Questions I wish I could ask

Nandita Das Financial Planning

I worked hard to make a life for my family in this adopted country of mine. I was diligently saving for my retirement in tax-deferred instruments like 401K and 403B. Now that I am thinking of retiring, I have questions looming in my mind. I heard I have to pay tax on all that I saved in my retirement plan. I also heard that I am required to withdraw from my retirement account even if I don’t need (want) to withdraw. So many questions, my head is exploding.

Okay, here are the basics:

  1. Remember, the whole idea of tax-deferred retirement saving instrument is to defer taxes till you withdraw which is generally when you retire. Hopefully, you will be in a lower tax-bracket when you are in retirement. This may not be true for all. Specifically, if you have been maxing out in your retirement savings account, have a good social security check and a pension when you retire. That is why it is important to start planning early. Talk to professionals that help you plan to effectively minimize the tax burden.
  2. Yes, you will have to withdraw from all retirement tax deferred accounts (Roth IRAs do not fall under tax-deferred category) what is known as required minimum distribution (RMDs) when you turn 72.
  3. If you are working beyond 72, you have the opportunity to delay taking RMDs sponsored by the company for which you are still working till you are no longer working for the company.

The goal is to plan in advance. Do not wait till the last minute whether it is saving for retirement, withdrawing saved money efficiently from your retirement portfolio or for that matter even saving efficiently for your child’s college education. Everything needs a plan. Remember you planned and had a vision when you decided to leave your country and make this country your home. So bring-back that planning mind-set to your life. Holidays are the crucial time to discuss this with your family.

Happy Holidays!