Why Affluent Investors Over 60 Are Emptying the Traditional 401(k) First and Leaving the Roth to Their Kids
The account you plan to leave your kids could quietly hand the IRS a larger cut than if you spent it yourself, and the math behind why surprises most people who think they have already figured out their withdrawal order.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Picture a hypothetical married 64-year-old with $950,000 in a traditional 401(k) and $250,000 in Roth savings. His plan is to pay for retirement mostly from the pretax account and leave the Roth to his two children, who both earn high salaries.
More wealthy retirees choose this withdrawal order on purpose. They spend taxed money at their own bracket. They leave behind the money that comes out tax-free, so their heirs never pay tax on it at their higher rates.
Why a Roth Dollar Is Worth More to a High-Earning Heir
Traditional 401(k) withdrawals are subject to ordinary income tax rates. Qualified Roth withdrawals carry no federal income tax. Say you take a $250,000 traditional distribution taxed at an assumed 24%. The federal bill is $60,000, which leaves $190,000. The same amount from a qualified Roth comes whole.
Now hand that money to a child in the middle of a peak-earning career. Most non-spouse heirs have to empty an inherited account by the end of the 10th year after death. Traditional money stacked on top of a large salary could be taxed at 32%. On that same $250,000, the tax comes to $80,000. The Roth also has no required withdrawals while the owner is alive, so it can keep growing untouched for decades.
Keep in mind that the comparison only shows how each account is taxed when money comes out, and Roth money was taxed when it went in, so converting has its own upfront cost.
Your Tax Bracket Sets the Price of Spending Pretax Money First
Our 64-year-old was born in 1962, so his required distributions begin at the applicable age of 75. That gives him more than a decade to draw down the traditional account on his own schedule.
For a married couple in 2026, the 22% bracket runs up to $211,400 of taxable income, and the standard deduction is $32,200.
Together, that allows about $243,600 of gross income before any dollar is taxed at 24%. Each pretax dollar he withdraws now is a dollar his children will never be taxed on at 32%.
Medicare and Social Security Set a Lower Limit
In practice, the limit is lower than the top of the bracket. Medicare’s IRMAA surcharge looks back two years, so this year’s income sets later premiums. The first joint Income-Related Monthly Adjustment Amount (IRMAA) threshold is $218,000, which sits $25,600 below the top of the bracket.
For a couple already on Medicare, going over it adds $81.20 a month per spouse for Part B and $14.50 for Part D. Together, that’s about $2,297 a year.
Social Security brings a second cost. Once provisional income (adjusted gross income plus tax-exempt interest and half of Social Security benefits) on a joint return passes $44,000, up to 85% of benefits become taxable. Within that range, each extra dollar he withdraws can pull more of his benefits into taxable income too. That turns a 22% bracket into an effective rate near 41%. This is the best reason to draw down the traditional account before taking Social Security, because in those years there are no benefits for the withdrawals to make taxable.
When Spending the Roth First Makes More Sense
Three situations reverse the order. If your children earn low incomes, their bracket may be lower than yours, and the traditional money costs less in their hands. If a charity is the beneficiary, it pays no income tax on a traditional account. Spending Roth money first can also make sense if you’re already in the 32% bracket. If a pension plus Social Security already puts you there, draining pretax money faster just means paying the tax early at a higher rate than your heirs might face.
Roth conversions work the same way. A conversion is especially useful when the rate paid now, such as 22%, is lower than the rate a child would otherwise pay, such as 32%. Those silent years are a retiree’s lowest-tax window. The time between the last paycheck and the first required withdrawal is when we sized up how to use them in a free Roth guide here.
Withdrawing too much is the other mistake. Pulling extra pretax money just to empty the account faster, beyond what you actually spend, can push your income over the $218,000 threshold and cost more than it saves. A one-time expense calls for a small Roth withdrawal. Taking one for a new roof or a car keeps that year’s income below the IRMAA line.
Three Moves to Set Your Withdrawal Order
- Compare your marginal bracket with each child’s current one. Emptying the traditional account first often pays off when your rate is lower than theirs, so check this before taking any withdrawal or conversion.
- Cap each year’s traditional withdrawals and conversions at the first IRMAA threshold, which sits below the top of the bracket. A couple would keep modified adjusted gross income (MAGI) at or below the applicable IRMAA threshold ($218,000 in 2026), starting two years before Medicare begins.
- Consider bigger traditional withdrawals in the years before taking Social Security, and keep the Roth for very expensive years, so that the account you plan to leave your children only shrinks when using it saves more tax than it costs.
Contact [email protected] for any questions or corrections.
Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
