Deferred, not forgiven

A traditional 401(k) does not avoid tax, it postpones it. The terms of that postponement are that from age 73 you must withdraw a set share of the balance each year and pay income tax on it, whether you need the money or not.

The required share climbs with age: about 3.8% at 73, 5% at 80, and 8.2% at 90. Stacked on Social Security, a large pre-tax balance can force you into a higher bracket in your seventies than you were ever in while working. The window to prevent it closes before it arrives.

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