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Ask an Advisor: How Can Tax Rates Be Higher in Retirement Than Your Earning Years?

Ask an Advisor: How Can Tax Rates Be Higher in Retirement Than Your Earning Years?

February 17, 2024

Ask an Advisor: How Can Tax Rates Be Higher in Retirement Than Your Earning Years?  

Written by Steven Jarvis, CPA

I recently attended a retirement seminar at a local community college where the instructor talked about potentially higher tax rates in retirement due to the new RMD age. I have been under the impression throughout my saving career that tax rates in retirement are supposed to drop, especially if you pace your withdrawals. How can tax rates in retirement be higher than your earning years?

Let’s start with the simplest answer and then build from there. Required minimum distributions (RMDs) are certainly a reason that a person’s tax rate might go up in retirement, but they’re not the only reason. There are a number of possible scenarios in which a person faces higher taxes in retirement when compared to their earning years. (And if you need help with planning for taxes in retirement, consider matching with a financial advisor.  Click HERE to find out more.