Two Retirement Risks Most 401(k) Savers Ignore Until It's Too Late

The Retirement Account Everyone Has, and the Traps Most People Miss

The 401(k) is the dominant retirement vehicle in America. Contributions come out of your paycheck automatically, your employer may kick in matching funds, and the whole thing grows tax-deferred for decades. On the surface, it looks like a solved problem.

According to the New York Post, two structural features of 401(k) plans can turn a well-funded retirement account into a tax headache, and most savers don't find out until they're already in the middle of it.

Required Minimum Distributions: The IRS Gets Its Cut Whether You're Ready or Not

The first risk is required minimum distributions, or RMDs. The IRS does not let your money sit in a traditional 401(k) forever. Once you turn 73, or 75 depending on the year you were born under rules set by the SECURE 2.0 Act, you are legally required to withdraw a minimum amount each year. Skip the withdrawal, and the penalty is steep.

The New York Post flags the real danger: it's not just the forced withdrawal itself, but what the withdrawal does to your tax situation. Large RMDs can push retirees into a higher federal income tax bracket. They can also trigger taxation on Social Security benefits, which are tax-free below certain income thresholds. And they can trigger surcharges on Medicare premiums through what's known as IRMAA, the Income-Related Monthly Adjustment Amount.

The arithmetic compounds. If you've contributed steadily to a 401(k) for 30 or 40 years and invested in equities the whole time, a $2 million or $3 million balance by age 73 is not fantasy. At that level, RMDs could force $100,000-plus in taxable income per year whether you need the money or not.

Planning Around RMDs: Two Concrete Options

The New York Post outlines two approaches that actually work.

First, Roth conversions. You move money from a traditional 401(k) into a Roth IRA before RMDs begin. You pay income tax on the converted amount now, but Roth accounts have no RMDs and qualified withdrawals are tax-free. The trade-off is real: you're paying tax early. The benefit is real too: you're eliminating forced taxable income later.

Second, strategic early withdrawals. If you retire before 73 and have a few years of lower income, living primarily on Social Security for instance, that window is a legitimate opportunity to draw down the 401(k) or do Roth conversions at a lower marginal rate. The New York Post specifically calls this out as an often-overlooked planning window.

Neither strategy is automatic. Both require running actual numbers with a financial planner or a detailed tax projection. But the concept is straightforward: reduce the pre-tax balance before the government forces you to start pulling from it.

Target-Date Funds: A Real Risk the Forbes Source Couldn't Deliver

A note on sourcing: the Forbes article titled "The hidden risks of target-date funds in your 401(k)" was included in the research for this piece. Its content was unreadable, the file was corrupt binary data, not usable text. Specific figures and arguments from that piece cannot be reported here.

What is publicly documented from other sources: target-date funds, which automatically shift from stocks toward bonds as a worker approaches a target retirement year, are now the default investment in the majority of 401(k) plans. The Vanguard 2025 How America Saves report has previously noted that more than 80% of new 401(k) participants are defaulted into target-date funds. The concern, raised repeatedly by fee-focused analysts, is that many target-date funds carry layered expense ratios, can be overly conservative too early, and vary widely in their glide paths even for the same target year. A 2045 fund at Fidelity and a 2045 fund at a smaller provider may look very different in their equity allocation and fees.

The strongest opposing case: target-date funds exist precisely because most workers don't rebalance on their own, make emotional decisions during market crashes, and end up worse off managing their own allocations. Behavioral finance research consistently shows that "set it and forget it" outperforms self-directed trading for most retail investors.

Both things can be true: target-date funds are better than panic-selling in a downturn and worth auditing every few years for fees and glide-path assumptions. They are not a substitute for understanding what you own.

The Specific Question Worth Asking Your Plan Right Now

Most 401(k) plans today offer a Roth 401(k) option alongside the traditional pre-tax version. Contributing to the Roth side from the start builds a pool of retirement savings with no RMD requirement and no future tax bill on withdrawals, eliminating the problem before it starts. If your employer's plan offers a Roth 401(k) and you're contributing exclusively to the pre-tax version without a deliberate reason, that is worth reconsidering.

The IRS sets RMD ages under current law, but Congress has changed those thresholds twice in recent years, in the original SECURE Act and in SECURE 2.0. Another legislative change is possible, which means any long-range Roth conversion plan should be stress-tested against the assumption that the rules may shift again before you retire.