40 • MARTIN H. RUBY
My goal was to determine the total amount of taxes I was going to pay from my IRA from now until I died. I knew it would be high. But I was absolutely blown away by what I found.
Crunching Numbers Like many savers, my retirement assets are spread across more than one account. When I went to evaluate my total tax liability, I decided to just focus on one account: an IRA with around $700,000 in it. I was sixty-five at the time. I looked at that $700,000 and thought of all the places it would be taxed. First, I used a few assumptions. I assumed I would have a 25 percent total tax liability (state and local) both now and in retire- ment. Next, I assumed my IRA would grow at an annual, pre-tax rate of 5 percent. Because I wanted to determine the maximum in taxes my IRA could potentially generate, I also decided I wouldn’t spend the income I took out of the account, but rather place it in a taxable account earning an after-tax return of 3.75 percent. Since I wanted to see how much tax I would pay over my lifetime, I as- Let’s look at all the places my IRA money could be taxed as I use it, and then we’ll add it up and determine the total tax liability of my IRA. • My IRA will be taxed when I withdraw funds, either for income or as required minimum distributions (RMDs). As you may know, in 2019 Congress passed the SE- CURE Act, which raised the starting age for RMDs from seventy-and-one-half to seventy-two. Now, be- ginning at age seventy-two, the IRS requires you to sumed I passed away at age ninety. Pretty conservative assumptions. I think you’ll be as amazed by the results as I was.
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