Why Doctors Are Moving Money Out of Their 401(k)s and Into This Instead

A 58-year-old radiologist with a $2.5 million traditional 401(k) has been doing everything right for 30 years. They have been maxing out contributions, taking the deduction, and letting it compound. The problem is that the math that made the 401(k) attractive at 35 quietly stopped working somewhere around $1.5 million, and most physicians don’t notice until the RMDs arrive.

The Deduction You’re Getting Now vs. the Bill You’ll Get Later

The traditional 401(k) pitch is simple: defer income now at a high rate, withdraw later at a lower rate. For a radiologist earning $450,000 a year, the deduction is real. But the second half of that equation is where the math breaks down.

Because this 58-year-old was born after 1960, their RMD age is now 75. Using the IRS Uniform Lifetime Table (factor 24.6), a $2.5 million balance yields a first-year required minimum distribution of roughly $101,600. That’s a mandate, not a choice.

Stack that $101,600 on top of a physician’s other retirement income: Social Security, a hospital pension, and investment income. Combined income easily clears $218,000. At that level, up to 85% of Social Security is taxable, and IRMAA surcharges spike. Between the 24% federal bracket and these hidden surcharges, the effective tax cost on that single RMD can easily exceed 40% per year.

The Medicare Surcharge Nobody Plans For

Medicare’s IRMAA surcharge uses a two-year lookback, meaning income decisions made today affect Medicare premiums in 2028. For single filers with MAGI above $205,000, the 2026 monthly Part B premium rises to $649.20, versus the standard $202.90. That is an extra $6,355 per year in combined Part B and Part D surcharges at Tier 4 alone.

A physician whose RMDs push MAGI above $205,000 faces federal income tax on the withdrawal, taxation of Social Security benefits, and IRMAA surcharges simultaneously. The effective marginal rate on each additional dollar of 401(k) income in that scenario can exceed 45% when all three effects are counted. The deduction taken at 35 was worth 37 cents on the dollar; the withdrawal at 73 (or 75) can effectively cost significantly more than that dollar back.

What the Math Says to Do Instead

At a balance of $2.5 million and 17 years before RMDs begin, the radiologist has a meaningful window to redirect contributions and reduce future exposure. Two vehicles do most of the work.

The first is the backdoor Roth IRA. Because income exceeds direct limits, the backdoor route (contributing to a non-deductible IRA, then converting) is the path in. The 2026 limit is $8,600 for those age 50 and older. Roth assets carry no RMD requirement and grow tax-free, meaning every dollar shifted reduces the future RMD calculation.

The second is a brokerage account funded with municipal bonds or index ETFs. iShares National Muni Bond ETF (NYSE:MUB) currently yields 3.1%, and that income is federally tax-exempt. For a physician in the 40.8% bracket, a 3.1% tax-free yield is the equivalent of earning roughly 5.2% on a taxable bond.

While municipal interest is federal tax-free, the SSA adds it back in to calculate MAGI for Medicare. It won’t increase your income tax, but it will count toward the $218,000 joint IRMAA threshold. Even with this “add-back,” a 3.1% tax-free yield competes favorably with the current 4.39% 10-year Treasury rate after applying the physician’s marginal tax rate.

Three Steps Worth Taking Before the Next Open Enrollment

1. Run your projected RMD at age 75 (for those born 1960+) using your current balance and a 6% growth assumption. If the result pushes combined income above $205,001 (single) or $410,001 (joint), you are inside Tier 4 IRMAA territory. The planning window to reduce that exposure is the decade before these mandatory withdrawals begin.
2. Execute the backdoor Roth IRA every year. At $8,600 for those 50 and older, it won’t offset a $2.5 million 401(k) alone, but Roth withdrawals never generate a taxable RMD and never count toward IRMAA. Be cautious: conversions to Roth are taxable and will count toward your Medicare income thresholds in the year they are performed.
3. If the combined projected income exceeds the first IRMAA threshold of $109,001 for single filers, the Medicare planning alone justifies a session with a fee-only advisor. A single well-timed conversion in a lower-income year can permanently reduce the RMD base and save more in future IRMAA surcharges than it costs in current taxes.

At a $2.5 million balance with 15+ years until mandatory withdrawals, the calculus has changed. Redirecting contributions toward Roth and after-tax brokerage accounts is what tax efficiency actually looks like at this balance level.