For millions of retirees, there’s one financial partner with an unbreakable grip on their savings: the IRS. And according to Matt Schaefer, a partner with Golden Reserve, LLC, a Detroit-area retirement planning firm, too many people wait until the government forces their hand.
Schaefer says the culprit is the required minimum distribution, or RMD - the age, either 73 or 75 depending on birth year, when the government requires retirees to start withdrawing from tax-deferred retirement accounts and paying tax on that money.
“By the time you get to RMD age, you’re going to have a whole heck of a lot more than $1 million,” Schaefer said, describing what can happen to an account that started retirement at $1 million with no distribution strategy in place.
That growth isn’t necessarily good news, he said. Larger balances can push retirees into higher tax brackets, raise Medicare premiums and make more of their Social Security benefits taxable.
The retirement “gap years” matter most
Schaefer said the period between retirement and RMD age is often overlooked, even though it may be the best window retirees have to reduce their future tax burden.
“You have 8 whole years to go ahead and execute on an IRA tax plan to get ahead of those RMDs,” he said, describing a hypothetical retiree who leaves work at 65 with an RMD deadline at 73.
The cost of waiting falls on the whole family
Delaying that planning doesn’t just affect the retiree, Schaefer said - it can pass tax consequences on to a surviving spouse and even to children.
“Your surviving spouse, well, they can end up having to pay tax on those dollars. And when they’re paying tax as a single filer, they’re going to get taxed much higher,” Schaefer said. He added that heirs who inherit retirement accounts often face the bill at their own working tax rates, which tend to be higher than their parents’ rates were.
A plan built around control, not chance
Golden Reserve’s approach centers on managing that tax exposure proactively rather than reactively, Schaefer said during an appearance on Live in the D.
“Our planning really is built around identifying a plan over the course of your retirement where we’re taking money out of those retirement accounts, paying the tax on it, and getting it growing again somewhere else after tax,” he said.
The ultimate aim, he said, is protecting the next generation from an unexpected bill.
“Making sure that your surviving spouse and your children aren’t potentially stuck with a huge tax bill that Uncle Sam’s controlling,” Schaefer said.
To watch the segment, click on the video above. For more information you can call 313-888-8884 or visit goldenreserve.com.
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