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Taxes and Retirement

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Monday, September 3, 2018

If you’ve spent years planning carefully for your retirement, it may come as a shock that some people don’t plan for it at all..A government analysis recently found that average Americans between the ages of 55 and 64 have saved only about $100,000 for retirement, which is a small amount, considering that would translate into about a $300 monthly payment if your money were invested in a lifetime annuity. 

But that number doesn't tell the whole story, since so many families have zero savings whatsoever, and those who have saved a large amount can pull up the average. The average overall savings may be a better indication. The median for all working-age families in the U.S. is just $5,000. 

However, there seems to be a generational gap. Millennials on the other hand, appear to be ahead of the curve. Nearly one in five Millennials saves 15% or more of every paycheck in a 401(k) plan, new research shows, which puts them on track to building $1 million retirement portfolios. 

Given all this information, there is one more thing to consider which may throw the proverbial wrench in your retirement plans — taxes.

Most withdrawals from retirement accounts are taxed in retirement. This means IRA withdrawals as well as withdrawals from 401(k) plans, 403(b) plans, 457 plans, etc., are reported on your tax return as taxable income. If done correctly, you will pay no retirement taxes on Roth IRA withdrawals. 

Many Americans, when they reach their 70s, have spent nearly their entire lives accumulating money in savings and putting it in their 401(k)s and IRAs. But when they reach their 70s, retirees face the dilemma of having to take required minimum distributions (RMDs) or else face a significant tax penalty.

Tax deferral is often good advice, but too much could come back and bite you in the long run.

Here’s the problem. The combination of pension income, Social Security, and forced distributions from 401(k)s and IRAs can potentially put a person back in the same tax bracket they were in when they were working and even in some cases, a higher one. Every year, as a person moves through their 70s and 80s, the required minimum you are forced to take grows, and that can impact your taxes.

Fortunately, there are some possible strategies to avoid these challenges, so you don’t sink your retirement plans. Insurance products with low-interest rates, Roth conversions, and careful investing are just some avenues to explore with your financial and tax advisors.

Remember that your retirement is not just about investment planning and having the right asset allocation mix alone — it’s also about tax planning.



Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC

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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Lawrenceville, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 800-367-3000 Visit our website: www.davidlerner.com

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