The Tax-Deferred Trap
A 401k, 403b, 457b or TSP gives you a tax break today in exchange for a tax bill later, at whatever the rates are when you retire. You don't control those future rates, and every dollar you withdraw is taxed as ordinary income.
Worse, those withdrawals stack on top of Social Security. That can make up to 85% of your benefit taxable and push you into Medicare IRMAA surcharges. And at 73 or 75, required minimum distributions force money out whether you need it or not.
Our approach to contributions
Contribute at least enough to get the full employer match. The match is free money and worth taking every time. Above the match, we look at whether your next dollar belongs in a Roth 401k, a Roth IRA, or for some households a properly structured IUL, instead of adding to the Tax Trap.
Your options for an old 401k
Left a job? You usually have four choices. Each has trade-offs, and we'll walk through them in writing before you decide.
| Option | Upside | Trade-offs |
|---|---|---|
| Leave it in the old plan | Low-cost funds, creditor protection, no action needed | Limited choices, easy to lose track of, still fully taxable |
| Move it to your new employer's plan | One account to manage | Same Tax Trap, only the plan's investment menu |
| Roll to an IRA or a fixed indexed annuity (FIA) | More choices; an FIA adds a 0% floor and can provide guaranteed lifetime income through an optional income rider, which may carry a fee | Annuities have surrender periods and fees; rollovers must be done correctly to avoid tax |
| Convert some of it to Roth | Moves dollars into Bucket 3 permanently | Taxes are due in the year you convert; best done in planned amounts with your CPA |
We document why any rollover recommendation is in your best interest, including the fees and features you'd give up in your current plan. If staying put is the better move, we'll say so.
For federal employees
Federal employees often have most of their retirement in the Thrift Savings Plan, which is already low cost. That makes the TSP decision different from a typical 401k, and it deserves careful math.
- We look at your TSP alongside your FERS pension and Social Security to project your taxable income in retirement.
- We show how your TSP withdrawals could affect the tax on Social Security and your Medicare premiums.
- Since January 28, 2026 the TSP allows in-plan Roth conversions, so you can move traditional TSP dollars to Roth without leaving the plan. We model how much to convert each year and what it does to your taxes and Medicare premiums.
- We compare keeping funds in the TSP against post-separation options, with every trade-off on paper.
Money Experts is an independent firm and is not affiliated with or endorsed by the TSP, the Federal Retirement Thrift Investment Board, OPM or any government agency.
For teachers and public employees
Teachers, school staff, county and state employees, police and firefighters usually have a pension plus a 403b, a 457b, or both. Those plans have rules a typical 401k doesn't, and they're easy to leave money on the table with.
- You may be able to use both. If your employer offers a 403b and a governmental 457b, the limits are separate. In 2026 that's $24,500 in each, plus an $8,000 catch-up in each at 50 and older.
- Extra catch-ups. Some 403b plans allow up to $3,000 a year more after 15 years with the same employer. A governmental 457b can allow up to double the normal limit, $49,000 in 2026, in the three years before your plan's normal retirement age.
- The 457b penalty advantage. Money in a governmental 457b can be withdrawn after you leave that job at any age without the 10% early withdrawal penalty. Roll it into an IRA and that advantage is gone, so think twice before moving it.
- Check your 403b fees. Many school district 403b plans are built on vendor annuity products with layered fees and surrender charges. We'll lay out exactly what you're paying.
- Roth catch-up rule. Starting in 2026, if your prior-year wages were over $150,000, catch-up contributions must go in as Roth.
- Pension plus Social Security. The Social Security Fairness Act repealed the Windfall Elimination Provision and Government Pension Offset in 2025, so many public employees with pensions now receive larger Social Security benefits. That also means more provisional income, and more exposure to the Social Security Tax Trap.
We map your pension, your 403b or 457b and your Social Security together so you can see your taxable income in retirement before you get there.
Questions we hear often
Will rolling over my 401k trigger taxes?
A direct rollover to an IRA or annuity is not taxable when done correctly. A Roth conversion is taxable in the year you convert. We coordinate with your CPA before any move.
Should I stop contributing to my 401k?
Not below the match. Contribute at least enough to get the full employer match, then talk with us about where the next dollar should go.
Is a fixed indexed annuity safe?
An FIA protects your principal from index losses, with guarantees backed by the issuing insurance company. It has a surrender period, and surrender charges can reduce what you get back if you leave early, so it's for money you won't need for several years.