retirement Rule of $1 More
• The 'First Year of Retirement' Rule
• The Y Rule of Retirement: Why Men Need to Plan Differently
• The Rule of 240 Paychecks in Retirement
• The 'Die With Zero' Rule of Retirement
• The '8-Year Rule of Social Security' — A Retirement Rule
• The Kevin Bacon Rule of Retirement

At least, they might have such opportunities if the third-party administrators for their workplace 401(k) plans elect to add these alternatives to the mutual funds and exchange-traded funds (ETFs) that make up most accounts.

It would be advantageous for plan participants if they do.

The alternative investments that fall under the president's order include real estate and cryptocurrencies, as well as private-market assets, such as equity and credit in private firms that aren't publicly traded.

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

Many participants in 401(k), 403(b) or 457 accounts are intrigued by the idea. For example, according to a survey by Schroders, an asset management firm, 45% of those surveyed say they would invest in private equity and private debt if their plan offered those as options.

Most of the people surveyed don't have high hopes that this will happen, though. Just 30% say they expect their plans to offer these alternatives in the next five years.

That would be disappointing.

Limited options

A 401(k) is one of the most common ways people save for retirement, with about 70% of private-sector employees in the United States having access to such plans.

But one drawback of the plans is the limited investment options many of them give participants. In many cases, those options lean heavily on target-date mutual funds that are tied to the year the employee anticipates retiring.

The idea is that investments within the fund will adjust automatically as the years pass, starting with an aggressive investment mix and becoming more conservative as the target date nears and risk needs to be reduced.

Theoretically, that sounds good. But many people contributing to those accounts could earn greater returns if they had a wider range of investment options — and if they had someone who could offer sound advice on how to get the most out of their accounts.

In too many cases, people with workplace 401(k) accounts act as their own advisers. They're given a list of funds to choose from and make a quick decision without having a good handle on whether it's the best decision.

They shouldn't be faulted. There's no reason to expect that the average person, without any training, will be adept at choosing investments, especially when the goal is to invest for the long term.

Sadly, in too many instances, savers aren't optimizing their portfolios over time and don't realize they could have accumulated much more money than they have.

The rise of cryptocurrency

Now, cryptocurrencies and other investment alternatives could give 401(k) participants the chance to do better — if they're given the opportunity to use them.

In a way, it might not be surprising if some people are hesitant to test the waters with alternatives, preferring to stick with the way things are.

But the way things are hasn't always worked as well as it should have for many people trying to plan a stable and sound retirement.

As fiduciaries, those of us at my firm would not have offered cryptocurrency as an investment option as recently as five years ago. But things change, and the cryptocurrency market has become mainstream. Even so, there are restrictions on how we do it.

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

Generally, we prefer to limit cryptocurrency to 5% of a client's portfolio, although clients can request and sign off on increasing the amount up to 10%.

Clients aren't buying actual digital coins. The investment is in crypto ETFs, which allow investors to participate in the cryptocurrency market without directly owning the coins. Instead, they buy and sell ETF shares on the traditional stock exchanges.

Maximizing returns

Many people who feel they're in good shape with their 401(k) contributions and growth aren't in good shape at all, or at least not to the extent they could be. They aren't maximizing their returns. This is one reason so many Americans worry about running out of money in retirement.

If you participate in a 401(k) or similar plan at work, look into whether your plan will offer these alternative investments.

Should the answer be no, there's another option you can consider about which many people aren't aware. Even if you're still working and contributing to a 401(k), you can roll over money from your 401(k) into an IRA and get help managing your investments through a financial professional.

This option is especially advantageous as you near retirement, because you want to make sure you're using the right investment strategies to optimize your portfolio and increase the amount of money you will retire with.

A financial professional can help you understand and implement those strategies.

Your goal is to be able to enjoy the retirement you've always dreamed about, rather than fret about whether your money will last.

Ronnie Blair contributed to this article.

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

Related Content

• Crypto in Your Retirement Account? It's Not a Crazy Question
• Alternative Investments Under Trump: What You Need to Know
• Your 401(k) Options Just Got More Complicated: Here's What You Need to Know
• The 401(k) Shake-Up: Private Equity's Role and Risks
• An Investment Strategist Takes a Practical Look at Alternative Investments

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.

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

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

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

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

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

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

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

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

Income tax and RMDs

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

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

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

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

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

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

Social Security

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

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

Higher Medicare premiums

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

Impact on the surviving spouse

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

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

The Roth solution

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

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

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

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

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

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

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

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

Roth misconceptions

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

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

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

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

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

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

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

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

Take action to avoid 401(k) tax bombs

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

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

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

Dan Dunkin contributed to this article.

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

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

Related Content

• Your 401(k) Options Just Got More Complicated: Here's What You Need to Know
• The 401(k) Mistake That Could Cost You Millions in Retirement Savings
• Five Things to Consider Before Rolling Your 401(k) into a Roth IRA
• Roth 401(k) vs. 401(k): Which Is Right for You?
• 5 Ways Your 401(k) Is a Tax Trap (and What to Do About It)

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 2025 Morgan Stanley at Work study found about 39% of employees surveyed said they reduced their 401(k) contributions as a result of current economic conditions, and 67% say they're reducing contributions across all savings accounts. That's a 4% increase from 2024.

Some were forced to draw from those retirement savings. A 2025 report from Vanguard found a record 4.8% of 401(k) account holders took a hardship withdrawal in 2024, more than double the 2.3% recorded in 2019.

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

While tough economic conditions have forced many Americans to conserve and stretch their dollars — are you putting your future at risk if you reduce or pause your retirement contributions?

Don't forget the benefits of contributing

One of the biggest benefits of contributing to an employer-sponsored retirement plan is taking advantage of the employer's match.

If someone reduces their contributions enough to no longer qualify for their employer's full match or pauses those contributions entirely, they're essentially walking away from free money. They're also preventing that money from compounding over time.

Depending on how long you reduce or pause contributions, you could be missing out on thousands of dollars.

For example, in 2025, the maximum employee contribution to a 401(k) is $23,500, with an additional $7,500 available for catch-up contributions for those age 50 and older.

Depending on their plans, workers ages 60 to 63 might qualify for a special super catch-up contribution of $11,250, for a total of $34,750.

You lose out on compounding growth, too

Aside from losing the match, pausing contributions entirely forces you to lose the benefits of compounding growth. Every dollar you contribute early in your career has decades to grow.

To give you a better perspective, let's say an employee has an annual salary of $50,000 per year and their employer offers a 100% match on contributions up to 5%.

If the employee reduces their contribution so the employer only matches 3%, that's a 2% loss each year. In dollars, that's a $1,000 loss each year.

If that money is growing at 7%, that 2% reduction, or $1,000 loss per year, will add up to $41,000 less in a retirement account after 20 years.

At the surface level, missing out on $1,000 a year might seem minimal, but over decades, it can cost you tens of thousands of dollars at retirement.

The tax implications

Pausing or reducing contributions can also have tax implications. If you have a traditional 401(k), contributing to that account reduces your taxable income in the year the contribution was made.

Pulling back on those contributions increases taxable income, which could potentially push you into a higher tax bracket if you're currently teetering on the edge.

If you have a Roth 401(k), cutting back on contributions forces you to miss out on growing tax-free assets for retirement.

Retirement plans are made with the assumption that you'll be making consistent contributions to your accounts.

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

Reducing or pausing those contributions can create a financial gap that could mean working longer than you intended, saving much more aggressively in the future to catch up (which could lead to other sacrifices), or living on less once retirement comes.

What you could do instead

While it might feel like a quick fix, you should seriously consider the long-term tradeoffs. A couple of hundred dollars saved now could mean tens of thousands lost in the future.

If you find yourself struggling with expenses, consider making other adjustments before turning to your retirement account. Look into picking up extra hours at work or search for ways to earn additional income.

We're living in a gig economy, and the opportunities are endless. If you have a budget, revisit it and look for areas in which you can cut back. This could be subscription services, eating out or simply cutting frivolous spending.

If you don't have a budget, make one to ensure you're living within your means. If you feel your only option is to reduce or pause your contributions, meet with a financial adviser to see how that would impact your current retirement plan.

Chris Cohan is a registered representative of and conducts securities transactions through CoreCap Investments, LLC. Chris Cohan is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. NJP Estate Planning is a separate entity and not affiliated with CoreCap Investments or CoreCap Advisors.

Related Content

• New 401(k) Withdrawal Rules to Know in 2025
• The 401(k) Mistake That Could Cost You Millions in Retirement Savings
• When the Market Seesaws, Should You Touch Your 401(k)?
• 401(k) Super Catch-Ups: Are They Right for You?
• Five Ways to Catch Up on Retirement Savings

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.

