Everyone wants three things from their money: to grow it, to protect it from loss, and to pay less in taxes. Most retirement advice treats those as tradeoffs. It does not have to be that way, and the wealthiest households in the country have known this for a long time.
Most people believe the 401(k) and the Roth Individual Retirement Account (Roth IRA) are the correct, standard path to retirement, and that anything outside those two accounts is risky or not meant for them. That belief did not happen by accident. It came from decades of employer benefit packages, financial services advertising, and HR orientations, all pointing to the same two accounts. This post walks through where that belief came from, who it actually benefits, and what households with real wealth use instead.
The Pension: What Came Before
Before the 401(k) existed, the pension was the dominant retirement vehicle in the United States. Under a pension, the employer funded the account and carried the investment risk. The worker received a guaranteed monthly benefit for the rest of their life. The company absorbed the risk. The worker received the guaranteed reward.
Two forces ended that arrangement. First, lifespans extended significantly. Pension funding assumptions were built around workers retiring and living another decade, not 25 or 30 years. As people lived longer, the cost of honoring a lifetime guaranteed benefit became a real burden on corporate balance sheets. Second, companies began underfunding their pension obligations, taking what were called funding holidays and building projections on optimistic market assumptions. When those funding gaps caught up with reality, workers often arrived at retirement to find their promised benefit had been reduced, sometimes significantly.
The 401(k) replaced the pension by shifting the retirement risk entirely from the employer to the individual worker.
The 401(k) and Who It Actually Serves
The 401(k), a tax-deferred employer retirement savings plan, became widely adopted through the 1980s following a 1978 change to the tax code.
Here is the structure. Contributions come out of your paycheck before taxes are taken. The money grows without being taxed while it sits inside the account. But every dollar withdrawn in retirement is taxed as ordinary income, at whatever the tax rate happens to be in that year.
Tax-deferred. Not tax-free. Deferred.
In 2025, the maximum employee 401(k) contribution was $23,500, rising to $31,000 for anyone 50 or older through the IRS catch-up contribution allowance. That is a meaningful savings rate for many people, but for anyone building toward seven-figure wealth, that contribution ceiling limits how fast the account can grow through contributions alone.
The Roth IRA offers tax-free growth and tax-free distributions in retirement, and many financial professionals consider it the strongest tax-advantaged account available to the average American. Within the world of accounts widely marketed to the general public, that may be true. But the Roth IRA has income limits that quietly exclude a large share of working professionals. In 2026, a single filer earning more than $168,000 is fully phased out of Roth IRA eligibility. A married couple filing jointly loses eligibility once combined household income exceeds $252,000.
Consider what that actually means. Two professionals, each earning $126,000 a year. A combined household income of $252,000, which in most major American cities represents a solid professional income, not extraordinary wealth by most definitions. Excluded from the account framed as the tax advantage built for working Americans.
What the Wealthy Are Not Doing
Here is a fact that rarely surfaces in mainstream financial planning conversations. The majority of households with a net worth above $13.5 million, the threshold for the top 1 percent of Americans, do not hold the bulk of their retirement savings in a 401(k). Many are not primarily relying on Roth IRAs either, since the income limits described above eliminate that option entirely for a meaningful share of high earners.
So if the wealthiest Americans are not using the accounts that every employer benefit package, every financial services commercial, and every HR orientation presents as the standard path to retirement security, where does their money actually go?
The Tax Rate History Nobody Teaches You
The federal income tax was introduced in the United States in 1913, which means this country has 113 years of income tax history to look back on. Of those 113 years, only 50 have had a top marginal income tax rate under 50 percent. More than 15 years, primarily in the years following World War II, had a top income tax rate of 90 percent or higher.
Ronald Reagan spoke publicly about this. As a movie actor, he said he would only accept two or three film roles per year, because taking on an additional role would have pushed the extra income into a 90-cent-on-the-dollar tax bracket. He cited this directly as one of the reasons he entered politics.
This history matters directly for anyone holding a 401(k) today. The Tax Cuts and Jobs Act rates have been in place since 2018, and we are currently living in one of the lowest income tax rate environments in American history. Whether those rates remain, rise, or change over the next decade is unknown. What is known is that today's environment is historically unusual, not historically normal.
A 401(k) defers your tax bill. Every dollar withdrawn in retirement is taxed at whatever rate exists in that year, which you do not control and cannot predict. Holding a 401(k) is effectively a bet that tax rates in the future will be lower than they are today, during a period that is already one of the lowest in 113 years of recorded history. The historical odds are not in that bet's favor.
What the Wealthy Are Actually Doing
The answer lives in a section of the tax code that has been available to every American for decades, but has never been prominently marketed to the general public: Internal Revenue Code Section 7702.
A 7702 account works differently from a 401(k) or a Roth IRA. Your money grows inside the account. You can access your capital without the 10 percent early-withdrawal penalty the IRS charges for accessing a 401(k) before age 59 and a half, and the account balance continues compounding while you are using it. When it is time to retire, the income you take from the account comes out tax-free, not tax-deferred.
There are no contribution limits structured the way a 401(k) or Roth IRA restricts you, and there is no Required Minimum Distribution (RMD), the mandatory annual withdrawal the IRS forces traditional retirement account holders to take starting at age 73, whether they need the money or not, creating a forced taxable event every single year.
This is what access to the tax code actually looks like. Not a loophole. Not aggressive tax avoidance. A legal framework that was simply never advertised to the people who needed it most, because information like this tends to circulate in rooms most people are never invited into.
The Off-Brand Moment and What to Do About It
Growing up, I drank a store-brand soda called Check Cola without knowing it was the generic version of a name-brand product. Same flavor, same function, different label on the bottle. Kids at school would call it off-brand and refuse to drink it.
Most people treat their retirement strategy the same way. The 401(k) is the brand. The Roth IRA is the brand. Not because either is necessarily the most effective vehicle for every person's situation, but because they are what every employer benefit package, every financial services commercial, and every HR orientation presented as the standard.
Standard is not the same as best.
The question worth sitting with is simple: is your financial strategy something you chose after actually evaluating it against the alternatives, or something you inherited because it was presented to you as the only option for your entire adult life?
The strategies King Legacy Group builds for clients are referenced directly by Internal Revenue Service tax code. They are not fringe ideas. They are legal, established, and simply were never on the commercial.
Wealth is not an exclusive number reserved for a select few. If you carry no debt, generate stable income, and are building structured, tax-advantaged growth, that is a wealthy life, regardless of what a single account balance says.
Schedule your strategy review here. Complimentary. No pressure. A clear path to your LivingLEGACY™.
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