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7 Tax Traps Hidden in your IRA or 401k Accounts


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There are many potential problems lurking in the future for all Americans. Whether you’re 35 or 65 years old, we believe that one of your largest risks is the risk of rising income tax rates. No one wants to pass on a large tax bill to their heirs or pay more in taxes than their fair share. But the hidden taxes that are in most people’s IRA’s create a set of unusual challenges and corresponding opportunities that can prove stressful.

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7 Tax Traps Hidden in your IRA or 401k Accounts

  1. 1. 7 Tax Traps Hidden in your IRA and 401k. (and how to avoid them)
  2. 2. Little or NO control of timing of taxation 1
  3. 3. We like to be in control of our own lives and assets but when you reach age 70 1/2 your options disappear. You must take taxable income whether you need it at the time or not.
  4. 4. Forced Taxationthroughrequired minimum distribution 2
  5. 5. These forced taxable events are called "Required Minimum Distribution". The IRS provides standard tables that dictate how much of your prior year ending balance must be taken out in the current year. The determining factor from the table increases your distribution each year.
  6. 6. Risk of Rising Income Tax Rates 3
  7. 7. In 1954 the highest tax rates were 90%. The 1970’s saw the top rate at 70%, Click here to see how rising income tax rates will effect your future. and since about 1990 the top income tax rates have been between 30 and 40%. 70 Year Lows in the Tax Rates We're Paying 70-90% 30-40%
  8. 8. Risk of large tax bill passed to your heirs 4
  9. 9. When it’s time for your heirs to receive the balance of your IRA’s they must begin paying taxes. Depending on the number of heirs, it’s actually possible that taxes will be greater than the amount left for any one of the individual beneficiaries. Click the image to the right to calculate how much your beneficiaries will really receive.
  10. 10. Hidden Tax on Medical Expenses 5
  11. 11. When you need money for medical expenses, where will it come from? Most often it hasto some from your IRA’swhich isadditional taxable income for that year
  12. 12. Higher Tax on Social Security and Medicare Plan B 6
  13. 13. Social Security benefits become taxable based on how much other taxable income you receive. This includes income from distributions from your IRA’s too. In addition, your Medicare Plan B premiums increase dramatically based on your taxable income.
  14. 14. Hidden Taxes on Large Purchases or Expenses 7
  15. 15. When all of your savings is in your IRA or 401k, every financial decision carries a tax decision with it. This fact makes everything more expensive for the rest of your retirement
  16. 16. Visit us at Looking for solutions? Click Here