- If you live off a modest level of income. <\/strong>The chart below is from a recently run client financial plan in MoneyGuidePro financial planning software. This is a situation financial planners are seeing more often. The gold line represents income needs in retirement. The light blue bars are investment withdrawals to meet income. Starting at age 67, the client begins taking social security (the dark blue bars) and then, at age 72, the green bars represent estimated required minimum distributions from tax deferred accounts.<\/li><\/ul>\n\n\n\n
So, at age 72 the client is generating more income than may be needed from social security and required minimum distributions. Thus, potentially paying more taxes than necessary on unneeded income and possibly kicking some of this income into higher tax brackets. Some clients may enjoy this and want to use the excess funds on vacations or other luxuries, which would be great. But oftentimes the distributions get reinvested outside of the tax deferred accounts. Again, potentially having more savings than necessary provides greater flexibility for unexpected expenses.<\/p>\n<\/div>\n\n\n\n
![\"\"](\"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2022\/01\/Fin-Plan-Chart-011222.png?resize=612%2C216&ssl=1\")
<\/figure>\n\n\n\n- You are concerned about taxation for heirs. <\/strong>Less than 1% of Americans need to worry about estate taxes, as the official estate and gift tax exemption climbs to $12.06 million per individual in 2022. For future reference, be aware this is always changing and is expected to be cut in half in 2026.<\/li><\/ul>\n\n\n\n
However, there can be an unintended tax consequence for all heirs from inherited tax deferred accounts like a traditional IRA and\/or 401(k). A new tax law went into effect January 1, 2020, that requires tax deferred accounts to be drained by all non-spousal heirs within 10 years following date of death. If the heirs are still working this could mean the inherited assets are distributed and taxed at a higher than expected tax rate.<\/p>\n\n\n\n
- You are considering retirement prior to age 59 \u00bd. <\/strong>There is a 10% penalty in most cases for tapping into traditional tax deferred investments prior to age 59 \u00bd. A rule of 55 does exist that provides for penalty free access to employer 401k plans. However, it depends on the employer\u2019s rules as whether this is available.<\/li><\/ul>\n\n\n\n
What are some options that may be worth considering?<\/p>\n\n\n\n
- Roth 401(k) contributions. <\/strong>Many 401(k) plans are now offering the option to split savings between traditional and Roth options. Roth 401(k) contributions invest after tax wages that will be invested tax deferred and may be withdrawn in the future tax free by yourself and your heirs. Consider splitting your 401(k) contributions between these options.<\/li><\/ol>\n\n\n\n
- Roth IRA contributions. <\/strong>Once you have maximized the employer match in the 401(k), contribute money to a Roth IRA. This option is limited for individuals with income above $144,000 and married filers with income of $208,000.<\/li><\/ul>\n\n\n\n
- Taxable Investment Account. <\/strong>Taxable investment accounts can be a very efficient option for high income savers. Dividend and interest are taxed at the income tax level when paid. However, capital gains that are earned on many investment vehicles are not taxed until the investment is sold. And capital gain tax rates can be much lower than income tax for many savers. Thus, investment growth taxation may be lower for many investors when a taxable investment account is used versus traditional tax deferred accounts. Additionally, heirs currently receive a stepped-up basis at the time of death, which erases imbedded capital gains from successful investments.<\/li><\/ul>\n\n\n\n
I do not want to discourage savers from using 401(k) plans. Savings are beneficial in any and all forms, and everyone should be utilizing their 401(k) if available. There are also many insurance products that offer alternative considerations as well. It is important to review all of your options and meet with a financial advisor to ensure you are not only saving enough for the future but also considering where to save.<\/p>\n","protected":false},"excerpt":{"rendered":"
Before you read too much into this title, I firmly believe you cannot save too much for retirement. Saving early and often is the best path to personal financial freedom for retirement and any other life goals. Figuring out where to save is one of the most important reasons to consult with a financial advisor. […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[119,1],"tags":[],"class_list":["post-6593","post","type-post","status-publish","format-standard","hentry","category-market-commentary","category-uncategorized"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7kXxe-1Il","jetpack-related-posts":[{"id":6489,"url":"https:\/\/schenkelberg.investments\/?p=6489","url_meta":{"origin":6593,"position":0},"title":"Retirement Plan Options for Small Business Owners","author":"J.J. Schenkelberg, CFA","date":"October 7, 2019","format":false,"excerpt":"When it comes to retirement plans, we often think of a 401(k) or 403(b), depending on what type of workplace we are accustomed to. These options work very well for large business, but there are quite a few different options to be explored for smaller business owners. This can be\u2026","rel":"","context":"In "Financial Planning"","block_context":{"text":"Financial Planning","link":"https:\/\/schenkelberg.investments\/?cat=122"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2019\/10\/image.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2019\/10\/image.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2019\/10\/image.