You cannot turn on the news these days without hearing about the “Fiscal Cliff” that awaits America’s taxpayers on January 1st.

Bush-era tax cuts are set to expire for all individuals. Among the changes,

• Marginal tax rates will rise from 10%, 15%, 25%, 28%, 33% and 35% in 2012 to 15%, 28%, 31%, 36% and 39.6% in 2013.

• The 15% maximum long-term capital gains rates will revert to 20% plus the Obamacare tax of 3.8% for a rate of 23.8%. In addition, qualified dividend rates will increase from 15% to being taxed at an individual’s marginal tax rate.

• Itemized deductions and personal exemptions will become subject to phase-out.

• Estate and gift tax exemption will drop from $5.12 million to $1 million and the top estate tax rate will go from 35% to 55%.

Most taxpayers are asking, “Is there anything I can do to prevent becoming a victim of this pending increase and future tax increases imposed by Washington?”

Now that the election is over, the “tax bomb” continues to tick on, closer to exploding not just because of the Fiscal Cliff of 2013, but also the retirement account “Tax Tsunami.”

Why do I say that? As of the writing of this article, the national debt clock stands at $16.262 trillion and continues to grow rapidly. Just in the month of October the US showed a $120 billion deficit, which puts us on course to add an additional trillion or more to the national debt over the next 12 months. When you consider the unfunded liabilities of Social Security and Medicare, it only makes sense to take a proactive approach in taking control of your future tax bills.

Most people I speak with these days are becoming more adverse to the growing risks associated with being invested in the stock market, but very few have given thought to the growing risks of the impending tax increases and the permanent losses that they will experience every April 15th for the rest of their lives.

Many baby boomers and retirees took advantage of tax planning in the 70s, 80s and 90s by deferring taxes to the future—and the future is now. They did so through the use of 401(k)s, IRAs and other deferred accounts (which replaced pension plans that were beginning to be phased out) to defer income and growth to the hope of future, lower tax rates.

That was a great idea since the tax rates were as high as 70% in the 70s and 50% in the 80s, and today (which is that future) the highest tax rate is 35% (see the chart below).

Mission accomplished, right? Well, not exactly! It’s true that deferring taxes to the future was a good idea, BUT where do you think taxes are going to go in the future? I have surveyed hundreds of people over the past couple of years and the consensus is unanimous that most, if not all of them believe taxes are going up.

As a matter of fact, the former head of the GAO (General Accounting Office) David Walker has stated that, “It is a simple mathematical fact that the numbers [national debt, Medicare and Social Security liabilities versus incoming revenue] just do not add up, and that Washington will have to raise taxes and cut spending!”

The biggest ticking tax bombs for most Americans are their retirement accounts, such as IRAs and 401(k)s. If you agree with the majority of taxpayers today and truly believe taxes are going to go up, doesn’t it make sense to pay taxes on these retirement accounts now at today’s historically low tax rates than to defer to the future higher tax rates?

Let me illustrate what I mean. Let’s assume you have $500,000 in your IRA, and you are currently in a 25% income tax rate. If tax rates go up to 35% for your income tax bracket, that would equate to a 40% increase in your tax liability. This equates to less net income, which may cause you to withdraw more from your retirement account to cover the increase in taxes, leaving you and your family less money to enjoy in retirement. It’s kind of like when you lost money in the stock market in 2008, except there is NO way to recover the losses, because Uncle Sam doesn’t give back what he takes.

A couple of possible solutions to this impending problem, would be to either begin a Strategic “taxable” rollout to a tax-free account like a Roth IRA, over a period of 3, 5, or 10 years.  You could also consider the viability of a tax “neutral” rollout to other types of tax-free accumulation accounts. There are some other really beneficial options that can be considered. It just depends on your current circumstances as to which one will be best suited for your situation.

Regardless which plan(s) you consider, it is vital that you begin soon, and that you work with an IRA tax reduction specialist to guide you in taking steps to take control of your taxes.

Don Rasmussen is a financial and retirement advisor located in Concord, North Carolina. Don is the president and founder of Quartermaster Financial and specializes in helping retirees plan a secure and tax-free retirement. For more information, contact Don at (704) 490-4111.