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A $1 Million 401(k) Could Deliver About $760,000 in Spending Power
The article says federal and state taxes can take $200,000 to $250,000 from a $1 million traditional 401(k), shrinking spendable retirement income.
Yahoo Finance highlights that a $1 million traditional 401(k) balance in pre-tax dollars may not translate to the same amount of retirement spending after taxes.
It estimates that retirees could see roughly $760,000 of after-tax purchasing power, with federal and state taxes consuming about $200,000 to $250,000 depending on circumstances.
The piece also argues that inflation can further erode purchasing power over long retirements, saying 2% to 3% annual inflation over 25 to 30 years can reduce real buying power by about one-third to one-half.
It points to potential ways retirees may reduce the tax gap, including Roth conversions before age 73, withdrawal sequencing, and maximizing the $16,100 standard deduction zero bracket, while noting that withdrawals from traditional 401(k)s are taxed as ordinary income.