401(k)
Published March 14, 2026 by Harbor Point Advisors
You've done everything right.
You maxed out your 401(k). You've been contributing for years. Your balance looks solid on paper. And your financial advisor keeps telling you you're on track.
So why does retirement still feel uncertain?
401(k) withdrawals are ordinary income in retirement because contributions were tax deferred, not tax avoided. Future tax rates can change, and a substantial balance may leave you in the same or a higher bracket. Understanding that trade-off is educational information, not tax advice.
Here's something most advisors won't bring up: the money sitting in your 401(k) isn't entirely yours. Not yet. The IRS has a claim on every dollar in that account, and when you start pulling it out in retirement, you'll pay ordinary income tax on every withdrawal. At whatever rate Congress decides taxes should be at by then.
That's not a scare tactic. That's just how tax-deferred accounts work.
The Problem With "Tax-Deferred"
Tax-deferred sounds like a benefit. And in the accumulation phase, it can be. You get to invest pre-tax dollars, which lowers your taxable income today.
But deferred doesn't mean avoided. It means delayed.
When you retire and start drawing from your 401(k), every dollar becomes ordinary income. And if you've been a good saver, if your balance is substantial, you could easily find yourself in the same tax bracket you were in during your working years. Or higher, if tax rates go up.
Beginning at age 73, an RMD requires a minimum annual withdrawal from a 401(k), whether or not you need the money. The withdrawal adds to taxable income and may affect your bracket, Medicare premiums, and the taxation of Social Security. This is educational information, not tax advice.
Then there's the RMD problem. Starting at age 73, the IRS requires you to withdraw a minimum amount from your 401(k) every year whether you need the money or not. Those forced withdrawals get added to your taxable income. They can push you into a higher bracket. They can trigger higher Medicare premiums. They can even cause more of your Social Security to become taxable.
You saved the money. But the government gets to decide when you take it and taxes it every step of the way.
Your Money Is Locked Up Until They Say So
Accessing a 401(k) before age 59 and a half can mean a 10% penalty plus income taxes. Large retirement withdrawals can also increase taxable income for that year. Those limitations can make the account less flexible when an unexpected expense or opportunity arises, including a medical bill or family emergency.
Here's something people don't think about until they need it. If life happens before age 59 and a half, and life always has a way of happening, accessing your 401(k) early means a 10% penalty on top of the income taxes you already owe. An unexpected medical bill, a business opportunity, a family emergency. It doesn't matter. The money is there, but it might as well be behind glass.
Even after retirement, access comes with trade-offs. Large withdrawals can increase your taxable income for the year, creating a tax issue right when you're trying to solve one. A 401(k) may be less flexible when you need money quickly.
Sequence of Returns Risk Is Real and Most People Have Never Heard of It
Sequence of returns risk is the risk that market declines arrive early in retirement while you are withdrawing. Selling shares after a loss can leave fewer shares to recover when markets rebound. Timing, not just a long-term average return, can matter when withdrawals and a market decline happen together.
Here's the risk nobody talks about at your annual review. It's called sequence of returns risk, and it can derail a retirement plan that looks perfectly fine on paper.
The idea is simple. If the market drops significantly in the early years of your retirement, right when you're starting to pull money out, the damage is compounding in reverse. You're selling shares at a loss to fund your lifestyle, and you have fewer shares left to recover when the market comes back. A bad sequence of returns early in retirement can cut a portfolio's lifespan by years, sometimes decades.
It doesn't matter what the long-term average return is. Timing matters. And you can't control timing.
No Living Benefits. No Protection When You Need It Most.
A 401(k) is tied to market performance and does not include built-in living benefits. It does not provide accelerated benefits or special access because of a serious illness, disability, chronic condition, or terminal condition. Your balance remains dependent on market value at the time you need it.
A 401(k) is a savings account tied to market performance. That's it. It has no built-in protection if you get seriously ill, become disabled, or are diagnosed with a chronic or terminal condition.
If something happens to you, your account balance is whatever the market says it is that day. There are no accelerated benefits. No provisions that allow you to access funds without penalty because of a health event. No protection layered into the product itself.
You're one bad diagnosis away from finding out your retirement account wasn't built for real life.
What Nobody Sat Down and Showed You
Insurance-based products may offer tax-free growth, no RMDs, market-linked features, living benefits, and flexible access. Whether any product is appropriate depends on its terms and your situation. Any insurance guarantee is subject to the issuing company's claims-paying ability. This is educational information, not a recommendation.
Most Americans don't realize some insurance-based products can offer tax-deferred growth, no RMDs, market-linked crediting, living benefits, and access through withdrawals and policy loans. Handled correctly while the policy stays in force, that access is generally not taxable, but policy charges can reduce cash value.
These aren't loopholes. They're not complicated schemes. They're insurance-based financial products that have existed for decades and are used routinely by the wealthy, by business owners, and by anyone who's worked with an advisor who specializes in advanced markets.
Most people have never been shown how they work, which means they can't make an informed decision about whether they should be part of their plan.
That's the gap this blog exists to close.
So Is Your 401(k) a Mistake?
No. A 401(k), especially with an employer match, can make sense as part of a broader strategy for many people. Relying on one retirement vehicle may still leave questions about taxes, market declines, illness-related access, and family legacy needs. Those questions are worth considering as part of your overall plan.
Not necessarily. For many people, especially younger earners with decades of compounding ahead, a 401(k) with an employer match still makes sense as part of a broader strategy.
But a 401(k) as your only retirement vehicle? That's where families get into trouble. That's where the tax bill in retirement blindsides people who did everything they were told to do.
The question isn't whether your 401(k) is good or bad. The question is: what's your plan for the taxes? What's your plan if the market drops the year before you retire? What's your plan if you get sick and need access to your money? What's your plan for leaving something behind for your family without putting them through probate?
If you don't have clear answers to those questions, you're not behind. You're just not done yet.
What's Next
Over the coming posts, we're going to break down exactly how these safe money strategies work, who they're built for, and how real families are using them to retire with more certainty and less tax exposure.
No pressure. No pitch. Just the strategies that don't get enough airtime.
If you want to talk through your specific situation before then, I'm happy to spend 20 minutes with you. No obligation, just clarity.
This article is educational and general in nature. It is not tax, legal or investment advice and does not account for your circumstances. Indexed universal life insurance is a life insurance product, not an investment. Policy charges, cost of insurance, caps, participation rates and spreads affect results, and cash value can decline in a year when the index credit is zero. Policy loans and withdrawals reduce the death benefit and available cash value, and a lapse or surrender with a loan outstanding can create a taxable event. Any guarantee is subject to the claims-paying ability of the issuing insurance company. Tax treatment reflects current law, which can change. Talk with a qualified tax, legal or financial professional about your own situation.
Harbor Point Advisors. Bozeman, Montana. (406) 539-3423. Serving clients nationwide.
Harbor Point Advisors is an insurance agency. Adam Stevens is a licensed insurance professional, license number 3004330767, NPN 22297129. Not a registered investment adviser or broker-dealer.
This article is educational and is not individualized investment, tax, or legal advice.