There are a lot of tax-preferential retirement plans out there like 401ks and IRAs, that grant tax-free savings during the accumulation phase – but these vehicles can also be a potential tax time bomb during the withdrawal phase, especially for high net-worth individuals.

Many retirees overlook the cold hard reality that taxes will have to be paid on never before taxed income. That’s because the IRS treats the entire withdrawal, your original principal and any accumulated growth, as income, which is taxable at the ordinary income rate.

Since these withdrawals are treated as ordinary income, your overall tax bracket can also be pushed to a higher level; thereby potentially increasing your overall tax liability.

This usually comes as a shock for retirees who planned so well during the accumulation stage but didn’t plan at all for the withdrawal phase.  

But don’t worry, there are solutions like the two below that I would love to talk to you about so we can see what is best for your particular situation.  Just click the link in my calendar and find a time for us to talk.

Two Solutions that Offer TAX-FREE Withdrawals in Retirement:    

  1. You can convert your tax-deferred IRA to a tax-free Roth IRA.  Your principal converts to tax-free, all growth is tax-free, and at retirement your income is tax-free.
  2. You can invest in an IUL (Indexed Universal Life). With IUL, your policy premiums are paid with after-tax dollars. Your cash value within the account grows income-tax free. You will generally not pay income tax on loans you take from your policy in retirement.*

The Whopping Difference Between Tax-Deferred and Tax-Free

Just look at the example below of an individual in the 25% tax bracket who contributes $10,000 annually for 15 years into a tax-deferred asset like 401(k) or IRA with a 7% net annual growth rate.  They save $37,500 in taxes during the accumulation phase, but end up paying a whopping $151,890 during the withdrawal phase.**

Durham, NC Financial Advisor

I have a solution that does the reverse!

Imagine PAYiNG the taxes in the contributions phase. (Last circle in the first row: $37,000, or $2,500 per year for the first 15 years.)

And AVOIDING the hefty taxation in the withdrawal phase. (Last circle in row 2: $ 151,890, or $5,063 per year for 30 years!)

Please set up an appointment with me so you can see the numbers based on your specific situation, and I can answer any questions you may have. No obligation, No pressure, Just Information for your consideration.

You can also click here to download an IUL brochure that explains this product more fully.

*Integrated Life and Financial Planning does not offer legal or tax advice. This material is not intended to replace the advice of a qualified tax advisor or attorney. Please consult legal or tax professionals for specific information regarding your individual situation.

No theory, strategy or Asset Allocation assures success or protects against loss. This material is for general information only and is not intended to provide specific advice or recommendations for any individual.  To determine what appropriate for you, consult a qualified professional.

**This hypothetical example does not consider every product or feature of tax-deferred accounts and is for illustrative purposes only. It should not be deemed a representation of past or future results, and is no guarantee of return or future performance.