Estimated read time: 5-6 minutes
If you've checked your 401(k) or IRA balance lately, there's a good chance you liked what you saw.
On June 15, Reuters reported the Dow Jones Industrial Average closed at a record high of 51,671 points. It was the latest in a string of records, as the S&P 500 also closed above 7,600 for the first time in its history earlier in the month (Yahoo Finance).
"There's nothing quite like opening your statement and seeing an account balance at all-time highs," says Tyson Thacker. "A lot of our clients are telling us their savings and investments look better than they have in years – but it's not all good news."
Tyson Thacker and his brother Ryan Thacker are the founders of B.O.S.S. Retirement Solutions, a Utah-based financial advisory firm that's helped over 55,000 families plan for a better retirement.
Today they have a warning: there's another side of this market rally that most retirees are ignoring. And it could cost you hundreds of thousands of dollars.
A bigger balance often means you'll owe more taxes
If most of your retirement savings are in a traditional IRA or 401(k), here's something important to remember: none of it has been taxed yet.
IRA and 401(k) accounts are "tax-deferred" accounts, not "tax-free" accounts.
Every withdrawal you make will be taxed as ordinary income, the same way your paychecks were taxed when you were working. And once you turn 73, the government forces you to start withdrawing a certain percentage from these accounts every year. This happens whether you need the money or not.
These are called required minimum distributions, or "RMDs." And the more money you have in an IRA or 401(k), the more money you'll owe in taxes.
When investments grow inside your IRA and 401(k), Uncle Sam is licking his chops. It just means more money for him.
–Tyson Thacker
Everything is connected
Unfortunately, the tax consequences don't stop there.
"Your IRA and 401(k) don't exist in a bubble," says Tyson Thacker. "When those balances grow, it could trigger higher taxes on other pieces of your retirement savings, as well."
Larger withdrawals could push you into a higher tax bracket, but they could also impact your Medicare premiums. Medicare bases this year's premiums on your tax return from two years earlier. That means two years down the road, you could be in for a shock when you see your Medicare premiums double, or possibly even triple.
At the same time, withdrawals from your IRA or 401(k) count toward what the IRS calls your "provisional income." This number is used to decide how much of your Social Security benefit gets taxed – which could be as much as 85%. So the same withdrawal that increased your taxes and doubled your Medicare premiums could also trigger higher taxes on your Social Security benefits.
As a result, Ryan and Tyson say they see many families needing to make additional withdrawals every quarter just to pay for the taxes. And these additional withdrawals create even more taxable income.
"It's a snowball that's hard to stop once it starts rolling," says Ryan. "Most people don't realize how connected it all is until it's too late to do anything about it."
Why a rising market could be the right time to act
The Thackers say the best time to address this is after you stop working, but before you file for Social Security.
This is often called the "golden window of opportunity."
"Right now, while account balances are up, families have a window to consider strategic moves like converting a traditional IRA or 401(k) into a Roth. This could potentially be a windfall of tax savings in retirement," says Tyson.
Free retirement tax-savings analysis for Utah families
That's why B.O.S.S. Retirement Solutions is offering a free, personalized Retirement Tax-Savings Analysis for Utah families.
This is not some generic, off-the-shelf report. It's a customized analysis specifically for you. It's a side-by-side comparison of what you're projected to pay in taxes in retirement on the path you're on now, versus how much you could save by implementing some simple tax planning strategies.
Some advisors and tax experts charge thousands of dollars for an analysis like this. But B.O.S.S. is offering this analysis at no cost, even if you're not a client.
The strategies used are best suited for families who have saved at least $300,000 for retirement. To schedule your free Retirement Tax-Savings Analysis, call (801) 990-5055 or click HERE.
"Right now, a lot of families have a retirement portfolio that's larger than they expected," says Tyson. "Our job is to help them keep more of it!"
About the Authors: Tyson Thacker and Ryan Thacker are the CEO and President of B.O.S.S. Retirement Solutions. They are published authors of the Amazon best-selling book, "The B.O.S.S. Retirement Blueprint, Your Guide to a Secure and Independent Retirement." Their award-winning firm has seven offices located throughout the Wasatch Front, and a new office in St. George.
Advisory services offered through B.O.S.S. Retirement Advisors, LLC, an SEC-Registered Investment Advisor. Insurance products and services offered through B.O.S.S. Retirement Solutions. Information contained in this material is for informational purposes only. Actual results may vary. No statement contained herein shall constitute tax, legal, or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of any individual. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the Social Security Administration, U.S. government, or any governmental agency.
