Tax-Aware Planning, Comprehensive Financial Planning Serving Families and B save taxes

401(k) and IRAs are "tax infested."

Qualified Retirement Plans are "infested" with deferred taxes; all that money, that you did not pay in income taxes while working/saving over all those years,  PLUS the growth on that money, has a tax-bill due.  

When you take income from your 401(k) or IRA, it is taxed at the highest income tax rates (ordinary income rates).  The lower tax rates on investment accounts such as Long-Term Capital Gains do not apply to 401(k) and IRA plans. 

Beginning at age 70 1/2, the IRS forces you to take at least a minimum amount from your 401(k) and IRA  whether you need the money or not; these are called Required Minimum Distributions, and they increase with each year as you age.  Those with large 401(k) and IRA accounts often find themselves having to withdraw much more from their plans than they anticipated, creating a very large annual tax bill.  Similarly, when your children inherit your 401(k) or IRA, they have to pay taxes on the inheritance as well, often vaulting them into a higher tax bracket.

 In retirement you could face a pretty high tax bill.  Most retirees, especially those who have accumulated significant assets, typically have fewer tax deductions.  Their home is mortgage-free, their children are grown and educated, and they are no longer getting the benefit of deferring some of their income in qualified retirement plans.  In many cases, those with significant taxable income pay more for Medicare and also pay the maximum tax on social security benefits.    


We can show you solutions and alternatives to "tax infested" accounts.

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