Using your retirement accounts wisely
Using your retirement accounts wisely
When we or someone we love, requires long-term care, it’s often the retirement account that pops to the top of our mind. For some, perhaps this is what they meant it for. For others, they may have imagined using the funds for other things.
We recognize there are times when the priority of using available cash funds, including retirement accounts, to pay long-term care costs can be very important. We urge you to take professional advice to help you arrange the most tax-efficient withdrawal sequence. This is a topic many don’t consider when thinking about long-term care expenses. In fact, we tend to look only at the account balance, overlooking the unseen income tax liability altogether. Usually, the institution maintaining the account will strongly encourage withholding the taxes upon withdrawal, but most do not compel it. The main idea here is to take that liability into consideration as you maximize the actual sums available.
Normally you don’t need to withdraw funds for care costs in large sums or all in the same tax year.
Getting Started:
Your best ally here will be a Financial Advisor. They can consult with you on the smartest utilization of accounts, including the timing and amounts of withdrawal. They will work with the correct agents with the institution holding the retirement account, as well as solid advice from a CPA. Together, working for you, this team should provide advice on the wise withdrawal of these funds to minimize income tax. You’ll want to approach them with this specific question.
You can also do a personal search on the topic online and you’ll find many good sources to clarify your own thinking before taking any action. We suggest browsing this site to get started.
Some Insights:
The real challenge in viewing your retirement accounts as a potential source of funds to pay long-term care expenses is that they have been protected from income taxation so that they’ll be there for your retirement income. In using them to pay these care costs, even though they arise during retirement, how they will be taxed is very significant in terms of how much will be available to you. The best strategy will depend on a number of factors well beyond the scope and interest of most taxpayers. You can be sure any professional fees on this topic will be well worth the cost.