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

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

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

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

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

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

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

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

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

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

1. Build a strong cash buffer

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

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

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

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

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

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

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

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

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

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

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

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

2. Fix your mix — a little

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. Adapt your spending

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

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

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

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

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

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

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

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

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

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

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

4. Don't let fear drive your decisions

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

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

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

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

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

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

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

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

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

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

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

5. Keep your hand in

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

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

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

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

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

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

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

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

6. Consider the what-ifs

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

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

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

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

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

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

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

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

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

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

Related content

• Three Out-Of-The-Box Retirement Moves the Wealthy Swear By
• Retirement Calculator: How Much Do You Need to Retire?
• A 10-Year Retirement Planning Checklist

With the dollar losing value, tariffs causing financial angst, and some economists warning that the Trump administration's economic policies will push spiraling U.S. debt even higher, high-net-worth (HNW) Americans (defined as having at least $1 million in liquid assets) are paying attention. Many are looking to protect their money and diversify their portfolios, and are moving assets — including retirement account balances — to Swiss banks. Switzerland, of course, is known for its financial, economic, and political stability as well as its secure, stable, and trustworthy banking system.

The Swiss franc is often regarded as a haven, offering investors currency diversification. “We indeed see an increase in demand (from American investors), like we had seen during Covid,” said Pierre Gabris, founder and managing partner at Swiss-based asset manager Alpen Partners International. “It’s mostly the fear that the U.S. dollar may devalue even more due to the large budget deficit and federal debt that has gone up dramatically.”

Why Swiss banks are attracting U.S. dollars

A weaker dollar reduces Americans’ purchasing power and signals that global investors have less confidence in the U.S. outlook. A recent story in the British daily, The Financial Times, headlined, “Wealthy Americans seek refuge from Donald Trump in Swiss banks,” highlights the trend. In the story, Pictet, a Swiss private bank and investment firm, said they’ve seen a “significant uptick” in American clients.

The desire of HNW Americans to manage risk by moving money to offshore accounts is due in large part to the high level of unpredictability surrounding U.S. politics and economic policy as the trade war drags on in President Trump’s second term, according to a recent blog post by global wealth protection firm The Nestmann Group, which has an office in Phoenix. Interest in Swiss banks tends to rise during periods of financial uncertainty.

“Switzerland isn’t just popular because of political concerns,” the Nestmann Group blog noted. “Swiss banks offer real advantages that become even more apparent when times are uncertain.”

Pros of offshore accounts

Diversification

One advantage of this offshore strategy is greater diversification. “Having all your money in one country, one currency, and one banking system is risky,” the Nestmann Group said.

Security

Just as Americans can open a Swiss bank account, they can also transfer their retirement savings to a Swiss financial institution that adheres to U.S. rules set forth by both the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS).

A big reason why it’s fashionable to move retirement funds to Switzerland is its robust and secure banking system.

Privacy

HNW individuals, and especially those with ultra-high net worth (assets of at least $30 million), often seek out Swiss banks for their discretion. Swiss banks are famously known for limiting the ability of third parties to gather significant information about account holders.

Cons of offshore accounts

It can get complicated

The only type of retirement assets that Americans can transfer to Switzerland are self-directed IRAs, according to Gabris. The major difference between a self-directed IRA and a traditional IRA is that it offers greater investment flexibility and diversification. While traditional IRAs invest in publicly traded stocks and bonds, self-directed IRAs allow investments in alternative assets, such as real estate and private equity, among others.

401(k) account balances, therefore, must first be rolled over to a U.S. self-directed IRA before all or part of the account balance can be transferred to Switzerland. Foreign investment firms based in Switzerland, such as Alpen Partners International, collaborate with U.S.-based self-directed IRA administrators who have experience in sending U.S. retirement savings overseas. “It is relatively easy,” said Gabris. “There is a bit of paperwork, but nothing too bad.”

But taking your pension offshore is not as easy as simply transferring the funds, Gabris stresses. This is one financial transaction that requires assistance from professionals to navigate international financial rules, tax laws, and guide you to the most trusted banks in Switzerland.

Exchange rates, interest rates and fees

Still, unless you are bearish on the U.S. and think the dollar will continue to lose significant value versus the Swiss franc, moving your retirement assets to Switzerland and going through the process may not be worth the trouble or cost, says Ingo Walter, a professor of finance, corporate governance and ethics at the Stern School of Business at New York University.

“Not unless you take a bleak view of the (U.S.) dollar and Swiss franc exchange rate and are willing to pay the fees and transaction costs involved,” said Walter. Moving money from the U.S. to Switzerland now means you will earn lower yields on your cash. Money in cash accounts earns much more in interest in the U.S. than it does in Switzerland. The current U.S. Federal Funds Rate, the central bank’s key short-term borrowing rate, is in a range of 4.0% to 4.25%. In contrast, the Swiss National Bank (SNB) policy rate is 0.0%, down from 0.25% in March.

The Swiss franc is now stronger than the dollar as well. Currently, 1 Swiss franc equals $1.25 U.S. dollars, which means the franc is trading at a 25% premium to the dollar. Said another way, $1 translates to only 0.8 francs after currency translation.

How to move a retirement account offshore to Switzerland

You can’t move your 401(k) account offshore. But you can roll retirement assets into a self-directed IRA to get the process going. Here’s a basic step-by-step guide to move a retirement account offshore, according to HFS Offshore (formerly Harbor Financial Services), a firm specializing in offshore investments.

1. Open a self-directed IRA

This new, more flexible IRA must be opened with a U.S.-based custodian or administrator that facilitates international transactions. Gabris of Alpen Partners says he uses Advanta, a self-directed IRA administrator.

2. Establish an off-shore company in Switzerland

The international business company or LLC will act as your self-directed IRAs international banking arm. Foreign banks and brokers can’t open an account for an IRA directly, but they can open offshore accounts in the name of the offshore company.

3. Open an offshore Swiss bank or brokerage account

That may sound daunting, but you don't have to open an offshore account on your own. "These are bank forms we prepare," said Gabris.

4. Transfer funds via wire from your self-directed IRA to the offshore account

Once the funds are received by your offshore Swiss financial institution, they are in your hands and under your control, and you can start investing and benefit from tax-deferred growth just like in the U.S.

You’ll want to touch base with an accountant expert in foreign matters before proceeding, too. One downside is that while U.S. tax law allows certain tax-free rollover transfers between U.S. retirement accounts, such tax treatment does not apply to transfers to “non-U.S.” retirement accounts, according to Greenback Expat Tax Services.

Banks typically require a deposit of $250,000 to $1 million or more to open an account.

Can you use offshore accounts to "hide" assets?

It is illegal to use a Swiss bank or other offshore account to hide assets from divorce proceedings or from the IRS. Although some Swiss banks facilitated this behavior, the IRS and the U.S. government have intervened to shut it down. For example, Credit Suisse was fined over $500 million in 2025 for its role in hiding U.S. accounts. Reporting is now robust, and you must disclose your accounts.

Before you leap

Moving large sums of retirement savings to Switzerland shouldn’t be taken lightly. It’s a big decision. And it’s something that should be done with the help of a financial professional with expertise in offshore accounts, says Rimma Portnova, global CEO of ARI Financial Group, which specializes in advanced life insurance planning for HNW clients.

“IRAs are something people work really hard for, and making a move without doing your due diligence and working with people with global experience in asset movement is too high a risk,” said Portnova.

Read More

• The Average IRA Balance by Age
• Three Out-Of-The-Box Retirement Moves the Wealthy Swear by
• I'm 60 with $4 Million — Can I Have a Luxury Retirement?
• What You Should Know About Spousal IRAs

The new and improved form, which includes changes courtesy of the Big Beautiful Bill passed by Congress this summer, will become widely available for the 2026–27 college year on October 1, its traditional release date.

“The government has repaired all the problems from last year’s FAFSA fiasco,” says Mark Kantrowitz, an expert on student financial aid.

That’s good news for families hoping to score merit- or need-based aid for a college-bound student.

You’ll want to move quickly, though, because aid is often awarded on a first-come, first-served basis. Students who file the FAFSA within the first three months of its release get twice as many grants on average as students who file later, Kantrowitz says.

Changes to the FAFSA form

New to the form this year: an easier way for parents to enter financial information via a simple e-mail invitation from the student, rather than a requirement for the parent to establish a unique ID first.

If you create an account using your Social Security number, you will also now get immediate verification, compared with having to wait one to three days previously.

Plus, as a result of the One Big Beautiful Bill Act, you can once again exclude the net worth of a family-owned farm or small business and, for the first time, a family fishing business as well.

Other recent changes include a simplified form with fewer than 40 questions (down from more than 100) and an increase in the number of colleges to which students can send the application (now 20, up from 10).

Distributions from a grandparent-owned 529 plan also no longer affect a student’s aid eligibility, so families might consider rolling a parent-owned 529 plan over to a new 529 plan in the name of the student’s grandparent to boost aid eligibility.

