As retirement nears, many savers face an overlooked risk: how and when to tap accounts without triggering a bigger tax bill down the road. Phil Huff, a partner with Golden Reserve, LLC, a Detroit-area retirement planning firm, stopped by Live in the D to discuss how the timing of withdrawals can make or break a nest egg.
“Typically, the longer you wait, the more you could potentially pay,” Huff said. “Right now, we’re at some really low tax rates. So, we want to pay the tax today so that we can have more of our retirement with tax-free money.”
Much of the confusion centers on required minimum distributions, or RMDs, the government-mandated withdrawals from traditional IRAs and 401(k)s that begin in a saver’s mid-70s. While some retirees simply follow the RMD schedule, Huff cautions that doing only what’s required can swell account balances — and tax liabilities — over time.
“Oftentimes we don’t want to just follow Uncle Sam’s plan,” he said. “You can take money out before that RMD. Oftentimes it makes sense for people to do so.”
Huff recommends prioritizing withdrawals from traditional, tax-deferred accounts while preserving Roth balances when possible. “When tax rates are low like they are today, we want to use those taxable 401(k)s and leave that tax-free Roth to continue to grow as long as we can,” he said.
One common mistake he sees: waiting and reacting instead of mapping out a multi-year tax strategy. “The big one is that they’re just being reactive,” Huff said. “If we’re doing that, we’re going to pay more taxes in the future at higher rates. … The big thing is that idea of just being reactive versus having our own proactive tax plan.”
Huff touts Roth conversions — moving money from a traditional IRA or 401(k) into a Roth IRA and paying taxes at today’s rates — as a tool that can deliver “tax-free growth for the rest of your life,” when used thoughtfully.
Golden Reserve’s “Roadmap for Retirement” leans heavily on tax planning, Huff said, noting that the firm integrates certified public accountants into its client process. “Most financial advisors don’t talk taxes at all,” he said. “Where we’re a little different is we have our own CPA firm. … In fact, we have a meeting every year dedicated strictly to taxes.”
The goal, he added, is a clear, year-by-year plan that answers when to take from IRAs, how much to convert to Roth, and how each decision affects lifetime taxes and income. “It’s all about having the right team to help you with this plan,” Huff said.
To watch the segment, click the video above. For more information, you can call 313-888-8884 or visit getyourroadmap.com.