David Beren

Sun, September 20, 2026 at 4:03 PM EDT 6 min read

Quick Read

• A traditional IRA balance overstates true wealth because every withdrawal is taxed as ordinary income, meaning the government owns a portion of every dollar on the statement.

• Converting $40,000 annually at 12% using outside funds beats a $730,000 traditional IRA balance taxed at 22% on withdrawal, leaving the converter with more spendable money.

• Roth owners avoid required minimum distributions, Medicare IRMAA surcharges, and pass tax-free balances to heirs. These advantages hold regardless of future tax rates.

• Two retirees, same $1 million, same 4% rule, buy one finished with $1.4 million, the other hit $0 in 12 years. Our free reader guide explains the flaw that separated them, and the income-first method built to avoid it.

Two brothers, same starting balance of $450,000 in a traditional IRA, same age, same market. Imagine that one spent a decade moving $40,000 a year into a Roth, paying tax on each conversion at the 12% federal rate. The other brother did nothing and watched the balance climb to $730,000. On paper, the second brother looks like he came out ahead. In practice, he owns less of what his statement says than his brother owns of a smaller one.

Why the Statement Includes the Government's Share

A traditional IRA balance is money on which no federal income tax has ever been paid. Every dollar withdrawn is taxed as ordinary income in the year it comes out. If the eventual tax rate is 22%, then twenty-two cents of every dollar on that statement belong to the Treasury. The account holder is a custodian for a share he does not own.

A Roth statement works differently. Tax has already been settled. Qualified withdrawals in retirement come out untaxed. The number on the page is the number the owner can spend. Two brothers whose statements read the same figure do not have the same wealth if one is a Roth and the other is pre-tax. Almost no one adjusts for this when deciding whether they have enough saved.

The 4% Rule is Broken, Built On A World That No Longer Exists

Every retiree knows about the 4% rule, but it frames retirement as a slow liquidation and still causes retirees with seven-figure accounts to agonize over a dinner out.

There's a different way to run the math that makes more sense today. Build an income floor — dividends, interest, and Social Security that cover your essential bills every month — and you never have to sell shares into a down market just to pay them.

Our free reader guide, The 4% Rule Is Broken, walks through it in about 15 minutes. Access the report here.