How to prepare yourself for the ticking times bomb hiding in your 401(k)

For working Americans with access to a 401(k), there’s perhaps no easier way to save for retirement.You tell your employer how much money you want to contribute per year or per pay period, and that money gets deducted from your paychecks accordingly.Plus, if you’re lucky, you may not only have access to a 401(k) plan but also a workplace match.

That’s free money you can invest alongside your own contributions.But a lot of 401(k) savers overlook a big financial risk that could become a problem later on in retirement.And if you’re saving in a 401(k), it’s something you absolutely need to know about.One of the biggest risks of saving in a 401(k) is required minimum distributions (RMDs).

Once you turn 73 or 75, depending on the year you were born, you’re forced to withdraw a certain amount from a 401(k) each year or otherwise risk a large penalty.RMDs aren’t just annoying.They could push you into a higher tax bracket in retirement, cause you to get taxed on your Social Security benefits, and leave you paying surcharges on your Medicare premiums.Of course, the larger your 401(k) balance is once RMDs start, the larger those mandatory withdrawals are apt to be.

But if you don’t need to withdraw all that money each year, it could create a huge headache.And if you contribute steadily to a 401(k) over decades, all the while investing in the stock market, it’s conceivable that you could have a few million dollars sitting in that account by the time you reach the age when RMDs begin.That’s a good problem to have – but it’s a problem nonetheless.While RMDs could become a big hassle for you if you have your retirement savings in a 401(k), there’s one way to make them less of a problem: Do Roth conversions before they begin.With a Roth conversion, you move some (or all) of the money from your 401(k) into a Roth IRA.

Roth IRA withdrawals are not taxable and are not subject to RMDs.Another option is to carefully manage 401(k) withdrawals before R...