Well, that doesn’t seem fair. But it may be a reality, according to Linda Stern at AARP Bulletin. Apparently, tax-deferred accounts like 401(k) plans and Individual Retirement Accounts (IRAs) may be subject to be taxed when folks withdraw from them for everyday expenses. Stern gives us some solutions:
So, what’s a pre-retiree to do? Don’t put all of your eggs in that tax-deferral basket, counsel a growing number of advisers. Firms like Financial Consulate Inc. in Hunt Valley, Md., are encouraging their clients to put some money in after-tax or tax-free investments, so they have some tax-planning flexibility in how they manage withdrawals in retirement.
“We would like to see them build a diversification of income streams, so that down the road, they’ve got more than one place from which to draw.” says Tim Maurer, the firm’s vice president and author of the book The Financial Crossroads.
“Most baby boomers have most of their wealth locked up in the 401(k), and they will be on a fixed pathway for any money they want to spend. If they want to buy a car or go on a vacation, they will have to take money out of their 401(k).”
Read more about this issue and what you can do about it here.
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