FAFSA and reporting parental income

Another helpful strategy: Because the FAFSA also no longer considers contributions to a 401(k) or 403(b) account, “You can reduce the income you report on the FAFSA by maximizing pretax contributions to your retirement plan,” says Kantrowitz.

This strategy works best, he adds, if you start increasing your retirement contributions two years in advance of filing the FAFSA.

That’s because, while the FAFSA asks for the value of your bank accounts, 529 plans, investments and other assets as of the day you submit the form, it pulls income information from the tax return you filed two years before the academic year for which you’re seeking financial aid.

That means this October’s application, for the school year starting in 2026, will use information from your 2024 return.

What if your income drops after you’ve submitted your aid application? Says Kantrowitz, “You should always appeal for more financial aid if your financial circumstances change.”

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.

Related content

• How Grandparents Can Help with Education Expenses
• You Should Be Investing in a 529 Now for Your Kids' or Grandkids' Tuition
• 529 Plan Contribution Limits for 2025

Tax experts say now is the time for seniors who qualify for this deduction to take advantage of strategies that can help trim taxes on Roth IRA conversions, required minimum distributions (RMDs), capital gains and the sale of a home.

Here are five ways to benefit from the "senior bonus" deduction.

1. Roth IRA conversions

Arguably the biggest benefit of the $6,000 senior deduction is that it makes Roth IRA conversions a tad more tax-friendly for folks age 65 and older.

Roth IRA conversations are taxable events, as the dollar amount converted from a traditional IRA to a Roth IRA is added to income in the year of the conversion. If you convert $25,000 to a Roth IRA in 2025, that amount will be added to your income.

"Seniors can use the $6,000 deduction to offset this added income," says Alison Flores (PDF), manager with the The Tax Institute at H&R Block.

This new deduction is only available to those age 65 and older by the end of the current tax year who have a Social Security card and who use any tax filing status other than married filing separately, according to H&R Block.

Like many tax provisions in the One Big Beautiful Bill (OBBB), the deduction phases out above a certain income level: Modified adjusted gross income (MAGI or AGI) of $75,000 for singles and $150,000 for those married, filing jointly. It phases out completely for MAGI above $175,000 and $250,000, respectively.

Here's how the extra deduction can reduce the tax hit on a Roth conversion for a married couple. The $12,000 deduction per couple age 65 and older filing jointly is on top of the $33,500 standard deduction. A married 65-plus couple can deduct up to $45,500 in 2025.

Flores lays out a simple example to illustrate the tax savings. Let's say a married couple age 65-plus has $20,000 in Social Security income, $5,500 in interest income, and converts $20,000 from a traditional IRA to a Roth IRA.

The math works like this: The total income of $45,500 from Social Security, interest income and the Roth conversion is offset by the $45,500 deduction they get from the standard deduction plus the new $12,000 per couple 65-and-older deduction.

"Because their deductions equal their income, they owe no federal tax on the Roth conversion," Flores says.

Taking advantage of the larger deduction allows seniors to convert pre-tax IRA funds into a Roth IRA at a lower tax cost.

The higher deduction can also help seniors convert more money into a Roth IRA without bumping up to a higher tax bracket, says Steven Novack, a senior financial adviser at Altfest Personal Wealth Management.

Let's say a 65-plus couple is in the 12% tax bracket (taxable income of $23,850 to $96,950) and has $70,000 in income and takes a full deduction of $45,500 ($33,500 standard deduction and $12,000 extra deduction). Their taxable income falls to $24,500.

If the goal is to maximize the 12% tax bracket, the couple — with the help from the extra $12,000 deduction — can convert $72,450 from a traditional IRA to a Roth IRA and still stay within the 12% bracket.

"If you convert more, after that you're going to be in the 22% bracket," Novack says.

Since this $6,000 per person deduction expires four years from now, Flores recommends spreading IRA conversions over the four-year window (2025-2028), so seniors who qualify for the extra deduction can maximize the extra deduction each year and manage their tax exposure more effectively.

Trimming your tax hit on a Roth IRA conversion isn't the only way to save on taxes using the extra $6,000 deduction. Here are some other ways to cash in.

2. Reduce taxes on required minimum distributions

The new senior deduction doesn't lower the dollar amount of your IRS-imposed required minimum distributions (RMDs). What it does, however, is lower the taxable income of a married couple age 65 and older by $12,000 in a given tax year, which can slash the tax owed on your RMDs and other income.

3. Increase tax savings for seniors who itemize

Normally, taxpayers who itemize on their tax returns can't claim the standard deduction or the additional deduction for seniors. However, the new $6,000 deduction for those age 65 and older is available even if they itemize on their taxes.

This can increase tax savings for seniors who have significant deductions for medical expenses, charitable contributions or other itemized deductions, such as federal deductions for state and local income, and property taxes and interest paid on real estate, says Novack.

Novack says 65-plus tax filers who live in high-tax states with expensive real estate, such as California, New York and New Jersey, can boost their tax deductions even beyond the standard deduction and new 65-plus deduction by taking advantage of the state and local tax (SALT) deduction, which Trump's tax-and-spending bill expanded to $40,000, up from $10,000, through the end of 2029.

"You can really take advantage of those two things to reduce your income and keep your income below the tax thresholds and tax brackets," Novack says.

4. Save taxes on capital gains

Capital gains from the sale of investments, such as stocks and mutual funds, are taxed based on your taxable income, says Flores.

The newest IRS perk allows capital gains to be taxed at 0% for single filers with taxable income of $48,350 or less and joint filers with income less than $96,700.

"Seniors can use the $6,000 deduction to reduce their taxable income and stay within the 0% capital gains bracket," says Flores. "This is especially useful for retirees who want to sell appreciated assets without incurring a tax bill."

A smart strategy in the next few years is to time asset sales in years when other income is low, so you maximize the extra deduction more fully, says Flores.

5. Save on taxes when downsizing

Many adults 65 or older own homes that have appreciated massively over time. While the IRS allows single filers to exclude up to $250,000 of capital gains on a home sale and joint filers $500,000, many seniors have enjoyed home appreciation rates that might produce capital gains beyond the IRS tax-free threshold.

This is where the new $6,000 senior tax deduction (or $12,000 for couples) can play a valuable role, says Flores.

"Seniors who choose to sell their home during the 2025-2028 window can use it to offset the taxable portion of their capital gain on their home sale," she explains. "In short, timing the sale of a long-held home to coincide with the availability of the senior deduction can be a smart strategy to minimize the tax impact of downsizing. It's a way to turn a life transition into a tax-efficient opportunity."

Social Security and Medicare

Flores also clarifies a point that has caused some confusion. The $6,000 senior tax deduction is considered a so-called "below-the-line deduction", meaning it reduces taxable income but does not reduce AGI.

That means it won't impact the calculation of provisional income and, she says, "does not influence AGI-based thresholds used for Social Security taxation or Medicare premium adjustments."

Related content

• Want to Retire at 65? See if You Can Answer These Five Questions
• Standard Deduction 2025 Quiz: How Much Do You Really Know?
• 2025 Tax Deduction Change for Those Over Age 65
• The Rule of 240 Paychecks in Retirement

Beauty, as they say, is in the eye of the beholder. So are the details. When it comes to taxes, the details of the new law — and the overall cost — might not be what many people hope.

This law came about like a shopper who walks into a store and says, "I'll take everything" — then they figure out the cost later. You and I wouldn't do that, nor would any other informed consumer.

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

While the OBBB extends the existing 2017 tax cuts and adds new tax cuts (such as those involving tips and overtime), it's also expected to add $3.4 trillion to the deficitin the next 10 years, according to the Congressional Budget Office and the Joint Committee on Taxation.

At some point in the future — perhaps in the middle of your retirement — there likely will be a reckoning as the nation's debt grows. To deal with it, lawmakers will need to drastically cut spending or raise taxes.

As you take advantage of today's tax cuts, you should also think about strategies to reduce your tax bill in the long term.

Stalked by stealth taxes

As people sort through the implications of the OBBB, retirees also need to be aware of what can be considered "stealth taxes" — which aren't necessarily clandestine but do have a way of sneaking up on you.

These taxes essentially penalize you if you've done well financially. Examples of stealth taxes are:

IRMAA. This stands for income-related monthly adjustment amount. It's an additional charge retirees pay on their monthly Medicare Part B or Part D premiums when their income exceeds specific amounts.

Alternative minimum tax. Tax law includes plenty of ways to lower your tax bill, but the federal government wants to make sure high-income earners reduce their taxes only so much.

This is where the alternative minimum tax comes in, making sure those taxpayers pay at least some taxes.

Tax on Social Security. Even Social Security benefits don't escape taxes if your income exceeds a specific amount.

For single filers, 50% of your benefit is taxable if your taxable income is from $25,000 to $34,000, and 85% is taxable if your income is $34,001 or more.

If you're married and filing jointly, 50% is taxable if your income is from $32,000 to $44,000, and 85% is taxable if your income is $44,001 or more.

Wait, doesn't the OBBB end the tax on Social Security benefits?

