Concerns Over Retirement Savings
Do you have at least $200,000 saved through your IRA and 401(k)? If so, do you count on that for your retirement expenses? If you ever worry it might not be enough, you’re definitely not alone.
A recent study from Allianz Life found that 64% of Americans fear running out of money more than they fear death. That’s essentially two-thirds of people you know—it resonates for good reason. Nobody wants to find themselves at 85, full of life, but with a depleted bank account.
Here’s the downside: if you make specific errors with your IRA or 401(k), those worries could become a reality, jeopardizing your savings.
On the flip side, a report titled “3 IRA and 401(k) Mistakes That Can Cost You” could help you steer clear of critical missteps. You can get this report free from Utah Boss Retirement Solutions.
To delve deeper into how you can protect your retirement savings, we reached out to Ryan and Tyson Thacker from Boss Retirement Solutions.
“Saving with an IRA or 401(k) is simple. Withdrawals in retirement, though? That can get tricky.”
– Ryan Tucker, Boss Retirement Solutions
Traditional IRAs and 401(k)s come with tax-deferred benefits. By contributing a portion of your salary to these accounts, you postpone paying taxes on that money and any investment growth.
However, many people don’t realize they might be running in circles. The government eventually wants its cut, and you’ll need to pay taxes on all money withdrawn in retirement, including the growth over time. If you’re not vigilant, these taxes could be steeper than anticipated.
But here’s the silver lining: you can control a significant portion of the taxes you pay during retirement. For some diligent savers, making savvy decisions can mean saving tens of thousands—or even hundreds of thousands—in unnecessary taxes.
“You might be sitting on a retirement tax time bomb, and you might not even know it.”
– Tyson Thacker, Boss Retirement Solutions
Many retirees face this so-called tax bomb as a fallout from adhering to the “best practices” promoted by the tax preparation industry.
Tax filers generally aim to minimize their current taxes, often pushing for maximum contributions to tax-deferred IRAs and 401(k) plans. Yet, tax deferral doesn’t mean no taxes; it just means taxes are postponed. You’ll still owe taxes on the contributions and all the growth from day one.
When you retire and start pulling from these funds, the IRS views this money as regular income. For some savers, this can bump them into higher tax brackets, leading to hefty tax bills—especially when required minimum distributions (RMDs) kick in at age 73.
Additionally, this tax burden may impact up to 85% of Social Security benefits and can even increase your Medicare premiums.
This situation arises because we often follow the mainstream tax guidelines, but there are ways to manage it better.
“Implementing a retirement tax planning strategy may present a huge opportunity to boost your retirement savings today.”
– Ryan Tucker, Boss Retirement Solutions
When a consultant at Boss Retirement Solutions meets with clients, they frequently uncover three common mistakes related to IRAs and 401(k)s that lead to excessive tax payments.
If you’re aware of these blunders ahead of withdrawing your first dollar, you might save some tax dollars down the road.
In some scenarios, you might consider transferring funds entirely out of your tax-deferred IRA or 401(k).
This can involve converting some or all of your savings into a tax-free Roth account. Yes, you will owe taxes on the amount you convert initially, but a competent tax planner can help mitigate those costs. Once converted, no further taxes apply to those funds.
“For many, converting a traditional IRA or 401(k) to a Roth could lead to a significant tax savings in retirement.”
– Tyson Thacker, Boss Retirement Solutions
No one wants to face high tax bills during retirement. Unfortunately, missteps with an IRA or 401(k) could easily accumulate to six figures in needless taxes over 20 or 30 years. The first step to avoiding these pitfalls is understanding what they are, along with implementing a retirement tax planning strategy that could save you substantial amounts.
To comprehensively grasp these mistakes and the strategies available, Boss Retirement Solutions offers a free report to Utah residents titled “3 IRA and 401(k) Mistakes.” This document highlights common and costly errors while suggesting ways to sidestep them, ensuring your hard-earned savings stretch much further once you retire.
