How to Washington-Proof Your Retirement Against Future Tax Increases

Protecting Your Retirement From Tax Increases

You’ve worked hard to save for retirement. But with tax cuts set to expire and government spending at record levels, your retirement savings could be at risk from Washington’s decisions. Here’s how you can protect yourself.

The Looming Tax Storm

An important deadline is approaching at the end of 2025. The tax cuts implemented in 2017 are scheduled to expire, and there’s uncertainty about what comes next. According to CNN, $3.4 trillion in individual tax cuts are set to sunset unless Congress takes action.

The path forward isn’t clear. Congress could extend the current tax rates, let them expire, or create an entirely new tax structure. But here’s what we do know – the national debt stands at $35 trillion and continues to grow. This puts enormous pressure on Washington to find new revenue sources.

What does this mean for your retirement planning? If you have money in traditional IRAs and 401(k)s, you’re facing uncertainty about future tax rates when you withdraw your money. While rates might stay the same, there’s also a possibility they could go significantly higher.

The smart approach is to plan for multiple scenarios. As David Walker, a former U.S. Comptroller General, recently pointed out at a B.O.S.S. Retirement Solutions event, there are over $121 trillion in unfunded obligations when you include Medicare, federal pensions, and other commitments. This suggests that even if current tax cuts are extended, we may still see tax increases in the future to address these growing obligations.

Why Your Retirement is at Risk

The national debt has now reached $35 trillion. That’s not a typo – trillion with a T. This massive debt puts enormous pressure on Washington to find new revenue sources. Unfortunately, your retirement accounts may be a prime target.

With traditional IRAs and 401(k)s, you haven’t paid taxes on that money yet. It’s like having a joint account with Uncle Sam – and he’s going to want his share.

Understanding Your Current Tax Situation

Right now, we’re experiencing some of the lowest tax rates in 40 years. The highest federal tax bracket is currently 37%. But historically, rates have been much higher – reaching up to 70% in the early 1980s.

This creates a unique opportunity to take action now, while taxes are effectively “on sale.”

The Problem with Traditional Retirement Accounts

Most Americans have the majority of their retirement savings in tax-deferred accounts like traditional IRAs and 401(k)s. While these accounts give you a tax break today, they create a ticking tax time bomb for your retirement years.

Here’s why: Everything you withdraw from these accounts is taxed as ordinary income. Not just your contributions, but all the growth too. The more your account grows, the more taxes you’ll eventually owe.

The Required Minimum Distribution Trap

At age 73, you’re required to start taking money out of your traditional retirement accounts, whether you need it or not. These required minimum distributions (RMDs) could push you into a higher tax bracket, forcing you to pay even more in taxes.

Solutions to Protect Your Retirement

1.     Consider Roth Conversions

Converting some of your traditional IRA or 401(k) money to a Roth IRA could help lock in today’s lower tax rates. While you’ll pay taxes on the conversion now, all future growth will be tax-free.

2.     Tax Diversification

Don’t keep all your retirement savings in tax-deferred accounts. Consider spreading your money across:

• Tax-deferred accounts (traditional IRAs/401(k)s)
• Tax-free accounts (Roth IRAs/401(k)s)
• Taxable accounts (regular investment accounts)
  
  

3.     Strategic Withdrawal Planning

Having different types of accounts gives you more control over your tax situation in retirement. You can strategically withdraw from different accounts to manage your tax bracket.

The Difference Between Tax Preparation and Tax Planning

Most people focus on tax preparation – working with their CPA each year to file their taxes. But tax planning looks forward, helping you minimize taxes over your entire retirement.

Tax preparation is like looking in the rearview mirror. Tax planning is looking through the windshield at the road ahead.

Taking Action Now to Protect Your Retirement Income

You have more control over your retirement taxes now than at any other time in your life. But this window of opportunity won’t last forever.

With tax cuts expiring in 2025, you have two years to take advantage of today’s historically low rates. Waiting could cost you tens or even hundreds of thousands of dollars in unnecessary taxes.

The Real-World Impact of Ignoring This Advice

Consider this example from B.O.S.S. Retirement Solutions: A client with $660,853 in their 401(k) discovered they would pay $941,334 in taxes throughout retirement if they didn’t take action. Through strategic tax planning, they were able to reduce their tax bill to $218,081 – saving over $723,253 in taxes.

Common Mistakes to Avoid

1. Assuming taxes will be lower in retirement
2. Waiting until retirement to think about taxes
3. Keeping all retirement savings in tax-deferred accounts
4. Relying solely on tax preparation instead of tax planning
5. Not considering how RMDs will impact your tax situation

The Importance of Professional Help

Washington-proofing your retirement isn’t a do-it-yourself project. The tax code is complex, and mistakes can be costly. Working with a financial professional who understands tax planning can help you:

• Analyze your current tax situation
• Project future tax liabilities
• Develop strategies to minimize taxes
• Coordinate with your other advisors
• Stay updated on tax law changes

Time is of the Essence

With tax cuts expiring and the national debt growing, the time to act is now. The decisions you make in the next two years could impact your retirement taxes for decades to come.

Take the Next Step to Protect Your Retirement

If you’ve saved at least $200,000 for retirement, you owe it to yourself to understand your options. B.O.S.S. Retirement Solutions offers a free, customized tax analysis that can show you:

• How much you could save in taxes
• Whether a Roth conversion makes sense for you
• Strategies to minimize required minimum distributions
• Ways to protect against future tax increases

Don’t wait until it’s too late. Call 800-918-3015 today to schedule your free B.O.S.S. Retirement tax savings analysis. Some firms charge thousands for this type of analysis, but B.O.S.S. Retirement Solutions won’t charge you a dime.

The Bottom Line to Retire With More Income

Washington’s decisions about taxes don’t have to determine your retirement success. By taking proactive steps now, you can protect your hard-earned savings from future tax increases. The key is understanding your options and taking action while today’s historically low tax rates are still available.

Remember, retiring successfully doesn’t happen by accident. It starts with a plan – specifically, the B.O.S.S. Retirement Blueprint™. Call 800-918-3015 today to learn how you can Washington-proof your retirement and keep more of your hard-earned money.