Lifetime Taxes

It’s Not Just What You Earn — It’s What You and Your Family Keep

I think tax planning should look beyond this year’s return. Decisions made before and during retirement can possibly affect your taxes for decades — and may also affect the taxes your spouse and heirs eventually pay.

Where Can Lifetime Taxes Show Up?

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• Traditional retirement accounts: Contributions may have received a tax benefit, but distributions from traditional IRAs are generally fully or partially taxable when withdrawn.

• Required Minimum Distributions (RMDs): Required withdrawals can increase taxable income later in retirement and may affect other income-based costs.

• Withdrawal sequencing and Roth conversions: The order and timing of withdrawals can change when taxes are paid and may create opportunities for greater lifetime tax efficiency.

• Social Security and Medicare: Retirement income decisions can affect the taxation of Social Security benefits and income-related Medicare premiums.

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What About Taxes to Your Heirs?

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Inherited retirement accounts. Many non-spouse beneficiaries are subject to a 10-year distribution rule for inherited IRAs. Taxable distributions from inherited traditional retirement accounts generally create ordinary income for the beneficiary. That can matter if heirs inherit during their peak earning years.

Inherited taxable property. Assets such as taxable investments or real estate generally receive a new income-tax basis based on fair market value at death, subject to important exceptions. This can produce a very different tax result than inheriting a traditional IRA.

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A good tax strategy may ask: “Who should pay the tax, when should it be paid, and from which account?”

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Five Questions Worth Asking

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☐ How much of my retirement savings has never been taxed?

☐ What could future RMDs do to my tax picture?

☐ Could Roth conversions or withdrawal sequencing improve lifetime tax efficiency?

☐ How might my spouse’s tax situation change after my death?

☐ What tax bill could I unintentionally leave my children or other heirs?

I believe the goal is not simply to minimize this year’s taxes. It is to coordinate retirement, tax, and estate decisions with the goal of improving after-tax outcomes over your lifetime and for the people you care about.

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Let’s talk:

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Rick Anderson

(360) 391-3279

Randerson@RoyalFundManagement.com