Perhaps you have a Hidden Roth IRA.
You might be thinking “No way. I did not lose track of a Roth IRA!”
The Hidden Roth IRA is not a lost retirement account.
Rather, the Hidden Roth IRA is a Roth IRA that hides inside traditional IRAs and traditional 401(k)s.
How can a Roth IRA hide in a traditional retirement account? It turns out tax free distributions (essentially, a Roth IRA) from traditional retirement accounts occur more often than you would think.
This article searches for Hidden Roth IRAs. You’ll be surprised how often retirees can benefit from the Hidden Roth IRA.
The Standard Deduction and the Hidden Roth IRA
We live in an era of a rapidly growing standard deduction.
The standard deduction is to the Hidden Roth IRA what the flux capacitor is to time travel.
The standard deduction makes the Hidden Roth IRA possible!
Increasing the standard deduction, as the One Big Beautiful Bill did, greatly expanded the Hidden Roth IRA.
It gets even better. Through 2028, the senior deduction expands the Hidden Roth IRA for many age 65 and older. The new nonitemizers’ charitable deduction effectively increases the standard deduction by $1,000 per person for Americans with some charitable inclinations.
Senator Cory Booker has recently proposed a significant increase in the standard deduction which would help many retirees enjoy the benefits of the Hidden Roth IRA.
Golden Years Hidden Roth IRAs
The “prime time” of the Hidden Roth IRA is one’s mid-to-late 60s, particularly the 66th through 69th birthday years.
In today’s environment, a married couple in their mid-to-late 60s could take more than $45,000 annually from traditional IRAs and have the “taxable” income fully offset by the available standard deduction, additional standard deduction, senior deduction, and potentially the nonitemizers’ charitable deduction.
During the Golden Years, there are no required minimum distributions (RMDs). There’s no Premium Tax Credit on the table, so controlling income for PTC optimization is not a consideration. Further, Social Security can be delayed until age 70, resulting in increased annual payments, potentially reducing volatility in one’s 70s and 80s.
Yes, the Golden Years Hidden Roth IRA mostly or fully goes away once the couple claims Social Security. Social Security benefits are ordinary income that soak up the standard deduction and senior deduction, reducing or fully eliminating their ability to shield traditional IRA/401(k) distributions from federal income taxation. Nevertheless, for multiple years of one’s retirement well into five figures can come out of traditional IRAs as a tax free Hidden Roth IRA.
The Golden Years Hidden Roth IRA is the best Hidden Roth IRA, in my opinion. But it’s not the only Hidden Roth IRA.
72(t) Payment Plans and the Hidden Roth IRA
Some retirees will get a jump start on the Hidden Roth IRA. Early retirees starting a 72(t) payment plan naturally tend to get the benefit of the Hidden Roth IRA.
Prior to the One Big Beautiful Bill, I did a YouTube video about this concept using the then-current 2025 numbers. Even prior to the OBBB expansion of the standard deduction, a married couple on a 72(t) payment plan could have more than $25,000 a year in a Hidden Roth IRA.
72(t) payment planning naturally marries with the Hidden Roth IRA. In most cases, I strongly favor mostly or fully spending down taxable account assets prior to initiating a 72(t) payment plan. Having spent down the taxable assets, it’s difficult for early retirees to incur significant income other than the 72(t) payment itself.
This naturally clears the path for the 72(t) payment to enjoy the benefit of the Hidden Roth IRA. Those benefits can last for the better part of two decades in an extreme case such as the one posited in this YouTube video.
Married Couples Taking RMDs
In today’s environment, many taking RMDs will enjoy the Hidden Roth IRA. Why?
Most 70-something and 80-something’s main sources of income are Social Security and retirement account distributions.
Let’s consider average and median wealth and income statistics. The average monthly Social Security benefit, as of January 2026, is $2,071. Multiply that by 12 months and 2 spouses and you get $49,704 in Social Security per year.
Median retirement account balances for those 75 and older as of 2022 was just $130,000.
Let’s round up those numbers for an 80 year old couple, Sal and Sophia. Assume $70,000 in total Social Security, $2,000 of interest from an online savings account, and $24,752 in RMDs from $500,000 in traditional IRAs. That’s a retired couple well above Social Security average benefits and median retirement account balances.
Does this above-the-median married couple enjoy the benefits of the Hidden Roth IRA while taking RMDs?
You betcha!
How much?
Of that $24,752 RMD, $24,410 is a Hidden Roth IRA!
