How To Defuse the Tax Bomb in Your Retirement Plans


  • Your 401(k) and IRA are tax-deferred savings, but that doesn’t mean you’ll never pay taxes on your retirement savings. Don’t let large tax amounts surprise you during retirement and rob you of your peaceful financial situation.
  • Discover how Jacobs Financial can help you defuse that tax bomb and take back your retirement.

Is there a tax bomb ticking away in the middle of your retirement plan? Are you wondering how does retirement work? Explore the tax considerations of retirement accounts before working with Jacobs Financial in Grandville, MI. We’re proud to help you take the necessary steps toward a retirement you can envision and enjoy.

The Tax Bomb

This metaphor describes the surprising amount of taxes you may have due on your retirement savings when it’s time to retire. Here are some common savings strategies that require you to pay taxes when you withdraw or sell them during retirement:

  • 401(k) or 401(k) rollover
  • IRA
  • Appreciated securities in personal savings

Basically, anything that wasn’t taxed when you placed it in your savings account will be taxed once withdrawn. The amount of taxes varies over time and is dependent on a number of personal features, so it’s important to work with our team at Jacobs Financial to get a clear picture of your current tax bomb and how to defuse it.

The Future of Tax Rates

There are a number of strategies for how to invest for retirement. Deferring taxes can be a beneficial way to save in some situations, particularly if you have reason to believe future taxes will be less than current ones. Unfortunately, there are many signs that future tax rates are going to be much higher.

The current federal deficit is continuing to climb. Interest rates may be historically low at the moment, but the deficit and the current state of Medicare and Social Security may point to climbing taxes sometime in the future.

How To Save Your Retirement Plan

If you’re starting to feel like your retirement future looks bleak, then don’t despair, but work with Jacobs Financial in Grandville, MI. We work with you to create a detailed, personalized, and successful retirement plan. Our team is experienced in defusing tax bombs and avoiding high IRA management fees. While the exact steps to take for your retirement plan are highly personal, here are some common ways we help you lower your tax liability and accomplish your retirement plan.

Roth IRA and Roth Conversions

A Roth IRA defuses your tax bomb by avoiding it altogether. Roth IRAs can be funded as long as you receive earned income. Your contributions aren’t tax-deductible, which means you’ll be paying taxes on the income you contribute.

This may make your contributions seem smaller upfront, but you can enjoy an entirely tax-free account during retirement. The amount in your account will be completely yours, without worrying about calculating taxes due.

For individuals on the verge of retirement, this solution may seem like too little, too late. You can, however, convert some of your existing IRA or 401(k) savings into a Roth IRA. Pay taxes while you make the conversion, and while tax rates are historically low, rather than waiting for unknown taxes in the future.

Receive Personalized Financial Guidance Today

Take that tax bomb out of your retirement plan with the help of Jacobs Financial. Learn how to prepare for retirement and calculate taxes with our qualified, friendly team in Grandville, MI. Schedule a meeting today to see what you can do to keep your retirement goals on track.

Image Credit:  emilie zhang/Shutterstock

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