IRA Experts

Recently I was preparing a tax return for a client and we got into a discussion about the large value in his IRA. We talked about how he managed to accumulate more than a million dollars in his retirement plan. He told me that all the years that he worked he made sure he maxed out his 401-K and his IRA contributions. When he retired he rolled over his 401-K into his IRA. I complimented him on his ability to save money but then I asked him what he did for a living “I was a school teacher” her replied. As I thought more about that it occured to me that he would have been in the lower bracket almost all of his life. That meant that he actually put away the money at the lower bracket. Now that he is retired he is in a higher bracket than when he was working. That means if I were to average it out he is paying 7% more in income taxes now to withdraw the money than what he would have paid if he would have just paid the tax as he went along. IRAs and 401-Ks are certainly not always the great tax savings plans as the brokerage and mutual fund companies would have us believe. I have written about this numerous times on my financial planning blog  www.kenhimmler.com

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