The Tax-Deferred Time Bomb
You did everything right. Maxed out your 401(k) for decades. Built a $3 million retirement “war chest”. Watched it compound beautifully, tax-deferred, for years.
Then the bills come due.
At 73, Required Minimum Distributions (RMDs) force you to withdraw $113,000 in year one. By age 80, that RMD climbs to $150,000. By 85 or 86, it's over $200,000—whether you need the money or not.
Suddenly, you're pushed from the 24% tax bracket, to 32%, then 35%. That extra income flips your Social Security taxation from 50% to 85% taxable. Your monthly Medicare Part B/D premiums spike with IRMAA surcharges—potentially costing you up to an additional $12,712.80 per year, per couple (as of 2025, but in the future, who knows…). The Net Investment Income Tax (NIIT) at 3.8%, almost feels like a bargain, as even more salt is rubbed in the wound.
You're withdrawing six figures annually that you don't need, paying taxes at rates you never thought possible in retirement (after all, you’re not even working!), and watching your carefully built wealth erode to the IRS.
But here's where it gets truly ugly: what remains passes to your children—likely in their peak earning years, making $300,000+ annually. Now they’re forced to drain the Inherited tax-deferred account within 10 years, stacking those distributions on top of their own income. Your $2 million IRA inheritance starts pushing them up, up, up into the higher brackets as well.
The account you spent 40 years building becomes a mandatory income stream at exactly the wrong time.
This isn't a hypothetical. This is the near mathematical certainty facing anyone with substantial tax-deferred retirement accounts under current law. And if tax rates rise in the future? (Please note that current tax rates are actually low by historical standards…). Well, the impacts will only multiply. And probably not by a little...
The good news? This time bomb can be disarmed before it reaches its “detonation” phase. But the window to act strategically narrows with each passing year. The question isn't whether your tax-deferred accounts will create first-class problems for you and your heirs. It's whether you'll address them in time.
Reach out for guidance.
*Anyone born on or before June 30, 1949 has an RMD age of 70 ½. Those born in 1950 or early are subject to RMDs at the age of 72. For those born in 1951-1959, the RMD age is 73. And if born in 1960 or later, your RMD age will be 75.
