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Local Business

Retirement Savings and Taxes ... Uggh

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The government wants to accomplish two things regarding taxation of retirement savings. They want to minimize the amount you cost them and they want to maximize the amount you pay them. They want to make sure you have enough money saved for retirement so that you can financially support yourself and don ’ t run out of money at age 80, turning to the government for assistance. They are willing to wait on getting their taxes from your retirement accounts until you retire if it encourages you to save money and be more prepared for retirement. They don ’ t like waiting to get their taxes. Therefore, there are rules.

  • -- There are limits to how much money you can save in retirement accounts each year. They want you to be prepared but there is a limit before they think you are prepared enough!

  • -- There are restrictions on how/when/why you withdrawal money from your retirement accounts. They are being patient waiting for their taxes but you better be serious that this is money for retirement.

  • -- They require you to take money out of your retirement accounts at age 70 1⁄2, called a required minimum distribution (RMD). They have waited a long time for your tax dollars so that you could build up your retirement savings. If you are 70 1⁄2, they figure you are at retirement age and therefore it is time to use this money for retirement. However, Roth IRAs don ’t have RMDs because the IRS doesn ’t collect any taxes on the withdrawals – all withdrawals are tax-free so they don ’t care as much if you take it out.

  • -- They require retirement accounts to be owned by one person/entity. The IRS computer systems track this money based on the account SSN/TIN/EIN so that the IRS can make sure to receive their taxes. Withdrawals are taxed as ordinary income and they want to make sure they know who to tax!

    By Cammie Humke, Registered Representative at The Humke Group, Inc Located at 555 S. Randall Rd in St. Charles, IL, phone 630-377-7133

    Opinions expressed are not intended as specific investment or tax advice. The Humke Group, Inc is an independent firm with securities offered through Summit Brokerage Services, Inc. Member of FINRA/SIPC