At Extreme Investor Network, we understand the importance of maximizing your retirement savings while minimizing tax implications for yourself and your heirs. Recent reports have shown that individual retirement accounts (IRAs) are growing in size, which can lead to potential tax issues down the line.
According to the Employee Benefit Research Institute, the median IRA balance was $87,000 in 2022, up from $81,144 in 2019. Additionally, a Fidelity report revealed that the average IRA balance was $127,745 during the first quarter of 2024, a 29% increase from 2014.
While having a larger IRA balance may seem like a positive thing, it can actually lead to a “tax nightmare in retirement,” as mentioned by certified financial planner Derek Williams. With required minimum distributions (RMDs) kicking in at age 73 and increasing to age 75 starting in 2033, retirees may face larger tax burdens if they have substantial pretax IRA balances.
To mitigate potential tax issues, some advisors recommend Roth conversions, which allow individuals to transfer pretax or nondeductible IRA funds to a Roth IRA, especially during lower-income years.
Inheriting a large IRA can also present tax challenges for adult children. Changes to tax laws, such as the Secure Act of 2019, have made pretax IRAs less desirable assets to inherit. Previously, heirs could stretch IRA withdrawals over their lifetime, but now most adult children have a 10-year window to empty inherited IRAs, potentially causing tax implications during their peak earning years.
At Extreme Investor Network, we provide insights and strategies to help you make informed decisions about your retirement savings and taxes. Stay informed and proactive to ensure your financial future remains secure and optimized for tax efficiency.