Are you worried about the looming threat of a retirement tax bomb? In this short video, we'll explore what the main problem is and how it relates to paying too much in taxes during retiremen.
The problem that we see most of the time with retirees as it relates to them climbing or ascending the proverbial retirement mountain is that they have a large chunk of their nest egg in a pre-tax account.
And why wouldn't you? You've been told to do that for the last few decades, right? Put that money in a 401(k), just keep putting it away, we're going to match it, yada yada.
So, everybody's been putting money away, and then they get to retirement and they don't realize that they've got a silent partner. You've got a silent partner in Uncle Sam in that retirement account.
A lot of times, if you're not looking ahead, if you're just doing it yourself or you've been with an investment manager that only looks at investment risk, you're not thinking, hey, how do I lay the tax code on top of my retirement income situation and make sure I'm paying as low a tax rate as possible.
Because often people don't realize all along the way they've been making a tax choice, right?
And often people approach retirement and they’re thinking, you know, we should be slightly less aggressive with our investments because we need this to start living on, but rarely do people think, I need to also look at my risk perspective from a tax code perspective.
Another thing that people often don't realize is that your tax rate in retirement is often determined more by where your income comes from, rather than your income itself.
That's because when you're in the accumulation phase, you're just putting money away, you're putting money into a 401(k) or an IRA or whatever it might be. You're just working, earning a paycheck, and putting money away.
But now that you've gotten to the summit, to the proverbial peak of the mountain, you’ve got to start coming back down. It's totally different because there are so many different confusing things that can happen in retirement that are going to cause your tax rate to be different.
Often it can be a very confusing and complex situation, and that's what we're here for, to make sure that you are at least aware of what is going on and what to look out for, certainly in the gap years.
The gap years are the years between retirement and required minimum distribution (RMD) age, there's a ton of tax planning you can do in those tax years. Everybody's situation is a little bit different. But that's what we're looking at.
To reiterate, the biggest problem is that most people don’t realize they’ve got that silent partner, Uncle Sam. Not only do you need to get Uncle Sam out of that partnership, you also need to think about how you are going to do that in the most tax-efficient way possible and limit your lifetime tax liability. And that's a big thing that we do at my firm.
Other videos in this series:
- The Problem: Many Americans Are Sitting on a Retirement Tax Bomb (This video)
- The History of the Tax Code in The United States
- Taxes in Retirement 101 - How Taxes Relate to You in Retirement
- Taxes in Retirement 201 (Part 1) - RMDs & Capital Gains
- Taxes in Retirement 201 (Part 2) -Social Security & Medicare
A CERTIFIED financial planner™ professional can help you plan for your retirement. Schedule a call today so we can talk about your retirement situation.
Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for educational and informational purposes only, and you should seek professional help for your specific situation. Eagle Ridge Wealth Advisors or its members cannot be held liable for any use or misuse of this content.