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Can You Have Too Much Money in Your Retirement Accounts?

You might be thinking: What do you mean, too much money in my account? How is that possible? You were likely told to save as much money as possible with your IRA and maximize 401(k) contributions, which is very common advice. If you followed that advice, however, you may end up with too much money accumulated in these accounts. 

What’s the Problem?

When you’ve finally achieved retirement, and are ready to begin relaxing and enjoying the fruits of your labor, you’ll rely on the money accrued over the years. Each year, you’ll be required to withdraw a minimum amount, determined by your age, from your account. 

Suppose at that time your retirement plan is worth $1 million dollars. At age 72, the required minimum annual distribution will be $36,496, before taxes. If by that time your plan has reached $2 million, you’ll have to take out $72,992. For many individuals, when you add in Social Security payments and income from non-IRA investments, this is more money than they need. You may not have many tax deductions left by that time. If your investments are doing well (4% or more each year), your tax problem is multiplied because the forced withdrawal percentage gets a little bigger each year.

All this results in two big issues for retirees – being forced to withdraw more money than they need; and then having to pay income tax on those withdrawals. On top of all this, once your income hits the trigger point, you may find yourself “awarded the privilege” of paying the Additional Medicare Tax.

Your Beneficiaries Have it Tough, Too

In December of 2019, the SECURE Act was passed, which radically changed the rules for inherited retirement accounts. This new law forces your children to withdraw their IRA inheritance not over their lifetimes (which they could do previously) but within 10 years. Compared to the lifetime income your child could have received from an inherited IRA prior to the new law, the Secure Act slashes their after-tax IRA inheritance by 40% or more. For a grandchild, the loss is about 80%!  

What Can Be Done?

The good news is that with our help, you can reduce or even avoid these heavy taxes on your retirement savings. Contact us today to get started.

 

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HighPoint Law Offices PC

At HighPoint Law Offices we support individuals, families, and businesses of all backgrounds with estate planning services that address their unique wishes, goals, and challenges.

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