Not exactly. The bill temporarily provides eligible taxpayers who are 65 and older with an additional $6,000 deduction, which could drop some people below the income levels that trigger the Social Security tax.

However, not everyone qualifies for the deduction, which is phased out for individual taxpayers with modified adjusted gross income above $75,000 and for joint filers with income above $150,000.

Even those who qualify have a limited time to take advantage of the deduction, which ends after 2028.

Being proactive on tax efficiency

Like most people, I don't mind paying less in taxes, but I'm also mindful that it's a good idea to consider making use of today's tax cuts to protect yourself in the future, when the tax situation could be very different.

Being proactive is essential.

The average person can't control what tax laws say — or the fact that those laws could change at any time. You can take steps to reduce your future tax bill within the limits of existing laws.

A few actions you can take to put yourself in better shape when retirement arrives include:

Convert tax-deferred accounts to a Roth IRA. One of the best ways to reduce your tax liability in retirement is to convert your traditional IRAs or 401(k) accounts to a Roth IRA several years ahead of retirement.

Those traditional accounts were tax-deferred, meaning you didn't pay taxes on the money you contributed. But you'll be taxed when you withdraw the money.

After you turn 73, required minimum distributions (RMDs) kick in, forcing you to withdraw a certain percentage annually whether you want to or not.

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

With a Roth IRA, you've already paid taxes on the money you contributed, so those accounts grow tax-free, and you don't pay taxes on your withdrawals.

There are also no RMDs. If you transfer money from a tax-deferred account to a Roth, you'll pay taxes when you make the conversion.

For most people, the advantages outweigh the disadvantages. Ideally, you would make the conversions when the market is down, paying taxes on the lower value, then benefiting when the market rebounds and your balance grows in a tax-free account.

Contribute to a Roth 401(k) at work. Many employers have offered traditional 401(k) plans as an employee benefit for decades, but now Roth 401(k)s are an option at some workplaces.

Take advantage of this option if you have it. You don't get the immediate, short-term tax advantage that a traditional 401(k) provides, but you have the long-term advantage that your money will grow tax-free.

Contribute to a health savings account. An HSA is a way to save money to pay for out-of-pocket medical expenses, especially when you have a high-deductible health insurance plan.

Beyond helping you save for unexpected health costs, an HSA also comes with tax advantages. When you contribute to an HSA through payroll deductions at work, you aren't taxed on the portion of your income that you contribute.

You can also earn interest tax-free on the money in the HSA, and you don't pay taxes when you make withdrawals (as long as the money is used to pay for qualified medical expenses).

If your employer doesn't offer an HSA, you can open one outside work if you have a qualified health plan. In that situation, you'd contribute after-tax dollars to the HSA, then claim that contribution as a deduction on your taxes.

As you look to the future and plan your retirement, it's best to work with a financial professional who has experience and understands the nuances of when and how to put these strategies into play.

It's key to take control of your tax situation now — before the rules change yet again.

Ronnie Blair contributed to this article.

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

Related Content

• Ready to Retire? It's Not Too Late to Convert to a Roth IRA
• Roth 401(k) Changes: What You Should Know for 2025
• 10 Things You Need to Know About Health Savings Accounts
• Is a Silent Wealth Killer Stalking Your Retirement?
• Eight Tips From a Financial Caddie: How to Keep Your Retirement on the Fairway

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.

These catch-up contributions let workers age 50 and older save beyond regular annual limits, helping boost retirement savings as they near retirement age.

New IRS rules tied to the SECURE 2.0 Act, passed a few years ago, now require certain higher earners to make those catch-up contributions exclusively on a Roth basis. That means contributions are made with after-tax dollars instead of pre-tax, but with tax-free withdrawals in retirement.

Initially, that change was slated to start with contributions made in 2024. But the IRS has finalized regulations giving employers and taxpayers some flexibility to adjust. Here’s more of what you need to know.

Roth catch-up contributions SECURE 2.0

Under SECURE 2.0, if you're at least age 50 and earned $145,000 or more in the previous year, you can make catch-up contributions to your employer-sponsored 401(k) account.

• But there’s a new catch. You'll eventually have to make those extra contributions on a Roth basis, using after-tax money.
• You wouldn’t be able to get tax deductions on those catch-up contributions as you would with typical 401(k) contributions.
• But you could withdraw the money tax-free when you retire.

Note: The SECURE 2.0 Roth catch-up contribution rule won’t apply to taxpayers making $144,999 or less in a tax year.

For example, using the 2025 contribution limits as a reference (2026 limits aren’t yet available), you can contribute up to $23,000 to your 401(k), plus an additional $7,500 catch-up contribution if you're 50 or older, totaling $30,500.

• Under the new rule, the $23,000 regular contributions would still be made pre-tax, but the $7,500 catch-up amount must be made in a Roth account.
• You would pay taxes upfront on the catch-up amount, but withdrawals of that money in retirement would be tax-free.

*This is a simplified example, and the $23,000 and $7,500 figures are 2025 limits used for that purpose. Those amounts might increase for 2026 due to inflation adjustments.

The final regulations state that full applicability of the Roth catch-up rule will generally take effect for most plans beginning after December 31, 2026. (Certain governmental plans and plans maintained under a collective bargaining agreement might get more time to adjust.)

However, some might note that the catch-up rule technically applies as of January 1, 2026. But the 2027 date essentially gives employers and plans a grace period (of sorts) as they work in good faith to ensure their plans fully comply with the new rules.

Per an IRS release: "The final regulations also permit plans to implement the Roth catch-up requirement for taxable years beginning before 2027 using a reasonable, good faith interpretation of statutory provisions."

More clarification on Roth catch-up contributions

The IRS final rules also clarify other questions, like how employers determine if an employee’s income exceeds the $145,000 threshold.

• Employers that are part of a controlled or affiliated service group can combine wages from related companies to make this calculation, which helps avoid confusion for workers with multiple related employers.
• Additionally, if a catch-up contribution is mistakenly made as a pre-tax contribution instead of a Roth, the final rules explain that plans have until the end of the following plan year to correct it.

The IRS notes that the grace period is designed to reduce administrative burdens and give participants and employers more time to correct errors.

As Kiplinger had reported, more than 200 entities, made up of Fortune 500 companies, firms and public employers, including the American Retirement Association, Chipotle Mexican Grill, Fidelity Investments, Charles Schwab, Microsoft Corporation and Delta Airlines, had initially asked Congress (PDF) for a two-year delay to the Roth catch-up rule.

What the IRS final catch-up regulations mean for you

If you’re an employee age 50 and older, you can continue making catch-up contributions to your retirement accounts for now. However, once the rules are fully implemented (or sooner in some cases), high earners will need to make Roth-only catch-up contributions.

In addition, the IRS confirmed the “super catch-up” provision under the SECURE 2.0 Act, effective beginning with the current 2025 tax year.

As Kiplinger has reported, workers ages 60 to 63 can contribute significantly more above the standard catch-up limits — up to $11,250 in 2025.

For more information, see: New SECURE 2.0 Super 401(k) Contribution Catch-Ups.

As always, consult a tax or financial professional to determine how these and other tax changes might impact your retirement savings strategy.

Note: This article has been updated to clarify the nature of the 2027 date for full applicability of the final regulations.

Read More

• SECURE 2.0 Act Summary
• Roth 401(k) Changes: What You Should Know for 2025
• Current 401(k) and IRA Contribution Limits

Answer: Saving early and often is the recipe for success in retirement. The longer you invest, the more time your money has to grow before your paychecks stop.

But what if you plan to work forever, and the paychecks never stop? Does that mean you can blow off or pull back saving for a retirement you don’t intend to have?

In a perfect world, where things go as planned, yes. In reality, no.

“You can’t always choose when you retire,” says Michael Conrath, chief retirement strategist at J.P. Morgan Asset Management. “You need to plan for the fact that not everything goes according to plan.”

There are benefits to working as long as possible. If you work until you're 70, you receive a 30% increase in your Social Security benefits. Working until that age also means less time drawing from your savings and more time for your savings to grow.

But thinking you'll never retire can’t be an excuse to put off saving, even if you already have a nest egg. Many things can go wrong with that. Read on to learn what.

Forces out of your control can derail your plans

Even if you love your job and are really good at it, there’s no guarantee you'll keep it forever, let alone until you're 70. “Only 28% of retirees say that they hit their target retirement date. On average, they retired three years earlier than expected,” says Conrath.

There are several factors out of your control that can derail that "work forever" approach, including:

You get laid off. Layoffs and downsizing are part of life, and you could end up on the receiving end of one of those actions. Depending on the job market and your age, it might be difficult to find a comparable salary or even a new job.

You hate your job. You might have the best job in the world, but that can quickly change if a new boss comes in, your co-workers change, or the company is under new management. Suddenly, the job you loved coming to work at every day becomes the place you dread the most.

