By Sandra Block
From Kiplinger’s Personal Finance
Decades of salting away part of your paycheck in a 401(k) or similar plan can lead to a “tax bomb” later in retirement.
That often occurs when you’re in your early 70s and must begin required minimum distributions (RMDs) from tax-deferred retirement accounts, such as a 401(k) or traditional IRA. Those withdrawals are taxable and could potentially throw you in a higher tax bracket.
How to diffuse the tax bomb? Consider contributing to a Roth option in your workplace retirement plan, if offered. You won’t get a tax deduction for contributing to, say, a Roth 401(k), but your withdrawals will be tax-free as long as you’re 59 1/2 and have owned the Roth for at least five years. Also, under a new law, Roth 401(k)s will no longer be subject to RMDs starting in 2024….