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

Picture a 62-year-old former engineering VP at a large public tech company logging into the brokerage for the last time before handing in the laptop. Spread across a traditional 401(k), a Roth 401(k), an HSA, and a taxable account, the total balance sits near $4 million. The question generating heat on Bogleheads and r/financialindependence threads is simple: 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 for households that spent the previous decade deliberately routing dollars into four distinct account types rather than defaulting to one.

The four buckets, sized on purpose

Every dollar of spending has a source, and the sequence of those sources is the entire strategy. The first $80,000 comes from the Roth 401(k), generating zero federal tax, zero impact on AGI, and zero effect on Medicare premiums or Social Security taxability. The second draw is $40,000 from the HSA, spent on qualified medical expenses. Medicare Part B and Part D premiums count as qualified expenses once enrolled, making this draw completely tax-free on the way in and on the way out.

The third source is $50,000 from the traditional 401(k), which is ordinary income and fully taxable. The fourth is $24,000 in Social Security claimed at 62, reduced from a $30,000 primary insurance amount at 67. Up to 85% of that benefit is taxable at the federal level. Only these bottom two sources show up in the tax calculation at all. Roth and HSA dollars are invisible to AGI, to the IRMAA lookback window, and to the Social Security inclusion formula. That invisibility is the foundation of the entire plan.

Why this household lands in the 0% capital gains bracket

Gross taxable income starts at roughly $50,000 from the traditional 401(k) plus $20,400 from the taxable portion of Social Security, for a combined figure near $70,400. Once both spouses reach 65, the deduction stack compounds quickly. The 2026 standard deduction for married filing jointly is $32,200. The existing age-65 add-on contributes another $1,650 per qualifying spouse, or $3,300 for the couple together.

On top of those, the One Big Beautiful Bill Act, signed into law on July 4, 2025, created a new senior bonus deduction worth up to $6,000 per eligible person. A married couple in which both spouses are 65 or older can claim up to $12,000 combined. The deduction is available for tax years 2025 through 2028, applies whether filers itemize or take the standard deduction, and begins phasing out at $150,000 MAGI for joint filers at a rate of 6% for every $1,000 above that threshold. It disappears entirely at $250,000 MAGI. At this household’s income level, the full $12,000 applies.

Total deductions land near $47,500. Taxable income drops to roughly $22,900, comfortably inside the 12% bracket, and the resulting federal tax bill runs about $2,300 on $200,000 of total cash flow. That is approximately 1%. A structural side benefit follows from staying this low. The 0% long-term capital gains bracket applies as long as taxable income stays under $98,900 for married filers in 2026, so the taxable brokerage account can generate another $40,000 to $50,000 in qualified dividends or harvested gains and owe nothing federally. Keeping MAGI well below the first 2026 IRMAA threshold of $218,000 for joint filers also avoids Medicare Part B and Part D surcharges. The standard Part B premium for 2026 is $202.90 per month per person, and crossing the IRMAA cliff can add several hundred dollars more per spouse per month, since every threshold is a cliff rather than a gradual ramp.

The decade of work behind the 1% rate

This outcome does not materialize at 62 unless three things happened during the 50s.

The first is Roth-heavy peak earning years. Maxing the Roth 401(k) and layering in after-tax contributions through a mega backdoor Roth (where the plan permits) builds the Roth balance large enough to anchor the biggest slice of retirement spending. Size matters here: pulling $80,000 per year from Roth requires a substantial principal that took years to accumulate.

The second is a Roth conversion ladder during the gap years between retirement and age 73 RMDs. Converting traditional 401(k) dollars to Roth up to the top of the 12% bracket is the core move during those years. Each dollar converted shrinks the future RMD balance and reduces the risk of a later income cascade that simultaneously pushes Social Security taxability higher and triggers IRMAA surcharges.

The third is an HSA stockpile built over many years. Family HDHP coverage in 2026 allows $8,750 in contributions, and each spouse aged 55 or older can add a separate $1,000 catch-up into their own HSA account. The strategy is to pay medical bills out of pocket during working years, invest the HSA balance in equities, save every qualifying receipt, and reimburse those expenses decades later, entirely tax-free. No other account type in the tax code offers a triple tax advantage: deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses.

Geographic arbitrage adds one final lever. Relocating from California or New York to Florida, Texas, Tennessee, or Nevada eliminates the state income tax layer entirely. A 1% federal rate paired with a 0% state rate is the practical ceiling of this approach.

What to do this quarter

The first step is to project AGI from age 62 through 73 and identify every year taxable income will sit under $98,900 for married filers. Those are Roth conversion windows. Pass them up and the RMD math becomes far more punishing in the years that follow.

The second is to confirm the HSA is invested in equities rather than sitting in cash. A $40,000 annual medical draw after age 65 requires a balance that has had two decades to compound in growth assets, not a money market fund.

The third is to stress-test any planned Roth conversion against the IRMAA threshold. Because Medicare uses a two-year lookback, the income reported on the 2024 tax return determines 2026 premiums. A single year’s conversion that crosses $218,000 in MAGI triggers a surcharge for the following premium year. Splitting a large conversion across two tax years keeps income below the cliff and preserves those monthly savings for both spouses.

The math behind this plan is real. It is also specific: only households that treated four account types as one coordinated portfolio across a full decade of peak earnings can replicate these results at retirement.

Editor’s note: This pass added the complete OBBBA senior bonus deduction phase-out figure ($250,000 MAGI for joint filers, where the deduction is fully eliminated) and confirmed the 2026 standard Medicare Part B premium of $202.90 per month per person. The IRMAA two-year lookback mechanic (2024 income sets 2026 premiums) was also incorporated as concrete planning context.

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