This YouTube video demonstrates how Sal and Sophia, with a half million traditional IRA, can have all or almost all of their RMD be tax free. That demonstrates the power of the Hidden Roth IRA.
I’ve found that it’s possible that a married couple taking RMDs on a $1 million traditional IRA could enjoy the benefit of a Hidden Roth IRA to a small degree in 2026. See this YouTube video for some numbers.
The Hidden Roth IRA is a real phenomenon for many Americans taking RMDs. Based on the Social Security and retirement account statistics, it is very possible the majority of married couples taking RMDs can benefit from the Hidden Roth IRA.
Singles and Widows Taking RMDs
The benefits of the Hidden Roth IRA are not reserved only for married retirees. Singles and widows can also benefit. This is true even for many single/widowed retirees with above average Social Security income and above median retirement account balances.
On my YouTube channel I discussed an 80 year old single person with a half million traditional IRA and $40,000 of annual Social Security income. She enjoyed the benefit of an $8,660 Hidden Roth IRA.
Yes, singles and widows tend to enjoy much less when it comes to the Hidden Roth IRA. But even those widows with above average Social Security and above median retirement account balances can enjoy a degree of Hidden Roth IRA benefits.
Inherited Traditional IRAs and the Hidden Roth IRA
One thing people fear is the taxes on inherited IRAs. The 10 year payout rule is viewed as a detriment to leaving heirs traditional IRAs. At first blush, taxing a large traditional IRA within 10 years seems to create a huge tax problem.
But will it really be a problem?
Consider many inheritors of large traditional IRAs. They themselves might already be retired or might decide to retire because of the large inheritance.
I ran through one such scenario on my YouTube channel. It may be the case that even a $2 million inherited traditional IRA could enjoy significant Hidden Roth IRA benefits for some or all of the 10 year payout window.
Implications of the Hidden Roth IRA
The Hidden Roth IRA has several important implications for financial planning.
All of the below tactics and considerations are offered as educational insights. They are not offered as advice for you or any other individual’s situation. There are times when retirees would wisely want to avoid the below tactics.
But, if all else is equal, in a general sense the Hidden Roth IRA makes the below tactics more appealing.
Spend Down Taxable Accounts First
The first is that spending down taxable accounts first in retirement is very attractive, particularly for the early retiree. Part of the reason the Hidden Roth IRA can be so significant is the lack of other income hitting one’s annual tax return.
Spending down taxable assets first has several advantages, including potentially setting up years of enjoying the Hidden Roth IRA later in retirement.
Limit Ordinary Income in Retirement
A second implication is it is desirable to limit ordinary income hitting tax returns in retirement. There are various ways to achieve this. For example, holding bonds in traditional retirement accounts takes bond interest income off our tax returns. Consideration should be given to rolling pensions into IRAs to reduce annual ordinary income payouts earlier in retirement.
Delay Social Security
Delaying claiming Social Security increases future monthly benefits. It also keeps Social Security income off one’s tax returns in their 60s, increasing the runway available to the Hidden Roth IRA.
RMDs are Not Harmful for Many Retirees
Consider Sal and Sophia. They are required to take a $24,752 RMD, almost all of which is tax free. A forced tax free distribution in one’s 70s or 80s is not harmful. Many Americans will enjoy the benefit of the Hidden Roth IRA on a portion of their RMDs.
Yes, many affluent retirees taking RMDs will not get the benefit of the Hidden Roth IRA. Even for them, RMDs tend not to be all that harmful.
Why would a couple like Sal and Sophia ever do a Roth conversion if most, if not all, of their RMDs while they are both alive benefit from the Hidden Roth IRA?
Resource
I’m aware of only one book that discusses the phenomenon of the Hidden Roth IRA. In Tax Planning To and Through Early Retirement, Cody Garrett and I discuss the Hidden Roth IRA in the context of drawdown planning.
Conclusion
Do you like Roths? If so, one of the best ways to have a Roth is to contribute to a traditional 401(k) at work. In retirement, some of that account may be distributed tax free as a Hidden Roth IRA.
Many Americans will enjoy the benefit of the Hidden Roth IRA. The Hidden Roth IRA hides inside “taxable” traditional retirement accounts such as IRAs and 401(k)s.
Planning such as spending taxable accounts first in retirement and reducing ordinary income hitting one’s tax return can increase the benefits of the Hidden Roth IRA.
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This post is for entertainment and educational purposes only. It does not constitute accounting, financial, investment, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, investment, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.