IRA Exit Strategy

William Baldwin for Forbes writes: Take a close look at your retirement account. Do you have Mitt Romney Syndrome?

This is an affliction that strikes successful people. They fatten their IRAs and 401(k)s only to discover that compulsory withdrawals, which begin at age 70, hoist them into unexpectedly high tax brackets.

While details of the ex-governor’s IRA are not public, it appears that his tax-deferred savings are well into eight-figure territory. When this fact came out in the presidential campaign, a wave of sympathy was felt in tax-planning offices across the country. What a shame that all that money was going to come out at high ordinary income rates.

You don’t have to be Romney-rich to confront unpleasantness with your tax rates. In fact, many of the surprises in the code leave the wealthy unscathed while doing a lot of damage to families with incomes between $200,000 and $500,000.

There are antidotes. They constitute what Robert S. Keebler, a CPA in Green Bay, Wis., calls “bracket management.”

Consider a Keebler client we will call Harry. Harry is a midwestern engineer in his 60s. His retirement assets will, assuming a conservative growth rate, tote to $7.8 million by the time Harry turns 70. At that point he has to start withdrawing the money so the IRS can get a piece of it. The withdrawals would start at $291,000 a year and follow an upward curve, peaking at $642,000. [snip]

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