Many workers retire in their 50s with a $1-million balance in their pre-tax retirement savings account. I wanted to see how the growth of this untaxed $1 million affects the retiree's income- tax obligation over the remainder of his/her life.

As we age, the Required Minimum Distribution (RMD) gets larger and larger, because our life expectancy gets smaller and smaller while the account balance continues to grow.

Annual taxable pension + Annual Social Security annuity (85% taxable) + Annual taxable RMD + other taxable income = substantially more taxable income after age 72 than prior to age 72. This drastic increase in taxable income will catapult you into a higher tax bracket for the remainder of your life. Moreover, if the account-owner is married, upon the first to die, the survivor must file as "single" where the tax rates are higher.

Q.: How can one eliminate, during retirement, this income tax nightmare?

A.: Do away with pre-tax savings in favor of after-tax Roth savings. As always, I welcome your questions.

Assumptions

Account Balance at age 56: $1,000,000

No withdrawals until age 72

5% Annual Growth

Results

The following chart shows the year by year growth of a pre-tax retirement account along with the RMD once you reach the mandatory withdrawal age of 72.

        

         

Your    Life        RMD        Year-End

Age    Expectancy              Balance

      Factor

56        -            -            $1,050,000

57        -            -            $1,102,500

58        -            -            $1,157,625

59        -            -            $1,215,506

60        -            -            $1,276,282

61        -            -            $1,340,096

62        -            -            $1,407,100

63        -            -            $1,477,455

64        -            -            $1,551,328

65        -            -            $1,628,895

66        -            -            $1,710,339

67        -            -            $1,795,856

68        -            -             $1,885,649

69        -            -            $1,979,932

70        -            -            $2,078,928

71        -            -            $2,182,875

72        25.6            $85,269       $2,206,750

73        24.7            $89,342       $2,227,745

74        23.8            $93,603       $2,245,530

75        22.9            $98,058       $2,259,748

76        22.0            $102,716     $2,270,020

77        21.2            $107,076     $2,276,444

78        20.3            $112,140     $2,278,126

79        19.5            $116,827       $2,275,206

80        18.7            $121,669       $2,267,750

81        17.9            $126,665       $2,253,997

82        17.1            $131,813       $2,234,885

83        16.3            $137,109       $2,209,519

84        15.5            $142,550       $2,177,446

85        14.8            $147,125       $2,139,193

86        14.1            $151,716       $2,094,437

87        13.4            $156,301       $2,042,858

88        12.7            $160,855       $1,984,146

89        12.0            $165,345       $1,918,007

90        11.4            $168,246       $1,845,662

91        10.8            $170,895       $1,767,050

92        10.2            $173,240       $1,682,162

93        9.6        $175,225       $1,591,045

94        9.1        $174,840       $1,495,757

95        8.6        $173,925       $1,396,620

96        8.1        $172,422       $1,294,029

97        7.6        $170,267       $1,188,463

98        7.1        $167,389       $1,080,497

99        6.7        $161,268       $973,254

100      6.3        $154,485       $867,432

101      5.9        $147,022       $763,781

102      5.5        $138,869       $663,101

103      5.2        $127,519       $568,736

104      4.9        $116,069       $481,105

105      4.5        $106,912       $398,248

106      4.2        $94,821          $323,339

107      3.9        $82,907          $256,599

108      3.7        $69,351          $200,078

109      3.4        $58,846          $151,235

110      3.1        $48,786          $110,011

111      2.9        $37,935          $77,577

112      2.6        $29,837          $51,619

113      2.4        $21,508          $32,692


Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by phone at (732) 536-9472, or via email at rollover@optonline.net.


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