Why Financial Advisors Tell High Earners Over $400K to Stop Maxing Their 401(k)

Earning $400,000 a year puts you in the 35% federal tax bracket, and standard planning advice says: max your 401(k), defer as much as possible, lower your taxable income today. For high earners with large account balances and significant deductions, the better path often runs in the opposite direction.

The Tax Rate Arbitrage Test Every High Earner Should Run

A traditional 401(k) contribution saves you taxes at your marginal rate today. But every dollar withdrawn in retirement comes out as ordinary income. The math works in your favor only when your retirement tax rate is lower than your current marginal rate.

The test: estimate your taxable income at age 75, when required minimum distributions begin under current SECURE 2.0 rules for most professionals today. Add Social Security, any pension, investment income, and projected RMDs. If that total lands you in the same bracket you are in today, the traditional 401(k) is a tax-neutral vehicle, not a tax-reduction tool.

A physician or executive earning $450,000 with $1.8 million already in a 401(k) faces this acutely. At a 7% average annual return, that account could exceed $4 million by age 75. The RMD on $4 million, using the IRS Uniform Lifetime Table divisor of 24.6, is roughly $162,000 per year before adding any other income. That person will not retire into a lower bracket.

Where the Real Cost Hides: The IRMAA Lookback

Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) uses your income from two years prior to set your premiums. Large RMDs push MAGI above IRMAA thresholds trigger surcharges on top of the standard 2026 Part B premium of approximately $203 per month. For a married couple filing jointly with MAGI in the highest tiers, the combined annual IRMAA surcharge can range from $12,000 to $13,000, depending on the exact tier and Part D coverage.

The two-year lookback makes this costly and irreversible. A large RMD in 2033 sets your Medicare premiums in 2035. You cannot retroactively undo it. The damage is locked in before most retirees realize it is coming.

When the Advice Reverses

A household earning $450,000 with a large mortgage, significant charitable giving, and business deductions may have an effective federal tax rate well below 35%. If itemized deductions reduce taxable income by $80,000 to $100,000, the actual dollars sheltered by 401(k) contributions may be taxed at 24% or 22% on the margin. In that case, the traditional 401(k) deduction is generating real savings, and the “stop-maxing” advice is reversed.

Advisors in this income range avoid uniform recommendations because the right answer depends on your marginal tax rate today versus your projected marginal rate in retirement. Marginal rates are a starting point, but they must be considered alongside your actual taxable income after deductions.

The 2026 Rule Change That Already Made the Decision for Some

Starting in 2026, SECURE 2.0 requires that catch-up contributions for employees whose prior-year wages exceeded $150,000 be made on a Roth basis. (Implementation timing varies by employer; some plans begin in 2026, others in 2027.) If you earned more than $150,000 from your employer in 2025, your catch-up contributions this year go into a Roth 401(k) whether you want them to or not.

The 2026 catch-up limit for workers aged 50 to 59 is $8,000, bringing the total contribution ceiling to $32,500. For workers aged 60 to 63, the super catch-up is $11,250, bringing the total to $35,750. If you are in that age window and earning over $150,000, Congress has already forced part of your contribution into the Roth structure. Whether to redirect the remainder depends on projected retirement income and tax rates.

Three Actions Worth Taking Before the Next Tax Year

1. Run the RMD projection now, not at 70. Pull your current 401(k) balance, apply a conservative growth rate, and estimate your RMD at 73 or 75. Add expected Social Security and other income. If the total exceeds $109,000 for a single filer or $218,000 for a couple, you are likely headed into IRMAA territory regardless of what you do with contributions today. That projection changes how aggressively you should pursue Roth conversions in lower-income years.
2. Calculate your actual marginal rate after deductions, not just your top bracket. If itemized deductions are large, the tax savings from each additional dollar of a traditional 401(k) contribution may be 22% or 24%, not 35%. In that scenario, the traditional 401(k) remains valuable. If deductions are modest and your marginal tax rate is close to your top bracket, redirecting contributions above the employer match to a taxable brokerage account or a Roth 401(k) becomes the better path.
3. If your combined retirement income will exceed the first IRMAA threshold of $109,000 for single filers or $218,000 for married couples filing jointly, the tax and premium planning alone justifies working with a fee-only advisor. A single year of IRMAA at the top tier costs a couple roughly $13,000. A few hours of planning to stay one tier lower can recover that cost in the first year alone.