Perspective for your financial life.

Why Your Tax Bracket in Retirement May Surprise You

Most people spend their working years assuming retirement will bring a lower tax bill. For disciplined savers, the reverse is often true.

The conventional wisdom goes like this: in retirement, your income drops, so your tax rate drops with it. For someone who saved little, that may hold. But for the diligent saver who spent decades filling a 401(k) or traditional IRA, the picture is very different.

Every dollar in a tax-deferred account is a dollar you have not yet paid taxes on. You received a deduction when you contributed, and in exchange, you agreed to pay taxes later, at whatever rate exists when you withdraw. In effect, you are in a partnership with the government, and the government reserves the right to set the tax rate.

The forces that push retirement taxes up

Three things tend to raise a successful retiree's effective tax rate:

• Required withdrawals. Beginning at age 73, the IRS requires minimum distributions from tax-deferred accounts, whether or not you need the money. Large balances mean large forced withdrawals.
• Social Security taxation. As your other income rises, a growing share of your Social Security benefit becomes taxable, up to 85 percent of it.
• The direction of tax rates. Today's rates are low by historical standards. With significant national debt, many believe rates are more likely to rise than fall.

What to do about it

The good news is that this is a planning problem, and planning problems have solutions. Balancing where your money sits across taxable, tax-deferred, and tax-free accounts, and doing so in the years before withdrawals are required, can meaningfully reduce the taxes you pay over a retirement. The earlier that work begins, the more options you have.

This article is for educational purposes only and does not constitute investment, tax, or legal advice. Individual circumstances vary. Please consult a qualified professional about your situation.

The Three Tax Buckets, and Why Most People Are Unbalanced

Where your money sits matters as much as how much of it you have. Understanding the three tax categories is the first step toward keeping more of what you earn.

At Gurman Wealth Management, one of the first things we help clients see is that not all savings are created equal. Money can generally be organized into three buckets, each taxed differently.

Bucket one: taxed now

This includes checking, savings, and brokerage accounts. The money is flexible and available at any time, but its growth is taxed every year, through interest, dividends, and capital gains. It is useful for liquidity, but inefficient as a place to build long-term wealth.

Bucket two: taxed later, at an unknown rate

This includes 401(k)s and traditional IRAs. You get a tax break when you contribute, and the money grows without annual taxation. But every dollar you eventually withdraw is taxed as income, at future rates you cannot control. Most Americans hold the majority of their retirement savings here.

Bucket three: taxed never

This includes Roth IRAs and other tax-advantaged vehicles. You contribute after-tax dollars, and in return, the growth and the withdrawals are free from federal income tax. There are no required withdrawals during your lifetime on a Roth IRA. This is the bucket most people have the least in, and often the one that deserves the most attention.

The goal is balance

Having all three buckets gives you flexibility to draw income in a way that manages your tax bill year by year. Most people arrive at retirement heavily concentrated in bucket two. Thoughtful planning gradually shifts the balance, so you are not left with a large, deferred tax liability and little control over when it comes due.

This article is for educational purposes only and does not constitute investment, tax, or legal advice. Individual circumstances vary. Please consult a qualified professional about your situation.

Protecting Wealth Is as Important as Growing It

In the years approaching retirement, defense matters as much as offense. A single setback late in life can be difficult to recover from.

Much of the financial industry is focused on growth: rates of return, market performance, beating a benchmark. Growth matters. But for families approaching or in retirement, protecting what has already been built is often the more urgent priority.

The reason is time. A younger investor who suffers a loss has decades to recover. Someone within a few years of retirement does not. A market downturn, an unexpected lawsuit, or a large uninsured expense at the wrong moment can undo years of careful saving.

What asset protection considers

A protection-minded plan looks at the risks that could erode wealth, and puts structures in place to reduce them:

• Exposure to market declines close to or during retirement, when there is little time to recover
• Liability risk, particularly for business owners and professionals
• The cost of a major health event later in life
• Liquidity, so that a short-term need does not force the sale of long-term assets at a bad time

A complete plan does both

Growth and protection are not opposites; they work together. The aim is to continue building wealth while making sure that a single unexpected event cannot undo the progress. For many families, that balance is what turns a good financial position into a durable one.

