When discussing retirement planning, the most common question I hear is, "Shouldn't I put more money into my 401(k)?"

This is because those who have worked diligently throughout their lives have been taught that maximizing contributions to tax-deferred accounts is virtuous.

However, from my experience in retirement planning, there is an uncomfortable truth to share.

Having too much money accumulated in a 401(k) or traditional IRA can also be a 'problem.'

First, we need to address RMD, or Required Minimum Distributions. With the SECURE Act 2.0 amendment, individuals born between 1951 and 1959 must start withdrawing money from traditional IRAs and 401(k)s at age 73, while those born in 1960 or later must do so at age 75.

For example, if someone has an IRA balance of $500,000 at the end of 2025 and is 75 years old this year, they must withdraw approximately $20,325 by the end of 2026, calculated by dividing by the IRS life expectancy factor of 24.6. If they fail to withdraw, a penalty of 25% on the amount not withdrawn applies. Although this has decreased from 50%, it is still a significant amount.

The issue is that this forced withdrawal does not just increase income tax.

What I find unfortunate is the 'Medicare surcharge,' known as IRMAA. As of 2026, if a single person's MAGI exceeds $109,000 or a couple's combined income exceeds $218,000 by even $1, additional charges will apply to Medicare Parts B and D premiums. This is a cliff structure, meaning that exceeding by just $1 can result in an additional annual cost of over $1,000 at once.

At the highest income bracket, you could end up paying $689.90 per month for Part B, totaling over $8,000 annually. If you miscalculate your RMD from your lifetime savings in a 401(k), you could face taxes on up to 85% of your Social Security benefits, along with increased Medicare premiums, creating a triple burden.

Let me share one more practical point.

Many clients in their 40s and 50s dream of early retirement, but if they pour all their money into a 401(k), it could actually make early retirement impossible. This is because withdrawing money from a traditional IRA or 401(k) before age 59 and a half incurs a 10% early withdrawal penalty.

If you start contributing $1,500 monthly to a 401(k) at age 22 and assume an average annual return of 8%, you would accumulate $2.4 million by age 54.

This figure is actually lower than the long-term average of the stock market.

However, if all this money is tied up in a traditional 401(k), wanting to retire at 54 means you would have to wait over 5 years until age 59.5, burdened by penalties.

That's why I recommend a 'strategy of diversifying accounts' during consultations.

Instead of funneling everything into one account, it's about managing three different types of accounts in a balanced way.

401(k)s and IRAs serve to defer taxes. They can provide significant tax benefits during high-income years.

On the other hand, Roth IRAs have no taxes upon withdrawal and no RMDs, allowing for much greater flexibility in retirement.

Finally, a regular taxable brokerage account emphasizes liquidity, allowing you to access funds whenever needed.

If you grow these three types of accounts in appropriate ratios, your ability to respond to situations will change dramatically.

Whether you retire early, retire at a set age, or face unexpected medical expenses, you will have options.

Particularly, the period between ages 63 and 64, just before Medicare enrollment, is strategically very important.

During this time, converting some IRA funds to Roth while managing income below the IRMAA threshold can help lower Medicare additional premiums in the long run. Just getting this timing right can significantly reduce costs for years to come.

And there's one more aspect that many people overlook. If you have already saved enough, choosing not to contribute more is also an option.

For example, if you have $3 million at age 57 and plan to retire at 62, your assets will naturally grow even without additional contributions.

Assuming a 5% return, in 5 years, it could reach about $3.8 million. In this situation, rather than continuing to push money into a 401(k), it may be a much more realistic choice to use funds to enjoy a more comfortable few years before retirement.

Ultimately, preparing for retirement is not just about the amount of money. How you withdraw and use it is far more important than how much you have saved.

You need to design the overall flow, including taxes, penalties, and medical expenses.

If you are currently maxing out your 401(k), it may be worth pausing to reassess the entire structure.