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How Much of Your IRA or 401(k) Belongs to Uncle Sam?
Your account balance isn't all yours. Every traditional IRA and 401(k) carries a hidden tax that comes due when the money comes out, and it grows right along with your savings. Find out how big your tax bomb could be.
Why It's a Tax Bomb
Your IRA or 401(k) has been growing tax-deferred, and so has the tax you'll owe on it. These four factors decide how big the tax bomb gets and when it goes off.
Starting at age 73 or 75, the IRS requires you to withdraw a minimum amount every year, whether you need the money or not. Every withdrawal is taxable income.
Today's tax brackets are set by current law, and Congress can change them. Your rate in retirement could be higher, lower or the same as it is today.
Up to 85% of your Social Security benefits can become taxable as your other income rises, and IRA and 401(k) withdrawals count toward that income.
Higher income in retirement can raise your Medicare Part B and Part D premiums through IRMAA surcharges, based on your tax return from two years earlier.
How It Works
Your age, your IRA or 401(k) balance and an estimated tax rate in retirement.
See how much of your account may belong to Uncle Sam, right away.
A detailed PDF report is emailed to you, and you can book a free consultation to talk through your options.
Want the full story? Read The Silent Tax Bomb Hidden Inside Most 401(k)s.
The Basics
A traditional IRA or 401(k) lets your savings grow without paying tax along the way. That is a great deal while you are working. The catch is that none of that money has been taxed yet. Every dollar you contributed, and every dollar of growth, is taxed as ordinary income when it comes out.
The bigger your account grows, the bigger that future tax bill becomes. Then, starting at age 73 or 75, required minimum distributions (RMDs) force you to withdraw a growing share of the account every year, whether you need the money or not. Those withdrawals can push you into a higher bracket, make more of your Social Security taxable and raise your Medicare premiums. Whatever is left over is taxed again when your heirs withdraw it. That is the tax bomb, and the Tax Bomb Calculator shows you how big yours could be.
A Real Example
Here is what the calculator shows for a 60-year-old with $750,000 in an IRA, using a 25% tax rate.
Hypothetical illustration assuming 5% annual growth and a flat 25% federal tax rate. Your results will be different.
The Good News
Here are five of the most common strategies. They are not the only ones, and none of them works for everyone.
There are many other strategies that may help, and the right mix is different for everyone. A few more we look at:
Which strategies make sense, in what order and how much, depends on your income, your accounts, your tax bracket now and later, and your goals. Using the right strategy at the wrong time can cost you. That is why the best next step is a free consultation to analyze your situation and build a plan that fits you.
Book My Free ConsultationFAQ
A tax bomb is the large, often overlooked tax bill built into a traditional IRA or 401(k). Your contributions and growth have never been taxed, so every dollar that comes out is taxable income. As the account grows, so does the tax, and required minimum distributions can force large withdrawals later in life.
The tax itself is real: traditional IRA and 401(k) withdrawals are taxed as ordinary income under current law. How big it gets depends on your balance, your growth, your tax rate and when you withdraw. This calculator gives you an estimate so you can see your own numbers instead of guessing.
It grows your balance at 5% a year, applies required minimum distributions starting at age 73 or 75 using the IRS Uniform Lifetime Table, taxes each withdrawal at the rate you choose through age 95, and then taxes any pre-tax balance left at 95 at the same rate. The total is Uncle Sam’s potential share.
No. It estimates federal income tax only. Florida has no state income tax, so for Florida residents the federal number is the main one. If you live in a state with income tax, your total could be higher.
Often the best window is between retirement and the start of RMDs and Social Security, when your income and tax bracket may be lower. Strategies like Roth conversions and planned withdrawals tend to work best when there are years left to spread them out.
Yes, it is free. We use your information to send your report and to follow up if you would like to talk. We never sell your information, and you can opt out of messages at any time.
Roth conversions, withdrawal order, Social Security timing and many other strategies can change how much Uncle Sam gets. The right mix is different for everyone, so the best next step is a free consultation to analyze your situation.
About this calculator: This calculator provides a hypothetical estimate for educational purposes only and is not tax, legal or investment advice. Results assume 5% annual growth, a flat federal tax rate equal to the rate you select, required minimum distributions beginning at age 73 (or 75 if born in 1960 or later) based on the IRS Uniform Lifetime Table, and that any pre-tax balance remaining at age 95 is taxed at the same rate when withdrawn by you or your beneficiaries. It does not account for state taxes, taxes on Social Security, Medicare surcharges, withdrawals above the required minimum, changes in tax law or your personal circumstances. Actual results will vary.
Roth conversions are taxable in the year of conversion and may not be appropriate for everyone. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified tax professional before making any decisions.
