The House of Representatives just passed the SECURE Act. There are several elements of the Act, but one that is getting a lot of visibility is that it ‘helps retirees secure retirement’ by delaying the age at which they must begin required minimum distributions. From all accounts, it looks like the Senate will be in agreement and we’ll get final legislation soon. Finally, something Congress can agree on this year!
What they’re agreeing on will either result in more taxes for you – or less taxes for the rest of your life! Your outcome depends on how you respond to the legislation.
The stated purpose of this one provision is to allow the age 70-plus crowd to delay paying taxes. I suppose the thought is that if you want to work past age seventy, you won’t have to take the distributions for a little longer. Or if you don’t need the money from your retirement account at age 70 1/2, you can leave it in there a little longer. Most of the people I’ve worked with into retirement need very little of the required amount that has to be distributed.
If you leave the money in your account, it will presumably grow for the two additional years. With more growth comes more taxes; just later. But as my soon-to-be-released book proves, leaving funds in your 401ks and IRAs is creating a very costly beast for you to contend with for the rest of your life.
There are seven ‘tax traps’ that are set in place by pouring all of your savings into these before tax retirement accounts. Each of these traps translates into more and more income taxes on many parts of your life. You don’t knowingly step in to the traps, they just sort of happen. And you’ve fallen victim to the traps by simply doing what most everyone tells you that you should do to save for retirement.
A married couple, each 60 years old, with a combined $1 million in IRAs and 401ks will pay over $800,000 of income taxes over their lifetimes and legacy. Over the years of working with hundreds of people, I’ve identified four primary strategies for relieving some of this burden. The strategy that has the most dramatic impact on income tax savings involves strategically accelerating when you choose to pay the tax. Our current tax rates are the lowest in over fifty years.
So if Congress is going to gift you two more years of opportunity to save taxes, before being forced to take the money, I’d suggest that you view it as a window of opportunity (especially if you’re in your 50s or 60s).
Paying tax now, as counterintuitive as that may sound, can actually save you hundreds of thousands of dollars over your lifetime.
So being given two more years before you must take taxable distributions should be used to save – not postpone the inevitable.
Let’s see what the Senate does, and how the bill actually becomes legislation. But a ‘Thank You’ to your Congressman may be in order.
If you’d like to get in on our soft launch of the book, and be one of the first to receive it, be sure to visit www.CraigWear.com and get on the email list. I’ll give you a super deal and make sure you get a head start on saving a load of taxes!