Most people in their pre-retirement and retirement years own some type of pre-taxed traditional retirement plan, like an IRA, 401(k), 403(b), etc. And while it is very smart to save for retirement, many people don’t realize that they are essentially building a ticking tax bomb in some types of plans. These tax bombs are eventually going to explode and cause some major financial damage to retirees nationwide. Do you own a tax bomb?
Unfortunately, many people don’t realize or simply forget that they do not own all of the money in their pre-taxed retirement plan. There is a co-owner of those plans, and his name is Uncle Sam. Uncle Sam was basically giving you a loan upon contribution, and he gets paid back on the loan amount PLUS all the interest that it has made. Payback time is when you start withdrawing your funds, and Uncle Sam forces you to start withdrawing at age 70½. And, if you should happen to pass away with money left in your retirement plan, then your heirs have to pay the tax.
The bad news is there is no way around this problem, unless you give it to charity. The tax has to be paid by you, or your heirs. Absent a well designed escape plan, you could lose the majority of your retirement plan to taxes (federal, state, inheritance and estate taxes). Unfortunately, most people don’t understand or simply ignore the problem and let their retirement tax bomb plans continue to grow and become more potent.
The good news is there are legal ways to minimize this tax. In order to do this, you need a properly designed tax management plan in place. This customized plan will help you to defuse your retirement plan tax bombs by lowering your tax liability and minimizing the tax that you have to pay.
This tax issue and potential solutions will be addressed in great detail in our upcoming classes. Click here to find the one nearest you.