The Retirement Mistakes High Earners Make That Middle-Income Workers Don't

The High-Earner Paradox: The Most to Gain, The Fewest Options

The Roth IRA offers the most powerful tax-free retirement savings vehicle available to individual investors. And the people who would benefit most from it - high earners in the 32-37% bracket who face the largest future tax bills - are specifically prohibited from using it directly. In 2026, the Roth IRA income phase-out begins at $153,000 for single filers and $242,000 for married couples. Above $168,000 single and $252,000 married, direct contributions are completely prohibited. Meanwhile, the 401(k) - the account high earners can use without restriction - becomes an increasingly poor tax vehicle as balances grow. A $3 million 401(k) at age 73 forces more than $113,000 in annual required minimum distributions, all taxed as ordinary income. At a combined federal and state effective rate of 30%, that is $33,900 in annual tax on mandatory withdrawals alone - before spending a single dollar from other sources. The high-earner retirement problem is that the accounts available without restriction (traditional 401(k), traditional IRA for deductibility phase-outs that still allow contributions) are the same accounts that create the largest future tax liabilities. The accounts that would solve the problem - Roth IRA, Roth 401(k) for some plans - have income limits or require plan access that is not universal.

IRMAA Is Nearly Inevitable - and Most High Earners Don't Plan for It

A high earner who has accumulated $2-3 million in traditional 401(k) assets will almost certainly face IRMAA surcharges in retirement. Here is the math. At age 73, a $2 million 401(k) generates approximately $75,400 in RMDs. Add $40,000 in Social Security income and $30,000 from a small pension, and the retiree has $145,400 in gross income. After the standard deduction of $16,100 for a single filer, adjusted gross income is approximately $129,300. That single filer's IRMAA threshold is $109,000 MAGI in 2026. They are already in the second IRMAA tier. Part B surcharge: $81.20 per month. Part D surcharge: $14.50 per month. Additional annual Medicare cost: $1,164. If their income pushes above $137,000, they climb to the third tier with a $202.90 per month Part B surcharge - an extra $2,435 per year beyond standard Medicare premiums. A married couple with a combined $4 million in tax-deferred assets faces proportionally larger RMDs and is nearly certain to hit IRMAA at higher tiers, with both spouses paying surcharges. The cumulative IRMAA cost over a 15-20 year retirement can easily reach $50,000 to $100,000 - a cost that most high earners never factor into their retirement planning because they have never heard of IRMAA until their Medicare bill arrives.

The NIIT Trap and the Roth Conversion Window

High earners with investment income above $200,000 single or $250,000 married face the Net Investment Income Tax (NIIT) at 3.8% on top of their capital gains and ordinary investment income rates. When combined with the 20% long-term capital gains rate, the effective rate on appreciated investments reaches 23.8% federally - before state taxes. RMD income can push high earners above the NIIT threshold even if their investment income alone would not. A retiree with $150,000 in RMDs and $80,000 in dividends and capital gains has $230,000 in MAGI as a single filer - above the $200,000 NIIT threshold. All $80,000 in investment income now carries the additional 3.8% surtax. The primary defense for high earners is the Roth conversion window: the years between retirement and age 73 when RMDs begin. If a high earner retires at 62 and has not yet started Social Security, their income may drop temporarily to their lowest level in decades. Using this window to convert traditional 401(k) money to Roth - paying tax now at lower rates - can permanently reduce future RMDs and the cascade of secondary costs they trigger. A high earner converting $80,000 per year for 10 years before RMDs begin can reduce their future mandatory distribution by $800,000 in principal - potentially keeping them in lower IRMAA tiers and below the NIIT threshold for the rest of retirement.