Some of you out there might have a valuable tool in your retirement arsenal, but if there are tax consequences involved, you may not know what to do with it. Several weeks ago, I talked to a couple who had inherited a piece of land worth around $5 million, and they had no desire to keep the land. Sometimes when you receive an inheritance like that, you can sell it with no capital gains tax, but there was an issue with the structure of their trust so that a cost basis was attached to the inheritance. This couple may have had a significant tax liability if they sold the property.
They told me, “If we could sell it and not pay a boatload of tax, we could retire now. It’s a golden ticket.” Using one of our tax strategies, we were able to help them sell that property and save money in taxes. If you’re in a position where you have a bunch of real estate, whether it’s an inheritance or a rental house, you should to call us before you sell, so we can seek to reduce your taxes.
Maybe you have a business you want to sell, but the taxes on that sale could be dramatic. IAgain, if you’re in that position, call us. We’re here to help you. Our number is 512-886-5850.
I want to talk now about a type of retirement account used by millions of Americans. A couple of different versions of this account exist, and I’m going to give you a list of some of their features. Think about whether they would be good for your retirement.
Number one, you pay tax at your highest tax bracket every time you pull money out of these accounts after you retire. I just described almost every return, so that’s not the biggest deal.
Number two, every time you pull money out, you pay tax on the amount you withdraw, but frequently, you pay more tax on your Social Security income. You get double-taxed. How does that sound to you? Are you already not liking it? We have a bit more.
Number three, every time you pull money out, your investment income, dividends, and capital gains, become more taxable. At this point, we’re at a triple tax, but there’s still more.
Maybe you don’t like any of those features, so you decide not to pull any money out. You leave it until you need it. With these types of accounts, the IRS forces you to withdraw money every single year at a certain age, whether you want to or not. You will be taxed for every distribution at your highest rate, your Social Security becomes more taxable, taxes increase for your dividends and capital gains, and lastly, you’re forced to pull money out even if you don’t want to. I thought America was supposed to be free.
As you age, these distributions get larger, and often when you’re forced to pull money out, not only do you pay all these taxes, but it also increases the premiums you pay on Medicare and your drug prescription plan. It’s a stealth tax. We’re now up to quadruple tax, but there’s still one more thing.
Maybe you want to leave tax-free assets to your spouse when you die. You don’t want the IRS to get a chunk. When one spouse dies, the surviving spouse is a single taxpayer, and their tax rates go up. If you leave these assets to your spouse, who’s now a single taxpayer, they will pay a boatload of tax. That’s probably the opposite outcome of what you intended. Similarly, if you were to leave your assets to your children, or grandchildren, the IRS is also a beneficiary of your hard-earned savings.
Can you guess what kinds of accounts match what I just described? I’m referring to accounts like 401Ks, 403Bs, 457s, IRAs, or SEP-IRAs. While you’re working, these accounts are excellent tools to save tax, but for many, the instant you retire, these accounts go from a tax shelter to one of the worst kinds you can own.
If you have a financial advisor, have they reached out to you with tax-planning strategies? Are they working to get you on a path that will bring you as close as possible to a zero-tax bracket in retirement? Even if you have an accountant, your financial advisor should be helping you with this. Are they giving you strategies to kick the ugly IRS tax monster out of your life? If they’re not giving you those tax strategies, I believe you don’t have an advisor good enough to manage your money during your retirement.
What you need is not an investment advisor. You need a financial planner who focuses on retirement planning. If you don’t have that, we can try to help you find out what that’s like by calling us. We’ll get a Retire Right Report in your hands and help you see what financial planning is about.
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