“Your work dynamics can shift over time. You might not be working with — or for — the same people in the future," says Conrath. "A change in the organization could affect your happiness.”

You or a family member gets sick. Your health might prevent you from performing your job, forcing you to retire. This can happen unexpectedly or gradually over time.

It might not be you who gets sick either. An elderly parent, spouse or loved one might suffer from an illness, derailing your 'work forever' plans. JP Morgan found that close to one-third of people retire earlier than planned because of a health issue or disability.

“People don’t get to choose how long they work due to illness, caregiving, any number of things,” says Nick Nefouse, global head of retirement solutions and head of LifePath at BlackRock. “Having savings is important. It gives you more control.”

You become obsolete. From telemarketing to data entry, many jobs have become obsolete through the years. You run the risk of that happening the longer you're employed in a field. To remain relevant usually requires continuing education, which means time and commitment.

“Will you keep up with pursuing opportunities to expand or refine your skillset? If you’re in a physically demanding job, will you be able to continue to do that in your 80s or 90s?” says Conrath. “You need to take an honest look at your role and how the requirements could shift in the future.”

Do this instead

Working forever might not be a realistic plan, but a phased retirement is. This happens when you slowly reduce the hours you work, or shift into part-time work instead of retiring completely. You bring in a paycheck, stay busy, but still have time to enjoy your retirement.

During it all, you focus on saving for when you no longer want or can work at all.

“Plan for the window, not the day of retirement,” says Nefouse. “You don’t need a specific date. We retire when we physically can't work or don’t want to work, but you have to plan for those remaining years.”

Related content

• The 'Me-First' Rule of Retirement Spending
• I’m 53, Make $500,000 a Year and Live Paycheck to Paycheck. I Want to Retire At 65, But We Only Have $200,000 Saved.
• My Great Retirement Dream: Sell My House, Downsize, Live off the Proceeds and Dabble in Stocks. Here's How I’m Doing So Far.
• Five Wealth-Building Moves You Can Make in Retirement

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

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

This is an issue many older workers face if they're forced out of a secure job too soon, often working part-time or in jobs that offer few benefits and earnings far below their peak.

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

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

States are often left to pick up the slack when there's a retirement savings gap, as individuals with too little invested turn to social-assistance programs. In an effort to increase retirement savings and reduce reliance on government benefits, 17 states now offer some type of automated individual retirement accounts (auto-IRAs).

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

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

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

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

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

A federal program might sweeten the pot: Saver's Match

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

That might change in 2027, as a new federal incentive called the Saver’s Match is scheduled to take effect under SECURE 2.0. If it does, the federal government will match up to 50% of contributions to an eligible worker's IRA or workplace plan, up to a maximum of $1,000 for individuals and $2,000 for couples filing jointly.

The matching funds would be available only to individuals earning $35,000 or less, or couples with an income of $71,000 or less. Contributions begin to phase out once income reaches $20,500 for singles or $41,000 for joint filers.

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

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

That said, the fate of the Saver's Match is unknown. It's possible that the Trump administration will decide not to fund the program.

Should you contribute to an auto-IRA?

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

Regardless of whether the Saver's Match is implemented and you qualify for it, the reality is that IRA accounts offer numerous benefits, including flexibility in your investments.

If you suspect you might qualify for the Saver's Match, though, it's important to make sure you don't lose out. To do that:

• You'll need to file a federal tax return to claim your match, so be sure to submit a return even if you otherwise wouldn't
• Adjust your contributions if needed. If you're working a side hustle or doing part-time work, you might not invest enough by default to earn the full Saver's Match. Try to adjust your contributions up enough so you don't leave this free money on the table if you are eligible

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

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

Read More

• I Got Laid Off at 52 With $620,000 in Savings, and I'm Only Being Offered Lower-Paying Jobs
• Boost Your Retirement Savings in Your 50s with These Six Moves
• How Your Social Security Check Changes at Ages 62, 65, 66, 67 and 70

Many of these tools act as "data aggregators," linking to your financial accounts at different institutions for the latest balance and investment information. The result is a helpful picture of your assets and portfolio construction in one place. Achieving that clarity, however, means that you need to trust the app with the log-in credentials of your other accounts — making those tools a tempting target for scammers and hackers.

The J.D. Power's 2025 U.S. Retirement Plan Digital Experience Study benchmarked 18 major banks and financial institutions based on a large survey of U.S. consumers. So, did your retirement platform earn a high score?

Security is king when using retirement planning apps

Retirement plans are, obviously, valuable assets worth protecting, and it is clear that those turning to mobile planning apps want to ensure that the apps themselves are secure. As a result, there has been a shift in focus from app users prioritizing convenience to ensuring that these programs are as safe as possible.

"There was a time not long ago when multifactor authentication processes and other digital security measures were dismissed as an annoyance by website and mobile app users," a recent J.D. Power report said. "Now, enhanced security is one of the most critical pieces of the retirement plan digital experience."

Following recent high-profile data breaches, including the 2017 Equifax breach that exposed the data of 147 million Americans, it's not surprising that those who use mobile apps to monitor their retirement accounts would want to ensure that no unauthorized individuals can unlawfully access their plan.

The best (and worst) apps for retirement planning

J.D. Power asked retirement plan users about their attitudes towards digital apps in general and assessed which apps had the highest customer satisfaction. Scores were out of a total possible 1,000 points. Here's how the 18 financial institutions ranked, where a high score is best.

The study measured customer satisfaction across four areas: design, system performance, tools and capabilities and finally, the quality of information provided. The study is based on responses given by 7,151 plan participants in 2025.

For those stuck with a bad retirement planning tool, switching to a different institution's platform might make sense. Yes, it will be painful in the short-term to transfer all of those account credentials, but if you feel the security and user experience is better, you'll be more likely to actually use the app. Just be sure you know what happens to your data when you move it off a given system; you might call customer service to make sure your information has been deleted. Make sure you have opted out of data sharing and de-linked financial accounts where possible.

Remember that the J.D. Power study is just one measure of these tools' usefulness. You should also consider whether they require you to establish a retirement account (in which case, fees and terms are important). Working with a financial adviser with a retirement planning focus is another to set pick a platform. Note that advisers often use their own industry software, such as MoneyGuide and eMoney.

As sophisticated as these platforms are, AI will jump start new innovations in how you work with your financial data. AI is already helping companies protect against security breaches — and making companies and their customers more vulnerable at the same time.

Read More

• Seven Banking Tasks Retirees Can Do Online or Via a Mobile App
• How to Pick the Best Robo Adviser for You
• Your Online Security: 10 Things You Should Know
• The 'Vinyl Rule' of Retirement: Plan for Two Sides in Your Next Act

Answer: As of 2022, the typical 57-year-old had $185,000 in retirement savings, according to the Federal Reserve.

If you’re 57 with $4.1 million socked away for your later years, you’re in remarkably good shape. This holds true whether your intent is to retire abroad or not, as both have pros and cons from a financial perspective.

However, you might wonder if it pays to continue funding your 401(k) plan at this stage if you plan to retire abroad in a few years. You’ve probably got enough savings that if you were to work a bit longer and let your balance grow, you’d be well-positioned to retire in your early or mid-60s.

Halting those 401(k) contributions, meanwhile, means freeing more money to spend in the near term.

There are some big drawbacks to pulling the plug on 401(k) contributions, even with plenty of savings in your pocket. It’s important to weigh your options carefully.

Hitting stop on your savings means giving up benefits

It’s one thing to retire on $4.1 million at 57 and another thing to stop funding a retirement account at 57.

Although 57 isn’t such a young retirement age, it could mean having to stretch your nest egg further. If you’re thinking of retiring in your 60s and are simply looking to stop funding your 401(k) during your last few years of working, that’s a different story — and a lot less risky.

Still, Brett Bernstein, CEO and co-founder at XML Financial Group, says it’s important to recognize that there’s really no such thing as having too large a 401(k) balance.

“I believe one shouldn’t make a rash decision to pull the plug on contributions to a retirement plan based on their age or account value,” he says. “A well-thought-out, holistic financial plan should be created to determine if you need to continue contributing to a retirement plan to meet your retirement goals.”

Aaron Cirksena, founder & CEO of MDRN Capital, also cautions savers who have accumulated a lot of money at a certain point to consider the downside of halting retirement plan contributions.

“The real question is not ‘Can I stop?’ but ‘What do I lose if I do?’ ” he says. “Every extra [401(k)] dollar stowed away lowers your taxable income today and keeps more of your money working for you. If your employer is still offering a match, that is basically free money you would be missing out on.”

There’s also the fact that 401(k)s impose an early withdrawal penalty to think about. If you’re inclined to tap your savings before age 59½, then you might want to stop contributing to a 401(k) and focus instead on a taxable brokerage account with restrictions.

On the other hand, if you’re already 57 and are still planning to work a few more years, early withdrawal penalties might not be an issue. That makes the argument to continue funding a 401(k) at least up to the point of your employer match.

