How to Protect Your Retirement Assets From Taxes

Written by Chris Draughon

I want to see you achieve your financial goals so I spend my time making the complicated things simple. As the Director of Financial Planning I help our clients identify their most important financial goals and develop paths to get them there on time with room to spare.

July 28, 2015


How to Protect Your Retirement Assets From Taxes-media-1

While you may be enjoying the tax breaks you get for contributing to a retirement fund right now, the fact remains that at some point, you’re going to have to start paying taxes on that money. Specifically, once you (or any of your beneficiaries) begin withdrawing from your retirement fund, the money will be subject to taxation. On the bright side, there are some steps you can take and strategies you can implement as a means of reducing that tax burden. This will take some careful planning and consulting with a tax advisor on your part, but it will be more than worth the effort when you’re able to protect your retirement assets.

RMD Rules and Regulations

These days, the IRS has strict rules regarding required minimum distribution (RMD), especially from IRAs and some other retirement plans. The good thing about these regulations, however, is that they can actually help you plan accordingly to minimize your tax liability. The best way to figure out what’s best for you is to meet with a financial planner, who will be able to take a look at your accounts and determine how these rules should be followed to best meet your financial needs or the needs of your beneficiaries.

Making Tax Payments Easier

Making tax payments easier for your beneficiaries to handle will help to ensure that as much of your retirement money as possible goes towards their needs and not towards taxes. There are a few steps you can take to make these payments easier on them. For starters, make sure you have named at least one beneficiary; otherwise, your assets could end up in probate, which can be a real hassle. Furthermore, leaving your funds to multiple beneficiaries (especially children) can be wise.

Consider leaving some of your assets to charity, as these contributions are fully deductible off of your estate tax. Plus, you don’t have to pay income taxes on charitable donations. Finally, you may also want to speak with your financial or tax advisor about setting up an irrevocable trust.

Spousal/Non-Spousal Strategies

Most people leave their spouses as primary beneficiaries of retirement assets. If you’re planning on doing this, then you’ll want to speak with your spouse about setting up a rollover IRA when the time comes, which can help lessen the tax burden. Furthermore, it may be possible to “disclaim” IRA assets if they’re not needed, which can save money on taxes in the long term.

For non-spousal beneficiaries, it’s best to keep the account in the original contributor’s name so that the funds don’t become immediately taxable. Furthermore, removing the first required distribution from an IRA before December 31st of the year of inheritance is also a must to avoid taxes.

Working With an Advisor

Dealing with taxation of retirement assets can be a confusing and frustrating process if you try to go it alone, but by working with a tax advisor and financial planner every step of the way, you can get the professional assistance and advice that you need to make the most of your retirement fund and ensure that it works hard for you and your beneficiaries down the road. For assistance in wealth and retirement advising, please contact First Coast Wealth Advisors today; we would be happy to assist you.