The money is taxed on the way out. Here is where that leaves you.
You spent thirty years being told to put money in. Almost nobody sits down with you and works out what happens when you start taking it out. That is what this page is about.
Topics we cover
Your income sources, one at a time
A 401(k), an IRA, a pension, a brokerage account, and Social Security are not all taxed the same way. The rules differ enough that timing matters. We show what each one does to your tax picture in the year you draw on it.
Required minimum distributions
At 73 the government starts telling you how much to take out, whether you need it or not. We show you what that looks like before it arrives, how required distributions can affect your taxes and your income in retirement, and how that ripple can carry over to your beneficiaries too.
Income thresholds that quietly cost you
The Medicare surcharge called IRMAA is one example, and it is not the only one. Cross the wrong line and you can also trigger higher taxes on your Social Security, lose eligibility for certain credits, or pay more in capital gains. All of it is tied to the same number, your modified adjusted gross income. We show you where those lines sit for you.
Social Security timing
When you claim interacts with everything above. Depending on your situation, a couple can face more than 9,000 possible month by month claiming combinations, and the wrong one can mean giving up a meaningful amount of lifetime income. We show you the options that actually matter.
What actually reaches your family
What passes to the people you love, and what it is genuinely worth by the time it gets to them after tax. This is where your income decisions and your estate documents meet.
Are your documents in order?Claiming combination figures from Brian J. Alleva, Social Security Retirement Benefit Claiming-Age Combinations Available to Married Couples, Social Security Administration Research and Statistics Note No. 2017-01.
The statement says $500,000. She does not get $500,000.
Say you leave a $500,000 retirement account to your daughter. She is a doctor, doing well, in the strongest earning years of her life.
She is required to draw the account down within ten years. So she takes $50,000 out one year, on top of what she already earns. At her tax rate, that $50,000 is worth closer to $30,000 by the time it reaches her.
You saved that money for her over decades. The statement said one number. What she actually receives is a good deal less, and there were decisions available earlier that could have changed the outcome.
That is the sort of thing we discuss with you while you can still do something about it.
The question about paying tax early
People assume that paying the tax now means losing the growth on the money they handed over. It sounds obvious, and it is the first objection almost everyone raises.
Work it out all the way through and, if tax rates never changed, the ending amount is roughly the same either way. Paying tax on a smaller sum now and letting the rest grow untaxed lands you in much the same place as letting the whole sum grow and paying tax on the bigger number later. So growth was never the real issue. Tax rates are.
And tax rates are the one thing nobody can promise you. If rates are higher when the money comes out, paying at today's rates will have been the better deal. If rates are lower then, waiting will have been. The direction of that bet, not the growth everyone worries about, is where the real cost or benefit sits, and it depends on your bracket now, your bracket later, and years nobody can see.
We are not telling you to do it or not to do it. It is one of the questions we walk through with you, using your own numbers, so the decision is yours with the full picture in front of you.
Where we stop
We are not managing your money and we are not preparing your taxes. What we do is show you exactly where you stand. What your decisions cost, what they could cost you later, and what your options are. You can take that picture and act on it yourself, review it with your CPA or planner, or, if you do not have one, we can connect you with a trusted partner we have worked with directly.
See where your income decisions leave you.
A first conversation with John Sanchez, MST, CLTC.
The information on this page is general and educational. It is not individualized investment, tax, or legal advice. Legacy Income Advisors does not manage investment accounts.