Like most Americans you, probably have a retirement account such as a 401k, 403b, 457 or IRA, which means you are taking advantage of tax deferral.
This means you can take money that you have earned before taxes and add it to one of these accounts.
This allows you to keep all of the money in your account that you would have otherwise had to pay to Uncle Sam in Taxes, which lets you earn interest on your money and collect interest on interest year after year.
Sounds like a pretty good deal right?
There are concerns with these types of plans though, one of which being a ticking tax time bomb.
Imagine after 20 years, you have accumulated $1,000,000 in your IRA. That’s great now you have $1,000,000 that you can use in retirement.
Well, that’s not entirely true. When you pull your money out of AN IRA or other plans you will get hit with that income tax.
If taken out as a lump sum, assuming your income tax rate is 30%, you could lose $300,000 from your IRA when it comes time to retire.
This is the IRA tax ticking time bomb.
The good news is that there are safe-guards you can put in place to avoid or mitigate this tax.
One option is taking advantage of the new rules the IRS put in place, commonly known as the “stretch-out” or “multigenerational” IRA or retirement account.
Which lets your heir take money out and break the tax payment up over approximately 35 years; meaning, your account will not take a huge hit all at once. So you will not lose out on the growth of that money over time.
There are a number of other strategies you can implement to mitigate or avoid this tax bomb.
You need a plan that takes all of this into consideration and sets you up so that you have the best chance of success.
If you are interested in learning how to set yourself up for retirement and plan for your financial future, you can attend one of our FREE private briefings.