Most retirement plans require you to put money into a pre-tax plan such as IRA, 401(k), SEP etc.. These contributions are limited in amount and you are able to deduct them from your taxable income so you don't have to pay taxes on them in the year of the contribution.
Later in your life you have to start using those funds. At that time you pay taxes on all of your withdrawals. You would be paying taxes on them at the rate prevailing at that time. The trend of the tax rates is anybody's guess at this time.
If you contribute to these plans you must, in most cases, start taking distributions from these plans when you reach 70.5. If you don't take distributions you have penalties. If you take distributions before 59.5 you have penalties. Sometimes these penalties are quite hefty and eat away a big chunk of your principal. Thus you end up losing a lot if you want to take money out sooner than you reach 59.5.
There is another way of planning your retirement that we advice our clients to think about. This way helps plan your retirement in a way that you don't pay any taxes when you withdraw funds at retirement, you don't have to withdraw if you don't need it and you can pass on a good amount of your wealth on to your successors.
Plan your retirement wisely - plan it in a tax-smart way.
