Are you a middling millionaire with $1-$3 million in retirement savings? Be on the lookout for the ‘tax torpedo’
Middling millionaires face unexpected tax burdens in retirement.
Middling millionaires, defined as those with $1-$3 million in retirement savings, are increasingly vulnerable to a phenomenon known as the 'tax torpedo,' which can significantly raise their tax liabilities. While many have diligently saved through tax-deferred accounts like 401(k)s, their income from withdrawals and Social Security can push them into higher tax brackets, resulting in up to 85% of their Social Security benefits becoming taxable. With careful planning, including early withdrawals and delaying Social Security claims, these retirees can better manage their tax exposure.
Key Takeaways
- 1.
Approximately 654,000 Americans have retirement accounts exceeding $1 million.
- 2.
A 4% withdrawal from a $1.5 million 401(k) can make up to 85% of Social Security taxable.
- 3.
Delaying Social Security benefits can increase payouts by up to 8% annually.
Get your personalized feed
Trace groups the biggest stories, videos, and discussions into one feed so you can stay current without scanning ten tabs.
Try Trace free