if you have $500k in a 401k, the IRS has plans for it

About this Video

• Video Title: If You Have $500k in a 401k, The IRS Has Plans For It
• Channel: Tom Poltersdorf Jr, CFP®
• Speakers: Tom Poltersdorf Jr.
• Duration: 00:09:10

Introduction

This video addresses the significant tax implications of required minimum distributions (RMDs) from tax-deferred retirement accounts, particularly for those nearing retirement with substantial savings (e.g., $500,000+). The speaker uses a real-life client example to illustrate how RMDs can lead to substantial tax burdens, potentially exceeding $50,000 annually in later retirement years. The video aims to educate viewers on how to anticipate and mitigate these tax consequences.

Key Takeaways

• High RMD tax burden: Individuals with large sums in tax-deferred retirement accounts face substantial tax liabilities from RMDs, especially as they age. The speaker demonstrates how RMDs combined with Social Security income can push retirees into higher tax brackets.
• Planning is crucial: The video emphasizes proactive planning to minimize the impact of RMD taxes. This includes considering strategies like Roth conversions, strategic withdrawals, and qualified charitable distributions.
• Focus on lifestyle: The video advises prioritizing the desired retirement lifestyle, not just minimizing RMD withdrawals. The speaker encourages a shift in perspective from solely accumulating wealth to strategically using it to fund a fulfilling retirement.
• Using online calculators: The video suggests using online investment and RMD calculators (links provided in the video description) to estimate future account balances and RMD amounts. However, it also cautions that these are generic and don't account for individual circumstances.
• The "tax bomb": The speaker uses the term "tax bomb" to illustrate the potential surprise and significant tax liability from RMDs, stressing the importance of awareness and planning.