How do Retirement Plan Accounts Fare During Retirement?

You all have them, and while you are working, you all love them.   I am, of course, talking about your retirement plan.  Specifically, this may be your 401k, 403b, 457, IRA or other related type of plan.

You love how you get a tax deduction when you put the money in, you love how you pay no tax each year as your account grows (hopefully grows!).  And when will you pay those nasty taxes?  Well, when you retire into a lower tax bracket!  How wonderful is that?

Not so fast.

Here are three reasons that your retirement plan is a LOSER for you after you retire.

1.  Your tax rate in retirement is often higher than you expect AND going up.

When you retire, odds are good that you will want to maintain the same standard of living that you had before retirement.  That means you need about the same income, which puts you in about the same tax bracket.

But it gets worse.

Where do you think tax rates are going in the future?  One look at will tell you that they are definitely going up.  And your retirement plan is 100% exposed to both current and future tax rates.

2.  Your retirement plan is the ONLY account you own that FORCES distributions

We just discussed how your taxes are likely to be higher during your retirement than you expected, now we learn that once you hit age 70 ½, you MUST begin taking money out of your retirement accounts, and pay tax, whether you want to or not!  Retirement accounts are the only accounts out there that force distributions.

3. It’s the WORST account you can leave your surviving spouse

Do you know what happens to your surviving spouse from a tax perspective?  They become a single taxpayer again.  Have you looked at what that means on a tax return lately?  It’s devastating!

We’ve seen many cases where a surviving spouse sees his or her tax liability increase substantially… and retirement plans just make it worse!

You don’t want to leave your spouse remembering you as the person who left them a huge tax bill.  Your retirement plan has a big target painted on it from the IRS; and surviving spouses are often the ones who pay the biggest penalties.


When all is said and done, retirement plans are great tools to use while you are working.  But…the day you retire, they become the worst account you can own from a tax perspective.  Do yourself a favor and talk to a Retirement and Income Planning Specialist on what the best way is for you to manage this tax bomb.

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