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":6148,"url":"https:\/\/schenkelberg.investments\/?p=6148","url_meta":{"origin":6593,"position":1},"title":"Retirement – Dreams to Reality – Busy Stage","author":"J.J. Schenkelberg, CFA","date":"July 8, 2017","format":false,"excerpt":"Who will you be when you retire? Retirement is about having control of your time. Maybe it means earning money doing something you love, at a pace that is comfortable for you. Maybe it is helping a charitable organization, or volunteering your time for activities you care about. Spending time\u2026","rel":"","context":"In "Financial Planning"","block_context":{"text":"Financial Planning","link":"https:\/\/schenkelberg.investments\/?cat=122"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":6141,"url":"https:\/\/schenkelberg.investments\/?p=6141","url_meta":{"origin":6593,"position":2},"title":"Retirement \u2013 Dreams to Reality – Pre-Retirement","author":"J.J. Schenkelberg, CFA","date":"October 23, 2017","format":false,"excerpt":"Who will you be when you retire? Retirement is about having control of your time. Maybe retirement means earning money doing something you love, at a pace that is comfortable for you. Maybe it is helping a charitable organization or volunteering your time for activities you care about. Spending time\u2026","rel":"","context":"In "Financial Planning"","block_context":{"text":"Financial Planning","link":"https:\/\/schenkelberg.investments\/?cat=122"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":6155,"url":"https:\/\/schenkelberg.investments\/?p=6155","url_meta":{"origin":6593,"position":3},"title":"Retirement – Dreams to Reality – Early Stage","author":"J.J. Schenkelberg, CFA","date":"April 8, 2017","format":false,"excerpt":"Retirement, that time in the future that remains a foggy dream for many. We know we want to get there. And, in many cases, the sooner the better. If you won millions of dollars in the lottery today what would you want to do tomorrow? \u201cRetire!\u201d would seem to be\u2026","rel":"","context":"In "Financial Planning"","block_context":{"text":"Financial Planning","link":"https:\/\/schenkelberg.investments\/?cat=122"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":6913,"url":"https:\/\/schenkelberg.investments\/?p=6913","url_meta":{"origin":6593,"position":4},"title":"Roth IRA Conversion Opportunities","author":"J.J. Schenkelberg, CFA","date":"January 5, 2026","format":false,"excerpt":"A Roth IRA (Individual Retirement Account) conversion involves moving funds from a traditional IRA or other eligible retirement account into a Roth IRA. Income taxes must be paid at the time of conversion, but once the funds are in the Roth IRA they may grow and be withdrawn tax free\u2026","rel":"","context":"In "Financial Planning"","block_context":{"text":"Financial Planning","link":"https:\/\/schenkelberg.investments\/?cat=122"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2026\/01\/image.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2026\/01\/image.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2026\/01\/image.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2026\/01\/image.png?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2026\/01\/image.png?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":6674,"url":"https:\/\/schenkelberg.investments\/?p=6674","url_meta":{"origin":6593,"position":5},"title":"New Year Resolutions","author":"J.J. Schenkelberg, CFA","date":"January 9, 2023","format":false,"excerpt":"There\u2019s really nothing that makes January that much different from any other month of the year. However, the start of a new year often makes us all take inventory of where we are and think about starting new goals. Whether you have business or personal goals, I challenge you to\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=\/wp\/v2\/posts\/6593","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=6593"}],"version-history":[{"count":1,"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=\/wp\/v2\/posts\/6593\/revisions"}],"predecessor-version":[{"id":6595,"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=\/wp\/v2\/posts\/6593\/revisions\/6595"}],"wp:attachment":[{"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6593"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6593"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/schenkelberg.investments\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6593"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
- Taxable Investment Account. <\/strong>Taxable investment accounts can be a very efficient option for high income savers. Dividend and interest are taxed at the income tax level when paid. However, capital gains that are earned on many investment vehicles are not taxed until the investment is sold. And capital gain tax rates can be much lower than income tax for many savers. Thus, investment growth taxation may be lower for many investors when a taxable investment account is used versus traditional tax deferred accounts. Additionally, heirs currently receive a stepped-up basis at the time of death, which erases imbedded capital gains from successful investments.<\/li><\/ul>\n\n\n\n
- Roth IRA contributions. <\/strong>Once you have maximized the employer match in the 401(k), contribute money to a Roth IRA. This option is limited for individuals with income above $144,000 and married filers with income of $208,000.<\/li><\/ul>\n\n\n\n
- Roth 401(k) contributions. <\/strong>Many 401(k) plans are now offering the option to split savings between traditional and Roth options. Roth 401(k) contributions invest after tax wages that will be invested tax deferred and may be withdrawn in the future tax free by yourself and your heirs. Consider splitting your 401(k) contributions between these options.<\/li><\/ol>\n\n\n\n
- You are considering retirement prior to age 59 \u00bd. <\/strong>There is a 10% penalty in most cases for tapping into traditional tax deferred investments prior to age 59 \u00bd. A rule of 55 does exist that provides for penalty free access to employer 401k plans. However, it depends on the employer\u2019s rules as whether this is available.<\/li><\/ul>\n\n\n\n
- You are concerned about taxation for heirs. <\/strong>Less than 1% of Americans need to worry about estate taxes, as the official estate and gift tax exemption climbs to $12.06 million per individual in 2022. For future reference, be aware this is always changing and is expected to be cut in half in 2026.<\/li><\/ul>\n\n\n\n