This week’s “Slap in the Face” Award goes out to all the investment advisors who tell their retired clients to keep their money in their IRAs and to take only the required minimum distribution (RMD).

For many folks, it may not be the best advice. Here’s why…

If you believe that a solution to the current financial mess will require higher taxes in the future (like I do), then wouldn’t it make sense to get as much money out of your tax-deferred accounts as you can, as soon as possible – before tax rates increase?

[ad#Google Adsense 336×280-IA]After all, our tax rates will never be lower than when we stop working…

But that’s not what advisors are telling their clients.

When IRAs hit the street back in the early ‘80s, they seemed like the best thing since sliced bread.

You got to save $2,000 a year, and that came right off your taxes.

What could be better? You were saving and reducing your taxable income.

But there was more: Your money grew tax-deferred. No one could believe this… tax-free growth when the markets were growing (some years) at 15% and more. And it went on that way for most years until the 2000s.

The mood was positive, and people flocked to their banks to open IRAs. In the beginning, only banks could open them.

The words “dollar-cost averaging” were on everyone’s lips. And the future account values quoted by advisors were staggering. We were all going to be rich. (Well, rich in ‘80s terms, not today’s.)

And now, the ones who did sock it away and allowed the market to do its work are faced with annual RMDs after age 70 1/2. And according to many financial advisors, these can be a big problem if they bump you into the next higher tax bracket.

So, most advisors tell their clients to take only the RMDs in order to minimize their taxes. They tell them to live on taxable savings instead. But that’s not always the best advice. In many cases, the advisors’ motivation for saying so is for their own benefit, not yours.

Remember, advisors are paid a percentage of the account’s value. And many of them (though not all) are focusing on their income, not your after-tax returns. Your decision to keep as much money in your accounts as possible, for as long as possible, serves their best interest.

Before you fall in line and do as you’re told, take a long hard look at how much it will cost you to get your money out of an IRA and how much it could cost down the road.

In most cases, it makes sense to distribute the monies over a period of years when your personal tax rate is low and pay the tax bill now. I have no doubt that it isn’t going to get any cheaper.

Good investing,

Steve

[ad#wyatt-income]

Source: Wealthy Retirement