Most corporate employees in their 50s and 60s rely on two main sources of retirement income: a 401(k) and Social Security. Both are largely controlled by the government.

Most people see Social Security’s future as cloudy, and wisely avoid depending too heavily on that income stream. But what many overlook is that their 401(k) is essentially a joint account with Uncle Sam.

The government dictates when and how you can access your money. Withdraw funds before age 59½ and you’ll pay a penalty. But don’t wait too long! Required distributions start at 73.

These withdrawals are taxed as ordinary income, and taking too much can trigger taxes on your Social Security benefits.

Individuals earning over $34,000 (or married couples earning more than $44,000) may pay taxes on up to 85% of their retirement benefits. And not even death can end your partnership with the government! Non-spouse beneficiaries who inherit retirement accounts must withdraw the full balance within 10 years—for someone inheriting a large amount, that timeline could push them into a higher tax bracket.

Fortunately, smart strategy can reduce or eliminate the government’s claim on your retirement funds. The key? Proactive, personalized planning. Starting 10 years before retirement is ideal, but even 3-5 years makes a meaningful difference. 

Work with an advisor who understands your full financial picture to help keep more of your hard-earned money where it belongs—with you and your family.

Read the full article at Thornwoodfinancial.com/insights. Consider scheduling a free consultation with Mark Huber and his team at Thornwood Financial:

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What About a Roth?

Your Roth IRA contributions come from after-tax dollars, which means retirement withdrawals are tax-free—after age 59½. They also offer more flexibility: there are no required minimum distributions, and you can withdraw your contributions (not earnings!) anytime, without penalty. The right choice depends on your current tax rate, expected future income, and retirement goals.