How CEOs Set Up Their 401(k) to Pay Zero Taxes During Retirement

A C-suite executive who retires at age 62 with $1.8 million in a 401(k), $400,000 in RSUs, a nonqualified deferred compensation (NQDC) plan still paying, and a business account full of appreciated assets has no retirement income problem. The problem is that each property has a different tax treatment, and without a model that shows all of them in one view, they will collide in ways that make a zero tax year impossible.

Retirement income can be achieved, but only for certain years, and only if savings are managed deliberately. Most managers who retire with no income tax in years two to five still face a large tax bill once NQDC distributions end and Social Security begins. The goal is to know which years present an opportunity and make the most of it.

Managers Face the Money Stack Problem

Many retirement plans hold a separate 401(k). For senior executives, actual income includes NQDC plan distributions (taxed as ordinary income upon receipt), RSU vesting or post-retirement stock options, Social Security benefits (up to 85% of which is taxable in the aggregate over $44,000 for joint filers), and finally requires a small distribution from the 401(k).

Each source interacts with the others. A $120,000 NQDC distribution in one year of a Roth conversion eliminates the conversion window entirely. The Social Security rate and combined income limit is broken, and it deducts up to 85% of those benefits from taxable income. The effective marginal rate to the next dollar combines the stated rate, the result of Social Security inclusion, and any additional IRMAA premium resulting from the two-year return.

IRMAA Trap inside the Change Window

For 2026, the first IRMAA limit for married couples filing jointly is $218,000 in MAGI. Amounts above that level result in a Medicare premium of $1,148 per person annually on top of the average Part B premium of $202.90 per month. Cross the second tier at $274,000 and the fee rises to $2,886 per person. For married couples, that’s $5,772 a year in additional Medicare costs, based on income over the past two years.

The Roth change made today affects Medicare payments in 2028. The director who changes $ 100,000 a year when MAGI was already $ 190,000 will push the family to $ 290,000, going down to Tier 2 and making an additional $ 5,772 for the couple. The change may still be worth it in the long run, but IRMAA’s costs are numerical.

Three Levers for a Zero-Tax Year

Executives who reach zero tax age at retirement operate three levers together.

1. Scheduled Roth conversions during gap years. The difference between the final salary and the start of Social Security is usually a period of very low salary after work, as long as the NQDC distribution is arranged to start before retirement rather than at the same time. The 24% bracket for married filers ranges from $211,400 to $403,550 in 2026, while the average deduction is $32,200. A manager with $80,000 in NQDC income remaining and no other taxable income has a transition window of about $100,000 before reaching the 24% bracket ceiling, and a tighter window before reaching the first IRMAA limit. Converting within that group, year after year, removes those dollars forever from future RMD calculations.
2. Appreciated stock and upside strategy. RSUs and stock options that have vested in a lot of work often land in traders’ accounts at a very low price. Contributing appreciated shares to the donor’s fund creates a charitable deduction at fair market value without regard to capital gains. In years in which the manager is in the 12% bracket (taxable income less than $100,800 for joint filers), long-term capital gains are taxed at 0%, making it possible to reap tax-free gains and rebuild the basis. These policies require a cash flow method to determine how much you will withdraw in each year.
3. An HSA reduces health care costs. An executive who contributes a family maximum of $8,750 to an HSA by 2026 and pays out-of-pocket medical expenses during the working years can use that retirement income tax-free in full for qualified medical expenses. Directing health care expenses through an HSA instead of 401(k) withdrawals preserves the transition window and reduces taxable income in key years.

QCD as Permanent Offset RMD

The 12% rate applies to lower income categories; once RMDs start, the savings lose status. Qualified charitable distributions allow an IRA or 401(k) owner age 70.5 or older to transfer up to $111,000 per person directly to a charitable organization in 2026, to satisfy the RMD requirement without distributions arising from adjusted gross income. For married couples, approximately $222,000 in RMD income exceeds the Social Security tax limit, exceeds the IRMAA limit, and reduces taxable assets at the same time. Managers with a goal of giving should model this as a way to eliminate RMDs rather than as an afterthought.

Three actions that change the numbers

1. Create a savings plan before you retire. List each source of income for the year: NQDC contributions, Social Security start date, expected RMDs, consulting income, and investment income. Identify the years when taxable income is naturally very low. These are Roth transition years, and the window is often shorter than it appears once the NQDC and Social Security merge.
2. Check out the IRMAA for two years before the big change. If this year’s MAGI sets Medicare premiums in 2028, the change that pushes it over $218,000 costs $2,297 per couple in additional premiums for that year. In Tier 2, the cost is $5,772. The difference in whether a change clears the IRMAA barrier over a 10-year period depends on the specific amount of the change and expected Medicare costs.
3. If the NQDC distribution is still being elected, review the payment schedule before the next 409A election window. Contributions that remain above Roth and Social Security conversions eliminate the possibility of paying taxes. Arranging NQDC payments to end before the transition window opens requires years of service before retirement.