If you're going to save for retirement (which you should, since you'll need income to supplement Social Security), you might as well snag some tax breaks along the way. That's why retirement plans like traditional IRAs and 401(k)s are so popular. With a traditional IRA or 401(k), you get to fund your savings on a pre-tax basis, allowing you to pay the IRS less tax each year you make contributions. Plus, investment gains in these accounts are tax-deferred, so you don't have to pay the IRS year after year. ...

Saving for retirement in a traditional IRA or 401(k), as opposed to a Roth, can seem like a good idea when you're eager to lower your tax bill. But traditional retirement plans come with a huge drawback. Not only are withdrawals subject to taxes, but you may eventually have to take withdrawals even if you don't want to. Those mandatory withdrawals are known as required minimum distributions, or RMDs. And they kick in at age 73 or 75, depending on the year you were born. Will AI create the world's first t ...

Inheriting money is often welcome, but if it’s a retirement account, beneficiaries need to be aware of new rules effective in 2025 or end up potentially paying a steep penalty to the IRS. New rules around inherited individual retirement accounts (IRAs) – both traditional and Roth – were passed in 2019, but the IRS gave Americans a grace period from 2020 through 2024 as the laws were crystallized. In July 2024, the agency issued final regulations, which means they kicked in last year for retirement account ...

When you're in the process of building retirement wealth, it's important to choose a home for your savings carefully. And that may mean choosing between a traditional retirement account versus a Roth. The upside of traditional IRAs and 401(k)s is that your money is contributed on a pre-tax basis, allowing you to shield income from the IRS. Roth IRAs and 401(k)s, on the other hand, are funded on an after-tax basis, so there's no immediate IRS benefit to enjoy. Where to invest $1,000 right now? Our analyst ...

Quick Read RMDs increase taxable income and can trigger taxes on Social Security benefits and higher Medicare premiums. QCDs transfer RMD funds directly from IRAs to charities without triggering taxes. The 2026 QCD limit is $111,000 per person or $222,000 per couple. A recent study identified one single habit that doubled Americans’ retirement savings and moved retirement from dream, to reality. Read more here. A lot of people opt to save for retirement in a traditional IRA or 401(k) without rea ...

Quick Read RMDs begin at age 73 for those born 1951-1959 and age 75 for those born 1960 or later. Provisional income above $34,000 for singles or $44,000 for couples triggers taxation on up to 85% of Social Security benefits. Creating a tax plan for a large 401(k) is critical to limit your tax liability. A recent study identified one single habit that doubled Americans’ retirement savings and moved retirement from dream, to reality. Read more here. If you have a large 401(k) balance, you're in a ...

There's a huge benefit to saving for retirement in a traditional individual retirement account (IRA) or 401(k). These retirement accounts allow you to contribute money on a pre-tax basis, thereby shielding some of your earnings from the IRS. Plus, unlike regular brokerage accounts, IRAs and 401(k)s don't force you to pay taxes on gains every year. Rather, investment gains are tax-deferred, and you pay taxes when you take withdrawals. Will AI create the world's first trillionaire? Our team just released a ...

Core Insights - Retirement introduces new tax challenges that can lead to significant financial losses for retirees if not managed properly [1] Group 1: Required Minimum Distributions (RMDs) - Retirees must begin taking required minimum distributions from certain retirement accounts at age 73, including traditional IRAs and 401(k)s [2] - The RMD amount is calculated based on the previous year's balance divided by a life expectancy factor from IRS guidelines [3] - Failing to withdraw the RMD by year-end incurs a 25% excise tax on the amount not withdrawn, which can be reduced to 10% if corrected within two years [4] Group 2: State Taxes - Relocating during retirement can significantly impact tax situations due to varying state tax rules [5] - States without income tax may still impose property, sales, and estate taxes that affect overall financial health [6] - Some states provide exemptions or deductions for specific retirement income types, while others do not, necessitating careful analysis [7] Group 3: Social Security Benefits - There is a common misconception that Social Security benefits are tax-free, which is not accurate [8]

Core Insights - Converting a 401(k) to a Roth IRA can help avoid Required Minimum Distributions (RMDs), which is a valid tax planning strategy [1][7] - However, for individuals nearing retirement, the tax costs associated with the conversion may outweigh the benefits of avoiding RMDs, potentially leading to a net loss [2] Group 1: Understanding RMDs - RMDs are mandatory withdrawals from pre-tax retirement accounts starting at age 73 (or 75 from 2023) [4] - The amount of RMD is determined by the portfolio's value on January 1 and the account holder's age, with a penalty of 25% for not withdrawing the required amount [5] - Ordinary income taxes apply to RMDs, which can be problematic for those with other income sources or multiple retirement accounts [6] Group 2: Roth Conversions - A Roth conversion involves transferring funds from a pre-tax retirement account, like a 401(k), to a post-tax Roth IRA [8] - The conversion process is straightforward, requiring the opening of a Roth IRA and transferring assets from the pre-tax account, either directly or through a personal withdrawal [9]

Core Insights - The article discusses the implications of Required Minimum Distributions (RMDs) for individuals with traditional IRAs, particularly those approaching age 73, and suggests that converting to a Roth IRA can mitigate tax burdens associated with RMDs [2][3][4]. RMD Rules - Individuals must begin taking RMDs from traditional IRAs and similar accounts at age 73, calculated based on account balance and IRS life expectancy factors [3]. - RMDs are taxed as ordinary income, which can elevate tax brackets for individuals with substantial IRA balances [4]. Roth Conversions - Converting a traditional IRA to a Roth IRA can eliminate RMD requirements, allowing for more control over tax liabilities in retirement [7][8]. - Taxes must be paid on the converted amount at the individual's ordinary income rate, which can result in significant tax bills if large amounts are converted at once [8]. - Gradual conversions allow for better tax management, as individuals can choose when to take taxable withdrawals rather than being subject to mandatory RMDs [9]. Example Scenario - A $1.2 million IRA, growing at 5% annually for 13 years, could reach approximately $2.3 million by age 73, leading to an RMD of about $87,000, which could push the individual into a higher tax bracket [12].