Retiring abroad changes things — for better and worse

Both Bernstein and Cirksena believe that retiring abroad should factor into the decision of whether to continue funding a 401(k).

As Bernstein says, “Retiring abroad requires some additional planning, including, but not limited to, currency conversions, fluctuations and tax considerations. Once those aspects are taken into consideration, the costs could be less.” However, he says, they might not be.

Cirksena says, “In countries with lower costs of living, your money will go further, and that can make the idea of stopping contributions feel even safer.”

However, Cirksena cautions, "Retiring abroad is never as cheap and simple as it looks. You will most likely face surprise costs like visa requirements, foreign taxes, or you may need to keep some U.S. accounts open for some reason."

He also points out that retiring abroad could mean traveling back and forth to the U.S. frequently to see friends and family, which could result in a big financial strain. That’s why, Cirksena says, “keeping up contributions, even if at a reduced level, can still make sense.”

Bernstein also notes that life can throw retirees many curveballs, regardless of where they live. Home repairs, health issues and family obligations can all eat into retirees’ nest eggs, making the argument that continuing to contribute toward retirement to some degree is a pretty smart choice.

All told, for this situation, Bernstein says the key is to make a smart decision for the future, given the unknowns of retiring abroad (or retiring in general) without denying yourself too much in the near term.

“I believe someone should save as much as they can when they can to be there for the future, but don’t save so much that you cannot enjoy the journey along the way,” he says.

Read More

• Retire in This Asian Country for a Warm Culture and Relaxed Lifestyle
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• We Bought a Vacation Home for Retirement We Never Use. Should We Sell or Rent It Out?
• The Best Places to Retire in the World

While the law extends some favorable tax brackets and introduces deductions for older Americans, several provisions do little to support people already in retirement.

Others could quietly raise your costs or trigger unintended tax consequences if you're not careful.

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

If you're retired (or preparing to retire) here's how the new law might affect your finances and what steps to take to protect yourself.

Roth conversions could now do more harm than good

Roth conversions used to be a smart way to control future taxes. With today's lower rates, many retirees converted pretax IRA funds to Roth accounts to lock in those rates and enjoy tax-free growth.

But under the OBBB, this strategy is no longer a slam dunk. Why?

• The new bonus deduction for people 65 and older lowers taxable income, but not adjusted gross income (AGI).
• Roth conversions increase AGI, which determines how much of your Social Security is taxed and whether you'll face IRMAA surcharges on Medicare.
• Some retirees now face a "sneak attack," in which they stay in the same tax bracket, but pay thousands more in Medicare premiums or lose Social Security purchasing power due to added taxation.

What to do: Don't abandon Roth conversions altogether, but be precise. Smaller partial conversions spaced out over several years could help you reduce lifetime taxes without triggering costly ripple effects.

Be sure to run multiyear tax projections that include Social Security taxation and IRMAA thresholds.

It's also a smart idea to calculate your future required minimum distributions (RMDs) at and after age 73.

If those RMDs are projected to push you into the 24% bracket, consider converting enough now to maximize the 22% bracket while you still can.

We don't know what future tax rates will be, but paying taxes now at known rates might be smarter than waiting.

If you're unsure where you stand, get help from an advisor who uses software that models potential long-term tax savings from conversions under current law, which can be a powerful tool for retirement decision-making.

The estate tax exemption rose, but don't let that fool you

The bill raises the federal estate tax exemption to $15 million per person through 2030, but for the majority of retirees, this does nothing to ease the burden of estate clarity, tax efficiency or family coordination.

Unfortunately, many people assume that if they're under the estate tax limit, they don't need to plan. That's a mistake.

Most estate planning issues have nothing to do with taxes and everything to do with:

• Unclear or outdated beneficiary designations
• No instructions for incapacity or health care decisions
• Family disputes about property, debt or inheritance
• Missed charitable or legacy goals

What to do: Revisit your estate plan, regardless of your net worth. A current will, power of attorney, health care directive and coordinated beneficiary structure are essential.

If you're charitably inclined, consider using a qualified charitable distribution (more about this below), or setting up a donor-advised fund (DAF). A DAF allows you to donate a large sum in a high-income year.

For example, if you're converting a large amount to a Roth, you can offset the tax impact while maintaining flexibility in how you give over time.

Medicare cuts might raise your out-of-pocket costs

To fund permanent tax cuts, the OBBB includes more than $490 billion in Medicare reductions in the next decade.

The law doesn't spell out exactly how those cuts will be implemented, but they could result in:

• Higher Part B and D premiums
• Reduced coverage areas for Medicare Advantage plans
• Lower provider reimbursements that make it harder to find care
• More out-of-pocket expenses for medications or specialist visits

What to do: Plan for rising health care costs, even if your income stays flat. Review your supplemental coverage annually, and don't assume your plan from last year will still serve you next year.

Consider building a dedicated health care reserve into your retirement income strategy.

Charitable giving incentives are nice, but not a game-changer

The OBBB includes a new $2,000 charitable deduction for non-itemizers age 65 and older. That's a welcome change, but it might not move the needle much, especially for those who already use qualified charitable distributions (QCDs) from IRAs for tax-efficient giving.

What to do: If you're age 70½ and older and have an IRA, QCDs remain one of the most powerful giving tools available, allowing you to reduce your RMD income and support causes you care about — all without increasing your AGI.

For more flexibility, combine your giving with a donor-advised fund. This can be especially effective if you're doing Roth conversions or realizing gains in a single year and want to offset that added income.

Income stacking could trigger tax surprises

The OBBB keeps lower income tax brackets, but those brackets still interact with other parts of the tax code in ways that can sneak up on retirees. For example:

• RMDs stack on top of other income
• Capital gains could become taxable when layered with dividends, pensions or Social Security
• You could unintentionally cross into a higher effective tax rate even if your marginal bracket doesn't change

What to do: Be intentional about withdrawal sequencing. In some years, it might make sense to draw from Roth accounts to stay under Medicare or tax thresholds. In others, you could realize capital gains up to the 0% tax rate.

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

Consider using tax-efficient investments in your non-qualified (taxable) accounts.

By focusing on low-turnover funds, municipal bonds or actively managed portfolios with tax-loss harvesting strategies, you might reduce your annual tax liability while keeping more of your investment income.

The bottom line

The OBBB might have promised sweeping relief, but for retirees, it offers more caution than comfort.

The next few years will require sharper planning, not just to avoid tax surprises, but to build in flexibility for rising health care costs, shifting income needs and legacy goals.

The good news? You still have time to make smart moves that can protect your future. Work with a financial professional who understands how today's rules impact retirement and how to adjust as things evolve.

At Dorhout Retirement Services, we help people retire with clarity and confidence, even when the rules change. If you're unsure how this new legislation affects your income, taxes or estate, we're here to help.

Grant Dorhout offers investment advisory services through CWM, LLC, an SEC Registered Investment Adviser. This article is not intended to provide specific legal, tax, or other professional advice.

For a comprehensive review of your personal situation, always consult with a tax or legal adviser.

Converting from a traditional IRA to a Roth IRA is a taxable event.

Generally, a donor-advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor's representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.

Related Content

• What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's Guide
• Seven Medicare Changes Coming in 2026
• Top Four Retirement Withdrawal Strategies to Maximize Your Savings
• Five Under-the-Radar Shifts Investors and Job Seekers Can't Afford to Ignore Under the OBBB
• How to Maximize Your Social Security Now That the One Big Beautiful Bill Is Law

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.

1. General rules for 529 rollover to a Roth IRA

Question: We funded a 529 college savings plan for my granddaughter. She used the money in the account for college. She’s now done with school, and there are still unused funds in the account. I heard that we can transfer some of the money to a Roth IRA for her. What are the rules for this?

Joy Taylor: Starting in 2024, some excess 529 funds can be transferred tax-free to a Roth IRA for the beneficiary in a direct trustee-to-trustee transfer. This relief, enacted in the SECURE 2.0 legislation, is subject to important rules:

• The 529 account must have been open for at least 15 years, with the same beneficiary.
• 529 contributions made in the prior five years are ineligible for the transfer.
• Annual 529 distributions for this purpose can’t exceed the annual contribution limit for Roth IRAs, which is $7,000 in 2025.
• And there is a lifetime $35,000 cap.

2. Roth IRA contributions made by beneficiary

Question: My son already contributed the maximum amount of $7,000 to his Roth IRA this year. Can we also do a direct trustee-to-trustee transfer of $7,000 from his 529 account to his Roth IRA in 2025?

Joy Taylor: No. The annual transfer limit from the 529 to the Roth IRA can’t exceed the IRA contribution limit for the year of the rollover. Any actual contributions for the year made to any IRA (traditional or Roth) owned by the beneficiary count against this limit. For example, let’s say a 529 plan beneficiary contributes $3,000 to his traditional IRA in 2025. Only $4,000 of leftover 529 funds can be transferred to his Roth IRA in 2025. If the beneficiary has already maxed out IRA contributions in a year, then no 529 funds can be transferred to the Roth IRA that year.

