The Market Can Cause A Real [Tax Bracket] Problem in Retirement

(don’t forget to checkout the video of this blog too)

Taxes are a big concern for most people in retirement.

But there’s one risk that is not talked about a lot.

It’s the risk of the market forcing you into a higher tax bracket in the later years of retirement.

People with large balances in taxable retirement accounts, like 401k’s, IRA’s, 403b’s, etc. are most susceptible to this risk.

It looks something like this:

Let’s say your tax strategy is to ONLY take the minimums out of your taxable retirement to stay in as low of tax bracket as possible…

Not quite a tax-free retirement but makes sense, right⁉️

BUT, if the market does really well and your account balance starts growing faster than the money you are taking out…

You might have a problem on your hands.

Your investment grew…

… but so did your RMDs (required minimum distributions) that you HAVE TO take out of your account.

That can easily create a 🌟compounding effect🌟 that can force you into a higher tax bracket (tax rates are also expected to be higher in the future as well).

And if you’re in a higher tax bracket, that means your retirement income will be drastically reduced, forcing you to spend down your retirement assets that much faster.

Which means, you could run out of money faster than you anticipated.

That’s why it’s important to start positioning yourself and your retirement assets in a way that allows you to minimize and control your tax brackets in retirement, which often includes having some money in tax-free buckets.

This can help you mitigate the risk of rising tax rates while also mitigating the risk of being forced into a higher tax bracket.

Let’s chat 💬😎