Risks of Forced Distributions


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For most people in retirement. Their number one challenge is how to manage taxation on their retirement accounts. And retirement accounts have something that nothing else has. And those are, of course, force distributions, meaning you’ve got to pull money out at some point in time, even if you don’t want to. You have this thing called required minimum distributions. Now, I’m sure you’ve heard of the phrase, but how do they work?

00:00:29:06 – 00:00:53:14


It’s a common question. I get. First, they’re going to start in the year in which you turn 72. Now, as I’m recording this in Congress, they’re talking about, you know, bumping that to maybe 73 or four or five or some later date. But regardless, there’s some age. When you hit a certain age, you must start taking money out whether you want to or not.

00:00:53:14 – 00:01:19:29


It’s not an option. And every year that you have money in your retirement accounts, from that point on, that percentage is going to increase. I’m going to show you an example of that. And of course, if you retire and you have a four or one K over here and A four or three B over there, and then an IRA, you know, over in that corner, OK, you’re just asking for complications.

00:01:19:29 – 00:01:42:18


You just asking to mess it all up. If you get nothing else out of tonight’s video, it’s this. Once you retire just keep everything in the IRAs, because that’s what it’s that’s what the system’s really designed for. If everything’s in IRAs, you can add them all up. You know, get your you calculate your required distribution, and then you can pick and choose where you pull it from.

00:01:42:23 – 00:02:09:12


And it’s super easy. But if you’ve got a for one can’t afford three, be in a 457 in an IRA and all these different the simple IRA, you get all these different accounts. Then you got to take distributions from each one. It’s a royal pain in the keister like you know where right here We have to understand, though, that when you take money out of your retirement account, whether it is because of a required distribution or maybe you’re just taking money out to supplement your income.

00:02:10:01 – 00:02:34:12


Any time you take money out of these retirement accounts, they often affect a lot of other things in your tax returns. So let’s kind of go over this. So first of all, whenever you pull money out of your account, out of an IRA or a four or one or anything like that, ever distributions going to be taxable, whatever your highest tax rate is, if you’re in the 22% bracket, you pay 22% tax.

00:02:34:17 – 00:03:01:26


It’s that simple. But it’s not that simple because here’s what happens. Sometimes it might put you in the higher tax brackets like, Oh no, I took money out. Now it put me in a higher tax bracket. We’re just getting started. Because here’s the thing when you take money out of a retirement account, many times it forces you to pay more tax on your Social Security than you were paying before.

00:03:02:16 – 00:03:26:06


You’re going to see an example of that in a little bit next It may force you to pay more tax on capital gains, more tax on your dividend income, and more tax on investment income. So like all those 1099 you get from your investment account, suddenly you’re paying more tax on that stuff. Why? All because of a distribution from your retirement plan.

00:03:26:07 – 00:04:00:00


Now, notice that said May, it really depends on your situation. Everybody’s different. It could reduce. I’ve seen this happen where required distributions or just distributions from retirement accounts have led to reduced deductions on rental income or business income. Which leads to what more tax it may lead to increased premiums on your Medicare Part B and of course, Part D they don’t call that a tax, but let’s be honest, it’s more tax.

00:04:00:12 – 00:04:18:10


And of course, in a lot of other areas you’d think that, oh, it’s really simple. I take the money out, I got to pay tax on what I pull out and I’m done. No, it actually leads to taxes in a lot of other areas, and that’s what really starts to cause some problems And by the way, I’m going to give you an example of this in a couple of minutes.

00:04:18:13 – 00:04:42:00


We actually have a 40 minute webinar that we do every week specific to tax planning. And if you click the link below, you can sign up and watch it live with me. Also, they give you an option to watch a recording of last week’s, but in any event, great webinar, great information. You don’t want to miss out. So just click the link and I’ll see you on the webinar.

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