Your Last Working Year: The $100,000 Tax Decision Nobody Talks About

Your last working year isn't just another year of saving.

It's the single most important tax planning year of your entire career.

Get this decision right, and you could save over $100,000 in lifetime taxes. Get it wrong, and you'll spend your retirement wishing you had a do-over.

Most people treat their final working year like any other year. Max out the 401(k), check the box, done. But here's what nobody tells you: your last year of work is when everything changes. It's not about saving more. It's about positioning those savings in the right tax buckets for the next 30-40+ years.

Think of it like packing for a long trip. You wouldn't just throw everything into one suitcase and hope for the best. You'd think strategically about what you need, when you'll need it, and where to put it. Your retirement accounts work the same way.

I'm reminded of watching Steph Curry in the Finals. Everyone focuses on the final shot. But the real magic happens in how he positions himself throughout the entire game—knowing exactly where to be, when to be there, and which play to run at which moment. Your last working year is that same kind of setup.

Here's what most people get wrong. They think the choice is Roth contributions now versus Traditional contributions now. But that's not the real comparison.

The real comparison is this year's tax rate versus your tax rate during what I call the "gap years"—those years right after you retire, before RMDs and Social Security fully kick in.

For most high earners, those gap years are a golden opportunity. Your income drops. Your tax bracket plummets. And suddenly, you have this massive runway to do Roth conversions at rates you'll never see again.

Here's how to think about it:

You're moving dollars through time to the lowest possible tax environment. This is where the five to seven figure lifetime tax differences show up.

Let's talk about something most people don't think about until it's too late: Required Minimum Distributions.

Every pre-tax dollar you put into a Traditional 401(k) today is a future RMD obligation. Once you hit your RMD age—either 73 or 75 for most people—the IRS forces you to take money out whether you need it or not.

And here's the kicker: those distributions are fully taxable. They can push you into higher brackets, trigger IRMAA surcharges on Medicare, and create serious tax planning headaches.

Every Roth dollar, on the other hand, has future tax-free flexibility:

If you already have a large pre-tax balance from old 401(k)s or IRAs, directing some of this year's contributions to Roth can slow down that RMD snowball before it gets too big to control.

Here's what I see constantly: clients in their 70s who wish they had more Roth money. They're staring at massive pre-tax balances, forced to take RMDs they don't need, paying taxes on money they don't want to spend. A balanced, tax-diversified mix preserves your options when markets crash, brackets change, or healthcare costs explode.

Here's something almost nobody talks about: What if the answer isn't Roth or Traditional? What if the answer is neither?

One of the most common mistakes I see is retirees who don't have enough cash. Not invested cash. Actual, liquid, boring cash sitting in a savings account.

In retirement, cash is crucial. Most retirees need at least two to three years of living expenses in cash or very safe, liquid investments. Why? Because markets don't care that you just retired.

If you retire into a bear market and you're forced to sell stocks to cover expenses, you lock in losses you can never recover. But if you have cash, you can ride out the storm. You can let your portfolio recover while living off your reserves.

Let me tell you about Jamie. She contacted our office on the day she retired with $3 million in total assets—and $300,000 in cash. That's 10%. Most advisors might have called that too conservative. But that cash gave her the flexibility to properly fill her reserves, fund strategic Roth conversions, and balance everything out. That cash was a massive advantage.

So if you're sitting there thinking, "Should I max out my 401(k) in my last year?" maybe the better question is, "Do I have enough cash to cover my first few years of retirement?" If the answer is no, it might be time to pause on the 401(k) altogether and build that foundation first.

Here's where things get really interesting. What if I told you the best answer might be both? Not Roth or Traditional. Both.

I'm talking about a strategy that lets you put tens of thousands of extra dollars into tax-free Roth accounts every single year. Most people have never even heard of it. It's called the Mega Backdoor Roth, and it might be hiding inside your 401(k) plan.

Here's how it works:

If your 401(k) plan allows after-tax contributions and in-plan Roth conversions, you can contribute way beyond the standard limits. For 2025, the total 401(k) contribution limit is $70,000. That's employee contributions, employer match, and after-tax contributions combined.

Most people stop at the $23,500 employee limit. But if your plan allows it, you can make additional after-tax contributions up to that $70,000 cap, then immediately convert those dollars to Roth.

You could be adding an extra $40,000+ to your Roth bucket in a single year. Tax-free growth. Tax-free withdrawals. No RMDs. It's one of the most powerful wealth-building strategies in the tax code. But almost nobody uses it because they don't know it exists.

Here's what to do with all this information:

First, project your current and future tax brackets. Look at this year's income, then look at what your income will be in those gap years after retirement. If there's a big difference, you just identified a tax planning window.

Second, consider all the factors. How much do you already have in pre-tax accounts? How much in Roth? What's your cash position? Are you charitably inclined? Do you have a pension or other guaranteed income?

Third, call your HR department or 401(k) provider. Ask if your plan allows after-tax contributions and in-plan Roth conversions. If the answer is yes, you just unlocked a massive opportunity.

Your last working year isn't just another year. It's the launchpad for everything that comes next. Most people sleepwalk through this year. But the smartest pre-retirees treat this year like the strategic opportunity it is.

You've worked for decades to build this wealth. Don't let a lack of planning in your final year undo all that hard work.

Want to see how this all fits together? Visit our website to watch the full video where we break down the exact framework for Roth conversions in those critical gap years after retirement.

Education only, not advice. Consult your professional(s).