You’ve worked hard your whole life – you’ve paid your dues, did everything right, and now you’re ready to retire and live off of the nice little nest egg you built up over the years. Yes, contributing to your 401(k) and your retirement savings accounts required a bit of pinching and scraping at times, but now that you’re at the finish line, you realize it was well worth it—you achieved the dream of retiring comfortably.
Yet, while your work may be done, your obligation to pay taxes is not. When you turn 70 ½ years old, you are required by law to take taxable distributions—known as Required Minimum Distributions, or RMDs—from your traditional retirement accounts and your 401(k) each year. The amount you must withdraw is calculated in much the same way as your income was, meaning that the rates can be as high as 39.6%. If you fail to make the required RMDs, the amount NOT withdrawn is taxed 50%!
In an effort to not sound juvenile, I will avoid using the phrase “”It’s not fair”—however, on behalf of all you hard working individuals out there, I will say that there has to be another option! And there is. Check out these money saving tips from USNews at:
Wiley Long is founder and president of Medigap Advisors, and is passionate about helping people navigate the confusing waters of Medicare. He is the author of The Medicare Playbook: Designing Your Successful Health Coverage Strategy, a clear and simple explanation so you can make the most of your Medicare coverage. For more information visit www.MediGapAdvisors.com.