Do You Have a Tax Plan for Your Retirement Accounts?

Video Transcript

Growing up as a kid, I always wanted to grow up quickly. I always wanted to be an adult: sit at the adult table and do all the adult things. And one of those things was I wanted to shave like my father. I always wanted to put that shaving cream on my face and shave it off. And I remember my father always saying, “You don’t want to, don’t rush this. You’ll get there when the time is right.”

And now as an adult, I really hate shaving. I wish I didn’t have to put the shaving cream on my face and shave it every day, but it’s just one of those things that you’re going to get to. Now, IRAs for retirees is kind of one of those things. It’s very rare to find a retiree that doesn’t have to deal with IRAs in some way in their life.

And there is a lot of confusion that goes into what an IRA is and what it means for your retirement. Now, first and foremost, an IRA stands for Individual Retirement Account. One of the number one questions we get all the time is “Can I own this jointly with my spouse?” And I had a teacher once tell me back in college: “What’s the first word in IRA stand for?”

Individual. No, everybody has to have their own is only one person per IRA account. But an IRA account is nothing more than one of the many places that you can have your money sit. Your money has to sit somewhere and IRA just happens to be one of those many places you can have your money sit.

What’s the big difference in a 401k, an IRA, and a 403b?

These are all what we affectionately refer to as qualified retirement accounts. “Qualified” in my world means that the IRS or the United States government has bestowed some special blessings upon these accounts.

And the two big blessings, and they’re pretty much the same between IRAs and 401ks and 403bs, there’s just some rule nuances. But when you put money in here, you’re going to get a tax deduction. What does that mean? That means that if my income is a hundred thousand dollars and we put $10,000 into our 401ks and IRAs, my wife and I will only pay taxes on $90,000. That’s a tax deduction.

But when I go to take money out of this, the second rule is it is going to be taxed. IRAs in our world is nothing more than some sort of tax status. You’ve heard the difference between IRA and Roth IRA. Well, the big difference is taxes. Everything else is identical pretty much between those two. But let’s jump back to the IRA and 401k rollover.

401ks and 403bs are for work. IRAs are personal.

IRAs have nothing to do with your work. So one of the things that people do is when they leave their job, they take their money out of their 401k and they move it to their IRA. That is a tax-free transfer.

Because you still haven’t paid taxes on that money yet. Why do people do that? Control. An IRA gives you a lot more control over those assets than say a 401k would. There’s reasons not to as well, we’re not going to get into that here in this video, but there’s reasons not to move it as well. But, control is the big reason to move it too.

Now, the one thing you have to understand is whenever you take money out of an IRA, you’re going to pay taxes on that money. I can’t emphasize that enough. And having a plan for how you’re going to minimize those taxes over your lifetime is one of the single most important things that you can possibly do for retirement planning.

Because if you take out $300,000 all at once or a giant lump sum all at once, that is very different than taking out $50,000 a year or whatever your plan is along the way. So you have to have a plan for how you’re going to get the money out.

Then I have people tell me I’m never going to take that money out. I don’t need this money. It’s a great position to be in if you’re in that position. But the government’s already thought about that. They have what they call required minimum distributions, and they’re going to force you to start taking some money out of your IRAs. And we have to be careful. We have to have a tax plan for that as well.

A lot of people, a lot of retirees, sit very comfortably in their 60s tax wise until those required minimum distributions kick in. And then all of a sudden, boop. They are forced into a higher tax bracket. Their social security becomes more taxable. All of these things pile on there that you have to be very cognizant of.

So IRAs, they can be a very good thing for you, if you have a plan for how you’re going to utilize them. So with that, I hope I’ve answered some of your questions. If I can ever be of assistance, please let us know. Thank you.

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