How Much of Your Retirement Money Is REALLY Yours

Let me ask you something that may be a little uncomfortable. How much of that money is actually yours? I don't mean what your statement says. I mean, you know, not the great big bold number, it's at the top or the bottom of the page. I mean, how much of it is yours after the IRS is going to get their fair share? Because here's the truth. Most retirees think they're millionaires, when in reality a big portion of that money has already been promised to the government. They just don't feel it. Yet. Most IRA millionaires have kind of followed the rules. They contributed for a long period of time, they deferred the taxes, invested patiently, and they just kind of let it grow. But almost all their money sits in pre tax accounts like IRAs and 401ks. Now that may not be you, but that's the majority of the people that we talk to. And that means every dollar is taxable when you want to go touch it. And not at capital gains tax rates, at ordinary income tax rates. So when a client asks me, Craig, how tax free am I? Most of the time, the honest answer is, not nearly as much as you think, because the government is certainly your silent partner. So from a tax perspective, retirement money falls into three different buckets. You have the taxable bucket, and that's maybe your brokerage accounts, your CDs, your money market, your savings accounts. You have the tax deferred bucket. That's IRAs, 401ks. You've been a teacher of 403. And then you have your tax free bucket, which is your Roth IRAs and your Roth 401Ks. Most IRA millionaires are overloaded in bucket number two. And while it's fantastic that there's a lot of money there, it's dangerous because when all your money is tax deferred, you don't control your income. The IRS does. Every withdrawal becomes a tax decision instead of a lifestyle decision. And that's not what you work 40 years for. I remember clients back many years ago when I was in a traditional practice and we managed money and we did all those things. Clients would come and say, hey, I need to buy a new vehicle. We're going in tomorrow to, to kind of cut our deal. Can you transfer some money over to my checking account from my ira? Well, they had plenty of money sitting there. But when I would always ask them, so how do you want to pay the taxes? You want me to, you want me to just withhold it or what? And these are people who had plenty of money to go make the purchase, they would freeze and they would stop. And sometimes, sadly enough, they would even just not make the purchase because that $50,000 vehicle turned out to be a $65,000 distribution. Here's something most people have really never been told. If a large part of your IRA doesn't actually belong to you, then why are you paying investment fees on it? So let me run a real simple example to illustrate the point that I want to make that not a lot of advisors or CPAs talk about. Let's assume you have a million and a half dollars in your IRA. Your all in investment cost is, let's say say 1% a year. Now it's going to be whatever it is. But let's say the fund expenses, platform fees, and maybe if you have a financial advisor, their fees, if I add all those together and I call that 1%, that's fairly reasonable if you count all the fees and you look behind the curtain on everything and let's say you got 25 years remaining and between you and your spouse, your lifestyle of how long you're going to have that money as your own. And I don't know what your rate of return is going to be. The last three years have been fantastic. But let's just use maybe 7% is what the gross return is before fees. That means roughly 6% after fees. So without fees, that million and a half will grow over 25 years to become around $8 million. With a 1% fee, that's slowing your growth. That means it's closer to 6.4 million. That's about 1,700,000 that went to pay the fund manager, your asset manager, and just whatever internal fees are on the program. And that's just fees and law. And the loss compounded because the fees that went out. Now here's the part that really nobody talks a whole lot about. Let's assume roughly 30% of your IRA ultimately belongs to the IRS through taxes that you have to pay over the rest of your lifetime. That means about $450,000 of your account isn't really yours. And over that 25 years, you've paid roughly $500,000 in fees and loss, compounding on the government month. Not yours, not your kids. It's the IRS's. The fund company got paid, the advisor got paid. But what you paid to manage the IRS's portion, that never benefited your family. Most people have never done the math on this. This right here is another reason tax free buckets matter so much. Because every dollar moved into a Roth reduces how Much of your account belongs to the irs, removes the future tax drag we've been talking about every and makes more of your compounding truly yours. And it ensures that your ongoing fees work on your money, not theirs. It's not anti advisor, it's not anti fund. It's pro ownership. Let's imagine two different retirees. They have the same net worth, have the same lifestyle, they have the same investment returns. But one has mostly tax deferred money. The other has a balance of tax deferred, taxable and tax free. One year they each need an extra $70,000. Maybe it's for that vehicle purchase or the big trip for everybody or to pay taxes on something. So the first one, every dollar pulled from his or her IRA adds to taxable income. On the second one, they strategically get to blend withdrawals from different buckets. It's the same money, but completely different tax impact. Because flexibility controls taxes. Roth conversions are not just tax tools, they're bucket builders. Every dollar converted moves from tax deferred into your tax free bucket, grows without tax drag, avoids future RMDs and escapes legislative risk. At our firm, Q3 Advisors, we've accumulated projections of over $8 billion in tax avoidance for our client. And most of that is driven by intentionally bringing their tax free bucket higher and higher in value. Not because we assume tax rates are going to explode. Because the math works, even if they don't. So here's the question. How much of your retirement is fully taxed? How much is partially taxed? Or how much of it is never taxed again? And how much of your money are you paying fees on that you don't even truly own? Because retirement wealth isn't about what your statement says. It's about which bucket it sits in, who actually owns it, and how much of it are you going to get to keep? At Q3 Advisors, we help IRA millionaires build tax free income streams through not speculation, but through structure. And once you see your money through that lens, you never look at the IRA the same way again.