3. Taxable compensation

Question: If the beneficiary of the 529 plan doesn’t have any taxable compensation for the year, can the 529 plan transfer funds to a Roth IRA in a direct trustee-to-trustee transfer?

Joy Taylor: No. Any transfer from the 529 plan to a Roth IRA must meet all the Roth IRA rules, which means the beneficiary must have taxable compensation equal to or greater than the 529 amount transferred to the Roth IRA.

4. Multiple 529 plans

Question: If a person is the beneficiary of two 529 plans, say one from a grandparent and another from a parent, can each 529 account transfer up to $35,000 to a Roth IRA owned by the beneficiary?

Joy Taylor: It doesn’t appear so. The statutory language says that the $35,000 aggregate limit on direct trustee-to-trustee transfers from a 529 account to a Roth IRA applies with respect to the designated beneficiary. Although the IRS hasn’t yet published any guidance on this, tax and financial experts believe that this means the $35,000 limit applies per person. If an individual is the beneficiary of two 529 accounts, $35,000 (and not $70,000) is the lifetime cap on direct trustee-to-trustee transfers to a Roth IRA.

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 OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

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

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on 529 Plans
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Reader Questions on IRAs, RMDs and PTPs

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

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

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

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

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

Tax breaks for volunteers

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

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

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

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

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

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

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

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

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

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

Related

• What is a Qualified Charitable Distribution (QCD)?
• Fun Things to Do In Retirement With Added Tax Benefits
• Jump Start Your Charitable Giving With a Donor Advised Fund
• Three Creative Ways to Lower Your Retirement Taxes

For the first time, complex choices such as private equity, real estate, expanded annuities and even cryptocurrency may be added to your plan's menu.

These aren't the plain-vanilla mutual funds and index funds to which most of us are accustomed. They're bigger, flashier and at least on paper, full of promise.

But promise is one thing; reality is another. These products are generally more complicated, less flexible and often more expensive to own.

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

The executive order doesn't require your employer to offer them. But if they do, you'll need to be ready to navigate a very different and potentially riskier set of choices.

Why add these complicated investments to 401(k)s?

You can buy private equity, real estate funds or annuities outside your 401(k). Why the sudden push to add them to workplace retirement plans?

The pitch is simple: These investments promise the potential for higher returns than traditional stocks and bonds.

Private equity and real estate, for example, can offer access to private deals and growth opportunities not found in typical mutual funds.

Annuities, on the other hand, are marketed as a way to guarantee income in retirement — a kind of safety net for those who want steady, predictable cash flow.

However, these offerings are much harder to evaluate and even harder to escape. That makes them risky for the average saver who doesn't have a team of analysts at their side.

It's fair to ask who really benefits. The strongest push is coming from the companies that stand to profit, such as insurance firms, recordkeepers and investment managers.

These are the same entities that can charge higher fees and lock in long-term contracts with plan sponsors once these products are on the menu.

Surveys from these companies claim that savers want more choice. But the reality tells a different story: Fewer than 2% of 401(k) plans currently offer private equity or private credit, and many employers avoid adding annuities because they're complicated to explain, compare and manage over time.

The heightened risk of complexity

More investment options can sound like a win. But in retirement planning, more choice often means more homework and more ways to get tripped up.

Before you even think about investing, you'd need to understand exactly what you're buying, how it fits into your bigger retirement picture and what it's going to cost you.

These aren't mutual funds, which are relatively straightforward and easy to sell if you need cash. Private equity, for example, can be illiquid. You might have to lock up your money for years. The fees are often layered and harder to spot, which can quietly shrink your returns.

Annuities come with their own hurdles. Contracts can lock you in for a decade or more, and the terms are often so dense that even seasoned investors struggle to compare one product to another.

Even if an annuity's promise of lifetime income sounds appealing, that doesn't mean it's the right fit for your retirement goals.

Here's the bigger concern: Are employers equipped to evaluate these products in the first place?

As fiduciaries, 401(k) plan sponsors are supposed to act in participants' best interests. But many lack the expertise to dig into these complex investments, monitor them over time and make sure they truly belong in your plan.

How will you make informed decisions?

It's important to remember that you already have ways to access these investments without complicating your 401(k).

If you have a Roth 401(k), you can take tax-free withdrawals after age 59½.

With a traditional 401(k), you might qualify for an in-service withdrawal after 59½, which lets you roll funds into an IRA.

Even if your employer decides to add these investment options to your 401(k), you're the one who must decide whether to use them.

Plan providers can explain how an option works, but they're not looking at your full financial picture, including your tax situation, your spouse's benefits, your other investments or your retirement goals. Their job is to educate, not advise.

That's why it's worth thinking about how you'll evaluate any new choices that appear in your plan.

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

In some cases, you might decide it's better to keep things simple. In others, you might choose to move part of your savings outside the plan through an IRA rollover or in-service withdrawal after age 59½.

An IRA typically offers a broader range of investments, including private equity and annuities, on your terms, not your employer's.

This way, you get more control over your retirement dollars without adding unnecessary complexity to your workplace plan.

The point isn't to say "no" to every new feature. It's to make sure you understand exactly how it fits into your strategy before you say "yes."

Proceed with caution

Just because something shows up on your 401(k) menu doesn't mean it belongs on your plate.

Private equity, real estate and annuities can have a place in some retirement plans, but they're not a free upgrade. They come with trade-offs in cost, flexibility and transparency that you need to weigh carefully.

Saving for retirement is a long game. It's easy to get distracted by what's new and shiny, especially when it's framed as an "opportunity."

But your 401(k) should always be built around your goals, your timeline and your comfort with risk, not whatever product just became available.

If you're unsure, this is the time to get a second opinion. Talk to a fee-only fiduciary adviser. That's someone who works for you, not for the companies selling these products. You get advice without the sales pitch or hidden agenda.

The executive order might expand what's possible in a 401(k). Whether that's good for your retirement depends entirely on how, and if, you choose to use it.

Related Content

• Your 401(k) is Changing: Trump Opens the Door to Private Assets, Cryptocurrency
• The 401(k) Shake-Up: Private Equity's Role and Risks
• Should You Add an Annuity to Your Retirement Portfolio?
• I'm a Personal Finance Expert: Here's the Truth About Using AI to Plan Your Retirement
• Five Things I Wish I'd Known Before I Retired

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 Roth conversion done right can dramatically lower your lifetime tax bill, preserve your income flexibility, even protect your surviving spouse from costly tax burdens.

But done wrong, it can backfire — triggering higher Medicare premiums, unnecessary taxation on your Social Security benefits and a surprise tax spike later in life when it might be too late to adjust.

That surprise often comes when required minimum distributions (RMDs) kick in — adding to your income whether you need it or not and potentially forcing you into higher tax brackets and Medicare surcharges.

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

The newly passed One Big Beautiful Bill (OBBB) just raised the stakes.

The window is closing — and the bill is rising

While today's lower marginal tax brackets were made "permanent," history — and ballooning federal debt — suggests they're unlikely to stay that way.

According to the Congressional Budget Office, the OBBB adds an estimated $1.7 trillion to the national debt in the next decade, further fueling what many experts believe is an inevitable shift toward higher taxes.

Historically, when the U.S. debt-to-GDP ratio exceeded 100%, marginal tax rates surged — at one point reaching as high as 94% during World War II.

We're in what could be a temporary tax sale — and the clock is ticking.

The case of Bruce and Linda (vs Gary and Marie)

Let's look at two couples who approached Roth conversions very differently.

Bruce and Linda took a proactive, tactical approach. With the help of a tax-savvy adviser, they converted just enough each year to stay below IRMAA thresholds and within a favorable tax bracket.

They used their tax return as a baseline, adjusted for changes each year and defined their "opportunity zone" — the income range that allowed them to convert efficiently without triggering additional taxes or penalties.

The result?

• $577,000 in total tax savings
• $607,000 more left to their children

Gary and Marie, on the other hand, did what most retirees do: nothing. They took the income they needed in early retirement and planned to wait until RMDs started at age 73. The problem? Their pretax retirement accounts continued to grow — faster than their required withdrawals.

When RMDs finally hit, Gary and Marie were forced to take more income than they needed, pay tax on those distributions and still watch their IRA balances grow.

The added income stacked on top of Social Security and investment earnings — triggering IRMAA Medicare surcharges, higher effective tax rates and the full taxation of their Social Security benefits.

Worse, when Gary passed away, Marie had to continue taking the same RMDs — but now paid taxes as a single filer. Her tax bill as a widow soared.

What most people miss about Roth conversions

The biggest myth? That Roth conversions are a one-time decision.

In reality, they're a multiyear planning opportunity, best coordinated with your overall income, tax and Social Security strategy.

