How Engineering Executives Structure Their 401(k) to Pay Under 10 Percent Effective Tax in Retirement

A 62-year-old former engineering VP at a large public tech company logs into the brokerage one last time before handing in the laptop. Across a traditional 401(k), Roth 401(k), HSA, and taxable account, the balance reads about $4 million. The question circulating on Bogleheads and r/financialindependence threads: can a household spending $200,000 a year actually pay under 10% in federal tax?

For this household, the answer is yes. The effective federal rate lands closer to 1% than to 10%. The mechanics are reproducible, but only by households that spent the previous decade routing dollars into four account types instead of one.

The four buckets, sized on purpose

The cash flow is sourced deliberately, and the sequence is the strategy:

1. $80,000 from the Roth 401(k): zero federal tax, zero impact on AGI, zero effect on Medicare premiums or Social Security taxability.
2. $40,000 from the HSA, spent on qualified medical expenses (Medicare Part B and Part D premiums count once enrolled): tax free in, tax free out.
3. $50,000 from the traditional 401(k): ordinary income.
4. $24,000 in Social Security claimed at 62, reduced from a $30,000 primary insurance amount at 67. Up to 85% is taxable.

Only the bottom two are taxed. The Roth and HSA dollars are invisible to AGI, to the IRMAA lookback, and to the Social Security inclusion formula. That invisibility is the entire trick.

Why this household lands in the 0% capital gains bracket

Taxable income runs roughly $50,000 from the traditional 401(k) plus $20,400 from the taxable portion of Social Security, or about $70,400. Once both spouses are 65, deductions stack fast: the 2026 standard deduction for married filing jointly of about $32,200, plus the senior add-on of $1,650 per qualifying spouse, plus the new senior bonus deduction worth up to $6,000 per spouse. That bonus phases out at 6% per dollar of MAGI above $150,000 MFJ, so at this AGI the full $12,000 applies.

Total deductions land near $47,500. Taxable income drops to roughly $22,900, comfortably in the 12% bracket. Federal tax: about $2,300 on $200,000 of cash flow. That is about 1%.

The structural bonus is the 0% long-term capital gains bracket, which holds as long as taxable income stays under $96,950 MFJ in 2026. The taxable brokerage can throw off another $40,000 to $50,000 in qualified dividends or harvested gains and still owe nothing federally. It also keeps MAGI well below the first 2026 IRMAA threshold of roughly $212,000 MFJ, avoiding Medicare Part B and Part D surcharges that can run several hundred dollars a month per spouse.

The decade of work behind the 1% rate

This outcome does not appear at 62 unless three things happened in the 50s.

1. Roth-heavy peak earning years. Max the Roth 401(k), then use after-tax contributions and a mega backdoor Roth where the plan permits. The goal is a Roth balance large enough to anchor the biggest slice of retirement spending.
2. A Roth conversion ladder during the gap years. Between retirement and age 73 RMDs, convert traditional 401(k) dollars to Roth up to the top of the 12% bracket. With the 3.75% fed funds rate and 4.47% 10-year Treasury, conservative allocations grow steadily, so every dollar converted now is a dollar that will not inflate a future RMD and trigger the Social Security and IRMAA cascade.
3. An HSA stockpile. Family HDHP coverage in 2026 allows $8,750 in contributions, with a $1,000 age-55 catch-up per spouse. Pay medical bills out of pocket during working years, invest the HSA in equities, save the receipts, and reimburse decades later. This is the closest thing the tax code offers to a triple-tax-advantaged account.

Geographic arbitrage adds the last lever. Moving from California or New York to Florida, Texas, Tennessee, or Nevada eliminates the state tax layer entirely. A 1% federal rate paired with a 0% state rate is the structural ceiling.

What to do this quarter

1. Project AGI from age 62 through 73 and identify every year taxable income will sit under $96,950 MFJ. Those are Roth conversion years. Skip them and the RMD math gets ugly later.
2. Confirm the HSA is invested in equities, not parked in cash. A $40,000 annual medical draw after 65 requires a balance that compounded for two decades.
3. Stress test any planned Roth conversion against the first IRMAA threshold. If a single year’s conversion crosses it, split across two tax years.

The math is real, and it is specific to households that treat four account types as one coordinated portfolio over a decade.