Estimated read time: 5-6 minutes
How much money have you saved in an IRA or 401K? Chances are these tax-deferred accounts are some of your largest assets for retirement.
Most people don't realize it, but contributing money to these accounts is the easy part. However, when you want to withdraw this money in retirement, things get complicated.
This is where you can make critical financial mistakes that could needlessly cost you a huge chunk of your hard-earned savings. Below are three simple ways you could maximize your IRA, 401K, SEP or other tax-deferred accounts in retirement…
1. Take advantage of tax planning (and soon)
It's natural to think of the money in your IRA and 401K as being your money. But it's really a joint account between you and the IRS. Because remember, you still have to pay taxes when you withdraw this money in retirement.
And you could owe a lot more taxes on these accounts than you know, leaving you with less money than you thought you had.
To make matters worse, the Biden administration recently proposed $4.7 trillion in tax increases. Among these proposed increases are a new wealth tax, personal income and capital gains tax hikes, and corporate tax increases.
It's too early to tell which tax increases will go into effect. But many economists and tax experts believe that higher taxes could be just around the corner. These tax increases won't just impact the wealthy. All hard-working Americans will likely pay the price. And if you're recently retired or nearing retirement, the timing couldn't be worse.
But there is some good news. You actually have more control over how much you pay in taxes with your IRA and 401K than you know. And if you take advantage of some simple retirement tax-planning strategies now, you could save yourself a small fortune in retirement.
2. Reduce your risk by updating and rebalancing your portfolio
When was the last time you updated and rebalanced the investments in your IRA and 401K? For many people, it's been years. When the B.O.S.S. advisors meet with new clients for the first time, more than 95% of people are taking more risk than they know or need to at this stage of the game.
Here's why. When there are wild swings in the stock market (much like we've had in the last few years), your investments can become heavily skewed. This could cause you to be invested too aggressively or too conservatively. Neither one of these scenarios is good.
Risk comes from not knowing what you're doing.
–Warren Buffett
The closer you are to retirement, the harder it is to recover from any major losses in the stock market. This is because you may not have the time for your assets to fully recover before you need to make withdrawals from your investments.
That's why it's critical your investment portfolio mirrors your appetite for risk.
One of the most effective ways to reduce risk is by consistently updating and rebalancing your investment portfolio. This should be done every 6 to 12 months, or whenever there's a significant change in the stock market or you experience a major life event.
3. Plan ahead for required minimum distributions
The money you've saved in your IRA and 401K is subject to required minimum distributions (RMDs).
When you turn 73, the government forces you to start withdrawing a certain percentage of your savings from these accounts every year. And you must continue to do this until you pass away, or until the money in these accounts is totally depleted.
This happens whether the stock market is up or down, and whether you need the money or not.
It may not seem like a big deal on the surface, but it is. Taking RMDs during a downturn in the stock market is particularly painful because it could force you to sell your investments at a loss. And you'll never get this money back again.
This is just one of many potential trapdoors with RMDs. That's why you need to create a plan for withdrawals long before your early 70s. Because the sooner you get started, the more options you'll have.
Summary
All of these strategies are effective tools for maximizing your IRA or 401K, but there's one strategy that we swear by. And that's reducing your taxes in retirement.
That's why we created the B.O.S.S. Retirement Tax Bill Calculator. This simple yet powerful tool shows you exactly how much you'll owe in taxes when you retire — and what your potential tax savings could be.
All you have to do is answer a few simple questions, and our revolutionary technology will generate a free report that reveals exactly how much money you could save on your IRA and 401K, social security benefits, investment income, and more.
This tool is free and it only takes a few minutes.
Learn how much money you could save in taxes when you retire by clicking here.
Given the state of our economy and record-high national debt, your window of opportunity to take advantage of some tax-plannings strategies could be closing soon. So we encourage you to take action now.
Tyson Thacker and Ryan Thacker are the co-founders of B.O.S.S. Retirement Solutions in Salt Lake City, a five time winner of Utah's Best of State Award.
Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency.
