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Planning For a Ticking Tax Time Bomb in Your Golden Decade

No one likes a tax surprise. But the tax man never sleeps. If you have been saving for years so you can enjoy a cozy retirement, be careful to sleep with one eye open. Unexpected taxes can leave you with less money for living expenses than you are anticipating during your golden decade. That is what prompted me to write this article.

The Golden Decade is a term we use in our office that refers to a defined time span of 11 years, comprised of people that are ages 59 ½ to age 70 ½.  During these years, retirees need to make plans to protect their money.

As a financial advisor, I am constantly reciting my golden rule to my clients: “It’s not what you earn, but what you keep.” No comprehensive retirement plan can omit the discussion of how to tactically plan for taxes. The IRS will inevidably attempt to tax some of your golden nest egg in ways you may not expect until it is too late.

Conventional wisdom would have retirees withdraw or sell investments held in taxable accounts before touching the sums in their tax-deferred accounts. Doing so might could cost you more in tax liabailty after calcualting your after-tax wealth. Tax laws tend to take a longer view of retirement savings accounts, and likewise, so should you.

One ticking tax bomb you need to know about sooner rather than later is RMDs.


Every investor understands that withdrawing funds from traditional and Roth IRAs and 401(k)s causes those funds to be taxed at a higher rate. What is not commonly understood is that at age 70 ½, owners of these accounts are required to withdraw RMDs (required minimum distributions). If the balance in these accounts has been allowed to grow to a large sum, the RMDs  might cause the owner of the account to be shifted into a higher tax bracket. The required distributions become taxable income.

RMDs are just one of the many ways that IRAs differ from other retirement savings vehicles.

I am in Ed Slots Elite IRA Advisor Group℠, and at least two of weekends per year I attend Ed Slot’s IRA Advisor Group for IRA education. I like getting an updated refresher twice a year because I am always reminded that IRAs differ from other retirement savings vehicles.

Here are other tax rules to keep in mind with regards to IRA accounts:

  • IRA distributions can incur tax penalties IRA’s investment gains receive no capital gains tax rates
  • IRA equity cannot by tapped the way home equity can be tapped without triggering tax and potential IRS penalties

Social Security

One smart way to draw down a significant sum in IRA accounts to avoid higher RMDs at age 70 is to defer your Social Security benefit to full retirement age, and begin taking withdrawls from your tax deferred accounts instead.

Depending on how much money you have saved in tax-deferred accounts, your strategy to increase your after-tax wealth should include maximizing your Social Security benefit. Americans are allowed to begin early retirement withdrawals of their Social Security benefit at age 62. However, age 62 is considered an old retirement age by the Social Security Administration and opting for your benefit at this early age will automatically reduce it by 20 percent.

Also, if you’re taxable income earnings exceed a certain level, up to 85 percent of your Social Security benefits may be taxable. At age 62, income limitations are $25,000 for a single person and $32,000 for married couples filing jointly from Social Security.

Deferring your Social Security benefit to full retirement age triggers several financial rewards.

  • Waiting until full retirement age allows you to receive 100% of your Social Security monthly benefit. Opting to take it at age 62 reduces it by 20%.
  • Waiting until full retirment age will allow your monthly Social Security benefit to grow 8% every year from full retirement age through age 70.
  • In addition to receiving a higher Social Security monthly benefit growing at 8% annually, Social Security also provides annual cost-of-living adjustments that may increase the rate of return even greater.
  • Your Social Security benefit offers survivor benefits. Waiting until full retirement age ensures that your spouse will be able to collect the highest monthly benefit possible if you should pass away. In contrast, IRA survivor benefits get tricky.

Tax Savings for Your Loved Ones

IRAs are subject to double tax at death, both Federal estate and income taxes, plus our special Minnesota version of estate taxes. If you own both a traditional IRA and a Roth IRA, it is wiser to draw down the traditional IRA first. While Roth accounts might still be included in your taxable estate, your beneficiaries will be able to take distributions tax-free at least. Since an IRA account cannot be held jointly, setting up the beneficiaries on your IRA accounts should be done carefully.

  • The choice of IRA beneficiary determines the ultimate future potential value of that IRA to beneficiaries – THIS IS THE AREA WHERE WE MOST COMMONLY SEE MISTAKES.
  • Trusts named as IRA beneficiaries must qualify under specific IRS rules so that trust  beneficiaries are eligible for stretch IRA tax benefits, and there are no separate account rules for IRA trusts.
  • IRA beneficiaries may qualify for special tax breaks that are often missed.
  • IRAs have no principal and income concept. The entire IRA (principal and income) may be distributed to the income beneficiary of a trust leaving little or nothing to remainder trust beneficiaries. IRAs in a trust are all principal because, under trust law, IRD (income in respect of a decedent) is principal in a trust and IRAs are IRD.
  • IRAs require their estate plans, and then those estate plans must be integrated within the overall estate plan that includes all other assets
  • IRAs are subject to double tax at death, both Federal property and income taxes, plus our own special Minnesota version of estate taxes, in addition to IRS penalties that can apply to the withdrawals made by the owner.

 Strategies to Increase Your After Tax Wealth

One thing to consider is that crunching numbers year by year is the best way to determine the most strategic way to take tax-efficient withdrawals from your retirement assets. The algorithms required to run complicated scenarios require specific software programs. Finding a financial advisor that specializes in retirement planning is prudent. With the ability to show you a clear picture of tax, estate-planning, and all other financial considerations, maximizing your after-tax wealth will become more apparent for you. Every case is different because every case is different. At Secured Retirement Advisors, we focus on helping our clients to both preserve and protect their wealth through comprehensive financial planning that includes a custom fit plan for you.

I feel blessed and grateful to have the opportunity to be of service to you. What’s more, my team and I are always here to answer your questions.

If you want to reach out for assistance in planning for your retirement, or if you have specific questions with regards to your own Social Security benefits, please don’t hesitate to connect with me at   info@securedretirements.com or come in for a quick 30 minute strategy session.

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  Image by oatsy40 via flickr, licensed under CC by 2.0

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Danielle Christensen


Danielle is dedicated to serving clients to achieve their retirement goals. As a Paraplanner, Danielle helps the advisors with the administrative side of preparing and documenting meetings. She is a graduate of the College of St. Benedict, with a degree in Business Administration and began working with Secured Retirement in May of 2023.

Danielle is a lifelong Minnesotan and currently resides in Farmington with her boyfriend and their senior rescue pittie/American Bulldog mix, Tukka.  In her free time, Danielle enjoys attending concerts and traveling. She is also an avid fan of the Minnesota Wild and loves to be at as many games as possible during the season!