Without that context, many retirees follow the default withdrawal order: spend after-tax money first, then pretax, then tax-free. That sequence often leads to the retirement "tax torpedo" — a U-shaped curve in which taxes are low in early retirement, then spike later due to RMDs and widowhood.

The two primary triggers? Oversized pretax balances (and the RMDs that follow) and the loss of joint filing status after a spouse dies.

Why behavioral planning matters, too

Even the best strategy won't help if it never gets implemented.

Many retirees delay action not out of laziness, but because the decision feels overwhelming — and the math is invisible. Without a written road map, most households simply wing it.

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

As a Behavioral Financial Advisor®, I see this pattern all the time. Life gets busy. Careers, kids, grandkids, hobbies — and before you know it, a decade flies by.

Every year that passes without action is one step closer to RMDs, market volatility or widowhood — and one less opportunity to control your tax future.

That's why I encourage every client to move from a tax preparation mindset (filing a return in April) to a proactive tax planning mindset (running projections every year). Once December 31 hits, your window for tax-efficient conversions slams shut.

Four steps to get started

You don't need to overhaul your entire plan overnight. Start here:

• Run a baseline analysis using last year's tax return
• Adjust for changes in income or life events (property sale, bonus, etc.)
• Define your "opportunity zone" — the income range you can fill with conversions while staying below IRMAA thresholds and tax bracket bumps
• Adjust annually as your income and portfolio change

Bonus tip: If the market dips, consider converting while account values are temporarily down. You'll be able to shift more shares of your IRA into a Roth at a discounted tax rate.

For example, if your portfolio drops 20%, you'll pay 20% less tax to convert the same number of shares.

The real cost of doing nothing

In one recent scenario we modeled, a couple who skipped proactive planning faced a projected $1.2 million in lifetime taxes. With a tactical Roth conversion strategy, that bill dropped to $643,000 — a $577,000 savings.

But the real shock came in the later years of retirement. When the husband passed away, the surviving spouse — now filing as a single taxpayer — saw her tax bill spike to $95,000 in a single year.

By contrast, in the Roth conversion scenario, that same year's tax bill was just $4,500.

That's the widow's penalty — income drops, but tax rates go up due to the loss of joint filing status, smaller standard deductions and continued taxation on RMDs and Social Security.

You've worked too hard to let the IRS take more than its share

Your retirement shouldn't be about fear — it should be about freedom. The right tax strategy can make the difference between a retirement full of choices … and one limited by taxes you didn't plan for.

Want to make sure that you and the people you care about most keep and use as much of your money as possible — rather than paying more to Uncle Sam?

If your adviser isn't modeling annual Roth conversion scenarios, coordinating with your broader income and Social Security plan and preparing for the potentially devastating impact of RMDs and widowhood, it might be time for a second opinion.

Converting an employer plan account or Traditional IRA to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including but not limited to, a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax adviser before making any decisions regarding your IRA.

Related Content

• Timing Is Everything for Roth Conversions: An Expert's Guide to the Right Strategy
• Is a Roth Conversion for You? Seven Factors to Consider
• Five Windows of Opportunity for Roth Conversions
• I'm a Financial Professional: This Is the Roth Conversion Mistake Too Many People Make
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth 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.

Before making a decision, it's important to consider the pros and cons of a Roth conversion. A starting point is understanding what a Roth IRA is and how a conversion impacts your tax liability, both in the short and long term.

A Roth IRA is a retirement account to which you contribute after-tax dollars. When you convert pre-taxed or tax-deferred accounts — such as a 401(k), a traditional IRA, a SEP or a simple IRA — to a Roth IRA, you pay income tax on the amount converted in the years you're making the transfers.

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

The upside is that Roth IRA distributions are tax-free, as long as you're over 59½ years of age when you make the withdrawals, and your Roth IRA has been open at least five years. In contrast, any withdrawals from tax-deferred retirement accounts are taxed.

Here's one note on the five-year rule for Roth IRAs: It's never too late to make a Roth conversion. Some people assume they have to own the account at least five years before withdrawing money from it.

But what some people don't know is that the five-year rule is based just on the interest earned on the account.

In other words, you can take out your principal (your contributions) from a Roth IRA without penalty within the first five years of having the account.

However, withdrawals of earnings within that first five years are subject to income tax and a 10% penalty if you haven't reached age 59½ upon withdrawal.

Another timing aspect with Roths: Even if you opened a Roth 20 years ago, funded it once and it just sat there, the timeline started when it was opened. The clock doesn't start over if you delay contributing to your Roth for a few years.

The upsides of a Roth conversion

Besides tax-free withdrawals, the pros of a Roth conversion and having a Roth IRA are:

No required minimum distributions. Those with tax-deferred accounts must take RMDs after they turn 73. RMDs add to a retiree's tax burden.

However, with a Roth, retirees aren't forced to withdraw a certain amount calculated by the IRS, whether they need the money or not. This eliminates a potential tax bomb in the future.

Possibly lower taxes in retirement. Converting to a Roth well before retirement can save you significant money down the road. It may also help put you in a lower tax bracket in retirement than you would have been with the addition of RMDs.

Roth IRAs are prudent if you expect your marginal tax rate will be higher in retirement than during your working years.

The downsides of a Roth conversion

Along with the possibility of substantial taxes on Roth conversions in the years you make them, consider these cons:

Potentially higher tax bracket. The amount of money you convert to a Roth from a tax-deferred account could push you into a higher tax bracket.

That's why it's important to strategize with your financial planner about how much to convert each year and over several years.

Increased Medicare premiums. Higher income resulting from a Roth conversion can increase your Medicare premiums. A multiyear process for conversion can help prevent higher Medicare premiums.

Tax-free growth in a retirement account is a great opportunity, but deciding whether to do a Roth conversion depends on your income and related year-to-year tax situation.

For example, retirees who have not yet started drawing Social Security might be in a good position to consider Roth conversions.

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

Committing to a multiyear conversion process often makes sense for many people with plenty of working years left. That approach lessens the added yearly tax burden caused by conversions and solidly prepares them for a retirement strengthened by tax-free withdrawals.

It's important to remember this: The converted funds in a Roth may take years before showing gains that put you in a better position than if you had stayed exclusively with a tax-deferred account.

Contributions or conversions? The key differences

Pay attention to the difference in parameters between Roth contributions and conversions. There is no limit to how much you can convert to a Roth IRA in a single year, but it's a good idea to spread the conversions over several years for tax purposes in those years.

However, the IRS limits how much can be contributed annually to any type of IRA, adjusting the amounts periodically.

• Single tax filers cannot contribute to a Roth IRA if their modified adjusted gross income (MAGI) is more than $165,000 in 2025, while for married couples filing jointly, the MAGI limit is $246,000 in 2025.
• The 2025 contribution limit for Roth IRAs is $7,000 for those younger than 50, with catch-up contributions of $1,000 allowed for those aged 50 and up.

Is converting now the right move?

Tax rates are at historic lows, but they are likely to go up in the future. For some people who are currently converting to Roth, their thought process is that they're going to be in a higher bracket down the road, so converting now makes sense.

In the long run, they can benefit significantly from the earnings on the amount converted.

Let's say someone in the 22% tax bracket converts to a Roth now. Then in retirement, with their Social Security, perhaps a pension and other funds, their tax rate increases.

Back when they did a Roth conversion, they paid 22% on, for example, a $10,000 conversion that over the years grew to $100,000 tax-free in their Roth account. They will owe no tax on that $100,000 when they take it out, which, to a degree, mitigates being in a higher tax bracket in retirement.

Why don't more people use Roth conversions? It's about weighing near-term convenience at the expense of possible tax pain in retirement.

The issue is that many CPAs, looking to get rehired every year by reducing their clients' tax burden as much as possible, advise clients to put money into their regular IRA or other tax-deferred accounts.

The bottom line with Roth conversions is that the sooner you do them, the more likely they will benefit you in a big way in retirement.

It's never too late, but as you get closer to retirement, the thought of supporting those hard-earned years with a good chunk of tax-free money looks better and better.

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.

The views and opinions expressed are for educational purposes only and are not intended to be a recommendation or investment advice. Any guarantees offered by an annuity are backed by the financial strength and claims-paying ability of the issuing insurance company. Centaurus Financial, Inc and Cornell Asset Management are not affiliated companies.

Securities and advisory services offered through Centaurus Financial Inc., member FINRA/SIPC, a registered investment advisor. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in FL, NC, SC, GA, MA, NH, NJ, NY, OH, PA, RI, VA, WI, AR, CA, IL, KY.

Related Content

• The Roth IRA Advantage: 10 Things Every Saver Needs to Understand
• 10 Reasons to Leave Your Heirs a Roth IRA
• Five Roth IRA Pitfalls Your Adviser May Not Tell You About
• Should You Convert a Traditional 401(k) into a Roth 401(k)?
• Little-Known Ways to Guard Your Retirement Income

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