High earners save $80,000 in taxes – here’s a 401(k) trick they use.

A retired couple thought they were financially secure with $1.5 million in a 401(k), $400,000 in checking accounts, and $200,000 in a Roth IRA — but later realized that taxes would be higher than expected at age 73. When they calculated required distributions (RMDs), they realized the withdrawals would push them through in the higher tax bracket. These forced costs can also result in higher Medicare premiums. Up to 85% of their Social Security benefits will be taxed because of the high income.

The period between ages 62 and 72 is called the “gap age” because they have no work income and no RMD. During this gap, couples use their tax savings account for living expenses, keeping their income low. This period of low income makes it the perfect time to switch money from a traditional 401(k) to a Roth IRA, as noted by 24/7 Wall St. They convert $50,000 annually from a traditional 401(k) to a Roth IRA.

The tax savings of a Roth conversion

In the 2026 tax brackets, the $50,000 change falls into the 22% tax bracket for married couples. They pay about $11,000 in taxes each year during the transition period. Over 10 years, they turn $500,000 total into a Roth. They pay about $110,000 in taxes up front in those years. This early tax payment helps avoid larger taxes later in retirement. Under the SECURE 2.0 rules, RMDs begin at age 73. The IRS Uniform Lifetime Table provides a 26.5 point at age 73. Without changes, a $1.5 million income would require about $56,600 in the first year.

Depreciation of the RMD amount

This forced income alone could push retirees into higher tax brackets. After the changes, the amount drops to $1 million. The new RMD changes to about $37,700 in that area. That’s about $19,000 in mandatory minimum income in the first year. Over time, smaller RMDs reduce taxes significantly. Turning over $50,000 annually can reduce future RMDs by as much as 40%, as reported by 24/7 Wall St. This plan can save $80,000 or more in taxes over a lifetime. Savings can be even higher because RMDs typically grow each year. Higher RMDs can also push retirees into the 32% tax bracket.

Medicare IRMAA accident

Medicare uses a system called IRMAA that increases premiums based on income. IRMAA looks at income two years earlier. Income from 2024 determines Medicare payments for 2026. In 2026, the first IRMAA limit for married couples is $218,001. Less than that, Medicare Part B costs $202.90 per person per month. Just $1 over the limit adds up to an extra $81.20 per person per month. That equates to an additional $2,297 annually for a married couple.

If a couple earns $168,000, they have $50,000 worth of wiggle room. The $50,000 change keeps them below the surcharge threshold. A change of $60,000 crosses the line and incurs penalties. That extra $10,000 could result in more than $2,000 in Medicare reimbursements, as reported by 24/7 Wall St. These payments last for two years. This brings the effective tax rate up to 40% on that extra income. Experts suggest reviewing your monthly income before the end of the year.

Use a prepaid account

If the income is closer to $218,000, reduce the adjustment amount. This careful planning prevents unnecessary Medicare penalties. The couple uses a $400,000 taxable account for living expenses. This avoids increasing taxable income from retirement accounts. Long-term gains in this case are taxed at around 15%. It’s less than the 22-24% tax on 401(k) withdrawals. This order — paid first, Roth last — keeps money low. Lower income makes Roth conversions more efficient. Some investments in taxable accounts generate income at lower tax rates. Dividend ETFs can provide income without raising taxes significantly. Experts recommend calculating the total amount of money before making any changes. Subtract the net income from $218,000 to get a safe conversion rate, as reported by 24/7 Wall St. This calculation should be done every year. Retirees should also estimate their future RMDs ahead of time.

Plan every year

Divide the average at age 73 by 26.5 to estimate the draw. If the RMD and Social Security exceed $44,000, the benefits are taxable. Roth conversions today can prevent Social Security taxes later. If the income exceeds $218,000, professional advice is recommended, as stated by 24 / 7 Wall St. Hiring a CPA or CFP can reduce additional Medicare costs. The savings from the plan often outweigh the consultant’s fees. The data also shows many Americans are underestimating their retirement needs.

People often think they are more prepared than they really are. Research shows that one simple habit can double your savings. A habit is not about making more money or cutting back on spending. It’s about smart tax planning and accounting. This 401(k)-to-Roth conversion plan is how high earners save up to $80,000 in taxes.

FAQs

Q1. How can Roth conversions help save on taxes in retirement?

Roth conversions reduce required withdrawals in the future, which lowers taxes and can prevent higher Medicare premiums.

Q2. Why do high earners roll over 401(k) funds before age 73?

They convert during low income years to pay lower taxes now and avoid higher taxes later.