Your Income Tax Rate May Increase in RetirementIf you maximize your traditional IRAs and/or employer-sponsoredretirement plans (401(k), 403(b), 457(b), SEPs, SIMPLE IRAs,etc.) you will likely retire with a large nest egg.Unfortunately, in most circumstances you must withdrawal at leasta minimum amount annually after your turn 70 ½.The amount you must withdrawal is called the Required MinimumDistribution (RMD) and is based on Life Expectancy tablespublished by the IRS. RMDs from pre-tax employer plans andtraditional IRAs are generally subject to income tax. www.skloff.com
Your Income Tax Rate May Increase in RetirementIf you retire with a $2.5 million 401(k), your RMD may equal 5%or $125,000. That extra $125,000 of income could force you into ahigher tax bracket. Of course, this assumes you keep all of your taxdeductions and exemptions upon retirement; otherwise youreffective federal income rate could increase even further.If the government raised the TFMITR upon your retirement (seeslide two for historical rates), you would actually realize an evenhigher effective federal income tax rate. Add additional sources ofincome, such as social security or pensions and you could be‘working for the government’ instead of enjoying your retirement. www.skloff.com
Your Income Tax Rate May Increase in RetirementFortunately, many employer plans provide forafter-tax contributions and growth in the formof Roth contributions. Roth contributions andthe growth on those contributions combinedwith Roth IRAs can provide a tax free sourceof retirement assets, as Roth withdrawals are income tax free.The lack of income can reduce or eliminate income taxes on yourSocial Security benefits and enhance your ability to shelterresources away from Medicaid (with or without a Long Term CareInsurance Partnership Program certified insurance policy). www.skloff.com
Avoiding RMDs Avoids Income TaxesAvoiding RMDs can save $875,000 of taxeson a $2.5 million pre-tax 401(k) account,based on the current 35% top federal marginalincome tax rate. The tax savings would besignificantly greater if the assets experiencedany appreciation, income or dividends.The tax savings would be even greater if the TFMITR increasedslightly. They tax savings would double if the 35% top federalmarginal income tax rate reverted to the 70% rate of 1980. www.skloff.com
Avoiding Required Minimum Distributions (RMDs)While the Roth solution haspowerful benefits, it forces thepayment of taxes before assetsenter the Roth.There is another powerfulestate and financial planningsolution (not the Roth) thatavoids RMDs and avoidspayment of income taxes. www.skloff.com
Avoiding Required Minimum Distributions (RMDs)Implementing an estate andfinancial planning strategy thatallows you to avoid RMDs canmean the difference between‘working for the government’and enjoying your retirement. www.skloff.com
Aaron Skloff, AIF, CFA, MBA Chief Executive Officer Skloff Financial Group 908.464.3060 www.skloff.com
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