The 401(k) Tax Trap: Why You Need 3 Account Types To Retire | Brett Rentmeester

Summary

• True diversification requires balancing account types (Taxable, Traditional IRA, Roth IRA), not just asset classes, to manage future tax liabilities and liquidity needs.
• A common "tax trap" occurs when retirees have too much wealth concentrated in Traditional IRAs; large one-time expenses (like buying a home) force large distributions that spike the retiree into a higher marginal tax bracket.
• Investors leaving an employer should generally consolidate old 401(k)s into a self-directed IRA for better control and lower fees, but must first verify they aren't forfeiting unvested matches or profit-sharing contributions.