$24,500 annual Roth 401(k) deferral costs $7,840 now but avoids $100,000+ in lifetime RMD taxes.
Flip to Roth 401(k) contributions immediately; SECURE 2.0 eliminated Roth RMDs starting 2024.
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A single filer at 60, $250,000 of W-2 income, $2.1 million already stacked in a traditional 401(k), five years from retirement. The default move is to keep deferring at the 32% bracket and take the deduction. For pre-retirees with this profile, the better answer is to flip the next five years of contributions into the Roth 401(k) bucket and pay the tax now. The reasoning rests on a SECURE 2.0 rule change that quietly broke the old playbook.
The Bill She Pays Up Front
Routing the $24,500 annual employee deferral into a Roth 401(k) instead of pre-tax costs her roughly $7,840 in additional federal tax each year at the 32% marginal rate, or about $39,200 across five years. That is the real out-of-pocket cost. She writes a larger check to the IRS through 2030.
The deferral feels like free money because it shrinks today’s bill. In practice it is a loan from the government, repayable at whatever rate Congress sets when she withdraws. For someone who will spend retirement in the 22% to 24% bracket, deferring at 32% can still pencil out. The break-even gets shakier once required minimum distributions, Social Security taxation, and IRMAA Medicare surcharges enter the picture.
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Why the Math Flips After 73
Five years of $24,500 contributions compounded at 7% grows to roughly $145,000 by age 65. Left to compound another 20 years through age 85, that balance becomes about $455,000. In a Roth 401(k), every dollar of that $455,000 comes out tax-free after 59½ with the five-year clock satisfied. In a traditional 401(k), the same $455,000 faces ordinary income tax at withdrawal, costing $100,000 to $110,000 in lifetime tax at a 22% to 24% RMD-era rate.
The upfront cost is roughly $39,200. The avoided tax is closer to $100,000. That gap widens if inflation pushes her into a higher retirement bracket. Core PCE has continued climbing through early 2026, well above the Fed’s 2% target. Tax brackets adjust for inflation slowly; spending power erodes faster.
The SECURE 2.0 Rule That Changed the Decision
Through 2023, Roth 401(k) balances were subject to required minimum distributions exactly like traditional balances. IRS Notice 2024-2 implemented the SECURE 2.0 provision eliminating RMDs on Roth 401(k) accounts starting in 2024. The Roth bucket now behaves like a Roth IRA inside the employer plan: it compounds untouched through her 70s and 80s and passes to heirs inside the 10-year tax-free window.