This article is for educational purposes only and does not constitute investment, tax, or legal advice. Individual circumstances vary. Please consult a qualified professional about your situation.

The RMD Surprise: Planning Before Age 73

Required minimum distributions can push retirees into higher tax brackets at exactly the wrong time. The years before they begin are a valuable, and often overlooked, planning window.

For decades, a tax-deferred account feels like an unambiguous good. The balance grows, untaxed, year after year. But that deferred tax does not disappear. It waits, and eventually the IRS requires you to begin paying it.

Starting at age 73, retirees must take required minimum distributions, or RMDs, from their tax-deferred accounts. The percentage that must be withdrawn increases with age. For someone with a large balance, these forced withdrawals can be substantial, and they arrive whether or not the money is needed.

Why the timing is difficult

Large required withdrawals raise your taxable income. That can push you into a higher bracket, cause more of your Social Security to be taxed, and even increase your Medicare premiums. The result is that a lifetime of diligent saving can produce an unexpectedly heavy tax burden at precisely the moment you hoped to enjoy the money.

The window before 73

The years between retirement and age 73 are often the most valuable for tax planning. Income is frequently lower during this period, which can create room to move money out of tax-deferred accounts on your own terms, at rates you choose, rather than on the government's schedule later. Used well, this window can reduce the size of future required withdrawals and the taxes that come with them.

The key is to begin the conversation early. Once RMDs start, many of the most effective options are no longer available.

This article is for educational purposes only and does not constitute investment, tax, or legal advice. Individual circumstances vary. Please consult a qualified professional about your situation.

Passing On Wealth Without Passing On a Tax Bill

A thoughtful estate plan is about more than a will. It is about making sure the wealth you built reaches the people you care about, intact.

For many families, leaving something behind is one of the deepest financial motivations there is. Yet estate planning is often postponed, or reduced to a single document tucked in a drawer. A will is important, but it is only one part of a larger picture.

Coordination is everything

Wealth passes to the next generation through several channels at once: wills, trusts, and beneficiary designations on retirement and other accounts. When these are not coordinated, the results can conflict with your intentions, create unnecessary taxes, or send assets through a slow and public probate process.

A coordinated plan considers how each piece works together:

• How assets are titled, and whether they pass automatically or through probate
• Whether trusts can provide control, protection, and tax efficiency
• How beneficiary designations align with the overall plan
• The impact of taxes on what heirs actually receive

The goal: more to your family, less to taxes

Good estate planning is quiet work. Done well, it rarely draws attention, because everything simply passes the way it was meant to. The aim is straightforward: to help the wealth you spent a lifetime building reach the next generation smoothly, and with as little lost to taxes as the law allows.

This article is for educational purposes only and does not constitute investment, tax, or legal advice. Estate planning involves legal documents that should be prepared with a qualified attorney. Please consult qualified professionals about your situation.

Planning in a Higher-Rate World

With tax rates historically low and national debt high, the case for planning ahead has rarely been stronger.

It is difficult to know where tax rates will go. No one can predict that with certainty. But we can observe two facts. First, by historical standards, today's tax rates are relatively low. Second, the national debt and the obligations behind it are large and growing.

Put those together, and a reasonable person might conclude that the risk is tilted toward higher rates in the future, not lower ones. That does not require a prediction. It simply requires acknowledging which way the wind is more likely to blow.

Why it matters for your plan

If rates are more likely to rise, then paying taxes today, at known rates, can be more attractive than deferring them to an unknown future. This is the logic behind strategies that move money toward the tax-free bucket while current rates last. It reframes today's tax environment not as a burden, but as an opportunity that may not always be available.

Acting on what you can control

You cannot control tax policy. You can control how your own wealth is positioned in response to it. A forward-looking plan does not gamble on predictions. It builds flexibility, so that whatever direction rates take, you are prepared, and you keep more of what you have worked to build.

This article is for educational purposes only and does not constitute investment, tax, or legal advice. Individual circumstances vary. Please consult a qualified professional about your situation.