For years, the standard retirement advice was simple: max out your traditional 401(k), take the upfront deduction, and let Uncle Sam wait to tax your Required Minimum Distributions (RMDs) in retirement. Watching your taxable income shrink on your W-2 can feel like an immediate win. But if you follow this path for decades, you may arrive at retirement with a less welcome discovery: a portfolio that is almost entirely pre-tax is not a nest egg so much as an income tax bill in waiting. On top of that, if your heirs are non-spouses, they’ll likely face the 10-year distribution rule on any pre-tax IRA they inherit, often during their own high-earning years.
Every dollar you pull from a traditional 401(k) or IRA is taxed as ordinary income. Once your RMDs begin in your mid-70s, the IRS no longer waits for permission. Those forced withdrawals can push you into a higher bracket, trigger Medicare’s IRMAA surcharges, and increase how much of your Social Security is taxed. Your goal shouldn’t be minimizing taxes in any single year but over your lifetime, and that could mean paying a bit more now to avoid paying far more later.
Because no one can reliably predict future tax brackets, markets, or policy, the more durable strategy is tax diversification: spreading your savings across three buckets with different tax treatments.
Tax-deferred accounts, such as traditional 401(k)s and IRAs, are funded pre-tax and grow tax-deferred, with withdrawals taxed as ordinary income later. Their advantage is straightforward: they boost your savings capacity during peak earning years by lowering your current tax bill. Taxable accounts, including individual and joint brokerage or trust accounts, are funded with your after-tax dollars and offer complete flexibility, since there are no early-withdrawal penalties and your heirs receive a step-up in cost basis. Tax-free accounts, namely Roth IRAs, Roth 401(k)s, and Health Savings Accounts, are also funded after-tax, but your growth and qualified withdrawals are entirely tax-free, your RMDs disappear, and your beneficiaries inherit the assets income-tax-free.
Holding all three creates flexibility that a single-bucket strategy can’t match. You can draw selectively from a pre-tax IRA during your low-income years, such as the stretch between retirement and claiming Social Security, filling up your lower brackets without spilling into higher ones. Large purchases become easier to fund efficiently too: pulling $100,000 entirely from a traditional IRA can trigger a meaningful tax hit, while blending the withdrawal across your Roth, taxable, and pre-tax accounts can keep your effective rate in check.
Tax diversification can positively impact your estate picture as well. If your non-spouse heirs inherit a traditional IRA, they’ll face the 10-year distribution rule, often during their own highest-earning years, while inherited Roth assets or stepped-up taxable accounts pass along a far cleaner legacy. This has been further compounded for heirs since the SECURE Act eliminated the “stretch IRA,” which once allowed beneficiaries to spread withdrawals, and taxes, across their own lifetimes.
If you’re still accumulating assets, your strategy may not require a dramatic overhaul. If you’re funneling everything into a pre-tax workplace plan, you might start directing a portion into a Roth 401(k) option, or build up a taxable brokerage account alongside it. If you’re a high earner phased out of direct Roth contributions, you can often still get there through a backdoor Roth IRA or a mega-backdoor conversion within your 401(k). It’s also worth mapping out your projected tax trajectory to identify windows, perhaps in early retirement before your RMDs and Social Security begin, when converting pre-tax balances to Roth at today’s known rates could save you considerably down the road. All of this works best as part of a broader decumulation plan that looks at your full balance sheet across your lifetime rather than one filing year at a time.
Tax laws shift, markets move, and no single formula fits every family. A personalized lifetime tax projection can show you how your current savings mix holds up under different scenarios, and where more balance might pay off. If you’re interested in this type of analysis, please reach out to your Wealth Manager.
Weekly Commentary
The Trouble With an All-Pre-Tax Retirement
Mallon FitzPatrick
For years, the standard retirement advice was simple: max out your traditional 401(k), take the upfront deduction, and let Uncle Sam wait to tax your Required Minimum Distributions (RMDs) in retirement. Watching your taxable income shrink on your W-2 can feel like an immediate win. But if you follow this path for decades, you may arrive at retirement with a less welcome discovery: a portfolio that is almost entirely pre-tax is not a nest egg so much as an income tax bill in waiting. On top of that, if your heirs are non-spouses, they’ll likely face the 10-year distribution rule on any pre-tax IRA they inherit, often during their own high-earning years.
Every dollar you pull from a traditional 401(k) or IRA is taxed as ordinary income. Once your RMDs begin in your mid-70s, the IRS no longer waits for permission. Those forced withdrawals can push you into a higher bracket, trigger Medicare’s IRMAA surcharges, and increase how much of your Social Security is taxed. Your goal shouldn’t be minimizing taxes in any single year but over your lifetime, and that could mean paying a bit more now to avoid paying far more later.
Because no one can reliably predict future tax brackets, markets, or policy, the more durable strategy is tax diversification: spreading your savings across three buckets with different tax treatments.
Tax-deferred accounts, such as traditional 401(k)s and IRAs, are funded pre-tax and grow tax-deferred, with withdrawals taxed as ordinary income later. Their advantage is straightforward: they boost your savings capacity during peak earning years by lowering your current tax bill. Taxable accounts, including individual and joint brokerage or trust accounts, are funded with your after-tax dollars and offer complete flexibility, since there are no early-withdrawal penalties and your heirs receive a step-up in cost basis. Tax-free accounts, namely Roth IRAs, Roth 401(k)s, and Health Savings Accounts, are also funded after-tax, but your growth and qualified withdrawals are entirely tax-free, your RMDs disappear, and your beneficiaries inherit the assets income-tax-free.
Holding all three creates flexibility that a single-bucket strategy can’t match. You can draw selectively from a pre-tax IRA during your low-income years, such as the stretch between retirement and claiming Social Security, filling up your lower brackets without spilling into higher ones. Large purchases become easier to fund efficiently too: pulling $100,000 entirely from a traditional IRA can trigger a meaningful tax hit, while blending the withdrawal across your Roth, taxable, and pre-tax accounts can keep your effective rate in check.
Tax diversification can positively impact your estate picture as well. If your non-spouse heirs inherit a traditional IRA, they’ll face the 10-year distribution rule, often during their own highest-earning years, while inherited Roth assets or stepped-up taxable accounts pass along a far cleaner legacy. This has been further compounded for heirs since the SECURE Act eliminated the “stretch IRA,” which once allowed beneficiaries to spread withdrawals, and taxes, across their own lifetimes.
If you’re still accumulating assets, your strategy may not require a dramatic overhaul. If you’re funneling everything into a pre-tax workplace plan, you might start directing a portion into a Roth 401(k) option, or build up a taxable brokerage account alongside it. If you’re a high earner phased out of direct Roth contributions, you can often still get there through a backdoor Roth IRA or a mega-backdoor conversion within your 401(k). It’s also worth mapping out your projected tax trajectory to identify windows, perhaps in early retirement before your RMDs and Social Security begin, when converting pre-tax balances to Roth at today’s known rates could save you considerably down the road. All of this works best as part of a broader decumulation plan that looks at your full balance sheet across your lifetime rather than one filing year at a time.
Tax laws shift, markets move, and no single formula fits every family. A personalized lifetime tax projection can show you how your current savings mix holds up under different scenarios, and where more balance might pay off. If you’re interested in this type of analysis, please reach out to your Wealth Manager.
Disclosure and Source
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2026 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A3828
Talk To Us