Nobody likes to talk about income taxes, especially as they approach retirement. Most people understand that as their income declines in retirement, their tax burden should decrease significantly.
And yet, lurking behind the Form 1040, is the Internal Revenue Service, waiting until that day when every taxpayer hits the age for Required Minimum Distributions from their IRA. And when the taxpayer receives their Form 5498 early in that year, you may realize that the IRS has welcomed you back into their good graces; they’ve become your new best friend all over again!
As our clients approach retirement, and even for many years before that, Respective Wealth advisors are helping address the inevitable tax monster waiting for all of us. Current tax law requires minimum IRA distributions to start at age 73 for those born in 1959 or earlier, and age 75 for those born in 1960 or later. For those who have excelled at retirement savings during their working years, this monster can be quite large and intimidating.
Fortunately, with the proper planning and advice, we help our clients implement strategies that can help reduce the scariness and anger of the monster, not only for our clients, but also for the heirs who stand to inherit these large IRAs. Current tax law requires inherited IRAs to be liquidated within 10 years of the inheritance, and frequently these heirs are in their highest-earning years at this time.
Respective Wealth advisors know how to help you navigate through these strategies, and since we know your goals and priorities for your money, we recommend an approach to help reduce your renewed “friendship” with the tax monster.
I’ve heard it said that paying taxes is a nice problem to have; in my mind, that doesn’t make it any less of a problem. Trust me when I say having tax conversations in almost all my client meetings isn’t at the top of my fun list, but it’s at the top of the meeting agenda, and it needs to be. Is your advisor speaking with you about taxes?
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