Raise your hand if you have a substantial amount in a qualified retirement plan (typically an IRA 401(k), profit-sharing plan or the like). For our purposes, substantial amount means 300,000 dollars or more. The larger the amount, the bigger the problem or the better the opportunity (to apply the Retirement Plan Rescue and create tax-free wealth). This is a bad-news/good-news article. First, the bad news, in the form of an example: Joe has 1 million dollars (substitute your own real number) in his 401(k). Two taxes destroy Joe's 1-million dollars plan wealth. When Joe takes out just 1 dollars, income tax (state and federal) grabs 40 percent (0.40 dollars), leaving 0.60 dollars. At Joe's death (using 2011 rates) the estate tax steals 55 percent (0.33 dollars) of the 0.60 dollars. What's the result? The family gets only 0.27 dollars out of every 1 dollars; the tax collector gets 0.73 dollars. If Joe dies with funds still in his 401(k), the tax collector still double-taxes the balance (as described above).
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