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Record Shift to Roth Accounts Prompts Rethink of 401(k) and IRA Strategy

Firms and advisers warn that required minimum distributions and the SECURE Act’s 10‑year inheritance rule can create large ordinary‑income tax bills for retirees and heirs.

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Overview

  • Late‑May coverage from major firms and outlets highlights a growing warning: concentrating wealth in pretax 401(k)s and traditional IRAs can force large, taxable withdrawals in retirement and for beneficiaries.
  • Fidelity’s Q1 2026 data show a sharp behavioral change with IRA contributions up about 29% year‑over‑year, Roths making roughly two‑thirds of contributions, and Roth conversions rising about 41%.
  • Required minimum distributions (RMDs) start in the early 70s and force taxable withdrawals that can push retirees into higher tax brackets, increase taxes on Social Security, and raise Medicare premiums.
  • Advisers and firms now promote tax‑bucket diversification — building pretax, after‑tax (taxable), and tax‑free (Roth) accounts through strategies like gradual Roth conversions and coordinated withdrawal timing.
  • Practical limits and tradeoffs remain: 2026 IRA contribution limits are $7,500 ($8,600 if 50+), 401(k) employee limits are $24,500 with expanded catch‑up options, and plan fees or limited investment choices can affect whether savers move money out of employer plans.