---
title: The Hidden Risk of Retiring With Every Dollar in Tax-Deferred Accounts
description: When you're saving for retirement, tax diversification is key. Here's why having all your money invested in tax-deferred accounts can sting.
authors:
  - name: Marc Guberti
    url: https://money.com/author/marc-guberti/
    bio: Marc Guberti is a personal finance writer who hosts Breakthrough Success, a podcast where he teaches listeners how to grow their businesses and achieve personal transformations.
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published: '2026-06-03T18:00:44.000Z'
section: Retirement
word_count: 441
canonical: https://money.com/tax-deferred-retirement-accounts-risk/
type: Article
source: structured-blocks
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![Close-up of an elderly man counting money with a calculator in the currency of the European Union](https://img.money.com/2026/05/Explainer-Hidden-Risk-Retirement.jpg)

Tax-deferred accounts such as 401(k)s and traditional individual retirement accounts (IRAs) are key tools in your toolbox when it comes to saving for the future.

These savings plans allow you to lower your taxable income in the current tax year — and potentially your tax bill — by making pre-tax contributions. However, this same perk can turn into a ticking tax bomb deep into your retirement because of required minimum distributions (RMDs) if you’re not careful. Here’s what to know, and how you can avoid a large tax bill down the road.

## Why deferred-tax savings can become a tax trap

Deferred-tax accounts can offer upfront savings on your tax bill, but withdrawals are taxed as ordinary income. That tax treatment, combined with RMDs, comes with a risk. Once you reach your RMD age (typically 73), you must take out a portion of your pre-tax holdings each year. This figure is based on a percentage set by the IRS that increases as you age.

If all of your withdrawals come from tax-deferred accounts, you can end up with an elevated ordinary income that pushes you into a higher tax bracket.

## Social Security taxes and Medicare premiums and tax brackets

If withdrawals from tax-deferred accounts increase your income, more of your Social Security benefits may be eligible for taxation. It can also result in higher Medicare premiums.

Higher Medicare premiums may require that you withdraw more money from your retirement savings plan, which can result in even higher premiums in the future. It’s a feedback loop that is best to avoid if possible.

## How to build tax flexibility before and during retirement

Tax-deferred accounts can be great resources that offer immediate tax relief while growing your portfolio. However, tax diversification is key when saving.

For instance, you can balance your contributions across three different types of accounts. Tax-deferred accounts and Roth accounts — which are funded with after-tax dollars but allow you to make tax-free withdrawals — both have contribution limits. For instance, IRAs have a $7,500 contribution limit for people who are under 50 in 2026. You can split this up by contributing $3,750 to a traditional IRA and $3,750 to a Roth IRA, but you cannot put $7,500 into each account.

The third bucket is a taxable brokerage account. Any money in excess of 401(k) and IRA limits that you want to invest can go in this account. You don’t get any tax breaks in a brokerage account, but you can access the money at any time without incurring penalties. A tax professional or financial advisor can help you understand the nuances of using these accounts to minimize taxes during retirement.

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