THE NEW HOLISTIC RETIREMENT • 53 Nick fell into the trap so ma ny of us do: H e thought his IR A was worth $850,000. It wasn’t. Disregarding for the moment any deductions or write- offs, Nick ’s total tax liabilit y is a round 25 percent . So, w hen he withdraws $50,000 fro m his IRA, he only gets to keep $37,500. The ot her $12,500? That ’s t he tax es he ow es. That ’s his deb t to the IRS. Put anot her w ay, Nick is indebt ed t o t he IRS (and it s stat e and local partners) for around 25 percent of his retirement fu nds. Whil e he wa s sa ving, Nick got a tax deduct ion on his IR A contributio n every year . It was like a lo an he did n’t have to repay anytime soon. But now, as Nick gets ready to retire, he’ll st art to repay t hat l oa n. Now, I' m not suggesting that future taxes due are identical t o ha ving a true "lo an" with the IRS. Obviously th e loan has defined terms, a set repayment schedule and it appears on your credit report, among other things. But the concept is very similar— you've saved for years but t hese fu nds a re not all "you rs." You ha ve a n obligat ion t o "repa y" some of these funds to the IRS. And unlike a true contractual lo an, yo u don' t eve n kno w the rate you' ll be charged unti l th at debt comes due! Why don’t most of us think about this hidden debt? Because it doesn’t impact us now. When you buy a house on a mortgage, you live in the house every day and make your mortgage payments each month. But, with your IRA, you’re not using the money until years in the future, and the debt isn’t immediately clear. It’s about to become clear. Because, when you begin accessing funds fro m your IRA or 401(k ), you b egin ow ing taxes— you begin paying b ack your deb t to the IRS.
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