From 24/7 Wall St. · Gerelyn Terzo · · 1m 30s
The $900,000 401(k) Decision at 62
A 62-year-old retiree with $900,000 in a pretax 401(k) could be burning through the cheapest years to get money out.
In brief
A 62-year-old retiree with $900,000 in a pretax 401(k) could be burning through the cheapest years to get money out. Leaving a $900,000 pretax 401(k) untouched at 62 may raise tax bills by 80. Originally reported by 24/7 Wall St..
The $900,000 401(k) Decision
Leaving a $900,000 pretax 401(k) untouched at 62 can feel like smart tax planning but may be the most expensive decision a retiree never realizes they made.
Tax Bill Impact
The retiree may burn through the cheapest years to get money out, raising tax bills all the way to 80.
Plan A: Leave Alone
Plan A uses outside savings first and leaves the 401(k) untouched until forced withdrawals start.
Plan B: Mix Withdrawals
Plan B mixes moderate pretax withdrawals or conversions with outside savings to tax part of the 401(k) during low-income years.
Hidden Cost of Plan A
Once 401(k) withdrawals start alongside Social Security, extra income can make more of your benefits taxable and raise Medicare premiums.
Roth Conversion Costs
Two costs get left out: tax paid on each conversion and growth that tax money would have earned if it stayed invested.
Stress Tests
Lower future tax rates, shorter retirement, lost healthcare subsidies, and large conversion bills can flip the answer.
Timing Matters
Required minimum distributions start at 75 for people born in 1960 or later, giving this retiree over a decade before withdrawals become mandatory.
Here's the gist
Leaving a $900,000 pretax 401(k) untouched at 62 may raise tax bills by 80.
