The 401(k) / IRA IQ Quiz: How safe is your retirement?

Ryan Shumaker, Smartvestor Pro at The Retirement Team

While we all love the season of giving, there is one place that many are likely giving far more than they should: the Internal Revenue Service. As we’ve pointed out in our 2-part article titled ‘Getting the Taxman Out of Your Retirement,” taxes are very different and often times much higher on retirement account withdrawals after you’ve started Social Security. Because of this, many are paying more than their fair share in taxes. If you are someone that doesn’t believe you’ve given the government enough of your money, there is an option to make gifts to reduce the debt at https://www.pay.gov/public/form/start/23779454. Surprisingly over $775,000 was donated last year and nearly $5 million so far this year!

READ: Getting the taxman out of your retirement — Part 1

READ: Getting the taxman out of your retirement — Part 2

If you’re someone that doesn’t want to give the taxman more than their fair share, you may want to take our 401(k) / IRA IQ Quiz. It is designed to flush out the biggest mistakes people make with retirement account distribution planning. Each question highlights a situation that could lead to the demise of your 401(k), IRA, or other retirement savings if you aren’t careful.

1. Do you have most of your retirement savings in a company 401(k), 403(b), or 457 retirement plan?        □ YES   □ NO
2. Do you have company stock in your 401(k)? □ YES   □ NO
3. Is your retirement plan one of the largest assets you own? □ YES   □ NO
4. Have you recently left your company, retired, or will you be retiring soon? □ YES   □ NO
5. After you retire, will you be leaving your retirement account with your former employer? □ YES   □ NO
6. Will you be taking a lump-sum distribution from you company plan at any time? □ YES   □ NO
7. Will your retirement account savings pass according to the terms in your will? □ YES   □ NO
8. Have you named a trust to be the beneficiary of your retirement plan? □ YES   □ NO
9. Is your estate the beneficiary of your retirement plan? □ YES   □ NO
10. Will you be leaving your retirement assets to your spouse? □ YES   □ NO
11. Have you put off instructing your beneficiaries what to do – and what not to do – with your retirement plan when they inherit it? □ YES   □ NO
12. Do you want to be able to control the payouts on your retirement account(s) after your death to prevent your beneficiaries from squandering the money? □ YES   □ NO
13. Will you be inheriting a retirement account from anyone? □ YES   □ NO
14. Are you 100% confident that your bank, broker, financial advisor, or mutual fund company will have all the necessary documentation on your retirement account(s) that your beneficiaries will need?   □ YES   □ NO
15. Are you unsure of the exact amount that the IRS requires you to withdraw from your retirement account, and when? □ YES   □ NO
16. Do you own a life insurance policy? □ YES   □ NO
17. Will you be rolling cash, stock, or other property over from one retirement account to another?  □ YES   □ NO
18. Has it been more than a year since you last updated the beneficiary forms for every retirement account you own? □ YES   □ NO
19. Will you need to tap into your retirement saving before you reach age 59½? □ YES   □ NO
20. Have you heard of the Roth IRA but taken no steps to find out more or set one up yet? □ YES   □ NO

Total Marked YES:  _________

Total Marked NO:    _________

Now that you’ve been through the quiz, take the total number of ‘yes’ answers and multiply them by 5. This represents the approximate percentage of your retirement savings that will probably go to the U.S. Treasury. The total number of ‘no’ points multiplied by 5 represents an approximation of how much you and your family will likely keep on average without having a strategic tax plan in place.

Percentage IRS is likely to keep: _________

Percentage I am likely to keep:   _________

If you feel that the percentage the IRS is likely to keep is too high or percentage you are likely to keep is too low, consider speaking with a financial professional that is proficient in tax efficient retirement planning. There are a lot of worthy charities and causes you can give to this holiday season that most would consider more deserving than the IRS.

–Ryan Shumaker, Smartvestor Pro at The Retirement Team

READ: The ‘7% guaranteed’ annuity myth