Are You Setting Your Spouse up for a Tax Day of Reckoning? Part 2
“In this part 2, we’re going to discuss how RMDs – or Required Minimum Distributions –from retirement accounts can cause higher tax rates for a surviving spouse.
Our federal tax system is progressive. That means as my income increases above specified amounts, any additional income is generally taxed at a higher rate. So in simplistic terms, a couple may be paying tax at a rate of 15% until taxable income reaches about $74,000. At that point, each additional dollar may now be taxed NOT at 15% BUT at 25%. This can become burdensome for a surviving spouse when a couple has a lot of wealth in retirement accounts.
Owners of retirement accounts are generally required to take annual Minimum Distributions and pay tax on those dollars. A married couple can generally have up to about $74,000 of taxable income before paying federal tax at 25%. However, a SINGLE taxpayer starts to pay 25% tax NOT at $74,000 but at ONLY about $37,000. Sometimes these Required Withdrawals can easily push that surviving spouse into that higher tax bracket causing higher taxes possibly for the rest of his/her life.
Saving taxes today is great, but wise Tax Planning should also consider potential future taxes – even for a survivor. Every situation is different so you’re wise to work with a team of experienced professionals to help you make wise decisions.
For more helpful information like this, visit our website at PayneWealthPartners.com. Thank you!”
Published: December 14, 2014
Authored by: Terry Prather, CFP®, ChFC®
Direct Phone: 812-602-6307
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