Solving the Tax Problem

We had fun in the last segment talking about football, and we came up with some new laws. Now, we’re bringing it back to financial talk. Taxes are on the agenda, and that’s always been my favorite topic. Taxes are important because they affect everyone. When you think about 401K plans, sometimes they can come back to bite you.

We talked about the secret to a happy retirement: having a protected income that is stable, consistent, and predictable. It doesn’t matter what the market is doing, your income should come to you no matter what. In today’s world if you’re not looking at the right types of annuities, you’re missing out. Unfortunately, many people do have the wrong types of annuities. For every hundred annuities out there, there might only be five that are the right type of annuities. We solved the problem of stabilizing your retirement and building up a protected income plan, so you have great financial security reagardless of what the market may throw at you. Now, along comes April 15, and you’re filling out your tax return. Based on what you’re seeing, you realize you might be paying the same or even more taxes in retirement. We see that happen a lot. You may be wondering what is going on here.

First, you’ve worked for 30-40 years saving money for retirement. Over the years, you’ve gotten raises, maybe gotten promoted, or found a higher-paying job. As your income went up, your lifestyle also worked its way up the ladder, and you’ve gotten used to a certain lifestyle. When you retire, do you want to drastically change your lifestyle? Probably not. The whole purpose is that work is optional for you. That means you’re working because you want to work, not because you need to. This means your money must be structured in a way that you can turn on income and maintain your lifestyle.

The other day a retired couple came into our office. Work was optional for them. The husband had received an offer to go back to work and wanted to know if he needed to. I told him he had enough money to where he didn’t need to go back to work, but if he enjoyed it, and if it sounded like fun, then he could. He could go back for a year or two, and when that project is over, he can stop working again. The point is for work to be optional for you. A huge part of that is figuring out how to maintain your lifestyle.

If you want to maintain your lifestyle, your income must be similar to what it was before retirement. However, when many people retire there are things they used to put on their tax return that reduced their taxable income that are no longer applicable to them. They’re not putting money in their 401K anymore. Maybe their house is paid off or their kids are gone. Things they used to be able to write off on their taxes, they can’t anymore. It’s just pure income.

When some of your income comes from your 401K plan or your IRA, it causes a domino effect on the rest of your tax return. There will be more taxes everywhere else. It’s very common for people to wonder what the heck is going on and why they’re giving the IRS more money now than when they were working. As required distributions come out in your 70s and 80s, you’re forced to pull out more money than you’re spending, which results in even more tax.

You need to make intelligent choices that reduce taxes over time. If you save $500,000 in a 401K or an IRA, it is realistic that you might find yourself giving hundreds of thousands to the IRS on that IRA. With better planning on that same $500,000 IRA, you could save yourself hundreds of thousands of dollars in taxes. If you legally don’t have to give the IRS hundreds of thousands of dollars over your lifetime, and the money goes into your pocket, that means more financial security for you. It means you can do more things for yourself and your family. Your retirement is that much better.

I can’t guarantee you that on any investment you’re going to get a certain rate of return, except for a CD or something similar. What I can guarantee is that if you make smart choices in tax planning, you will have more money in your pocket. You must be aware of the different tools and accounts out there that are tax-free like Roth IRAs and properly structured life insurance contracts. It’s all about having a strategy where you can move bits and pieces of your money from taxable accounts like IRAs and 401Ks to tax-free accounts like Roth IRAs and life insurance.

It isn’t the same for everyone. We analyze your specific needs in our Retire Right Report. The “T” in Right stands for taxes. Do you have a tax plan? How are you going to save that $300,000? Don’t feel bad if you don’t have one. Most people don’t, and very few financial advisors are educated in this area.

If you’re getting ready to retire or have retired, and you’re worried about taxes, you need to call us. It’s free, there’s no obligation, and there’s no reason not to. All it takes is a few minutes of your time. We’ll put together a Retire Right Report for you.




















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