Some say “if” but most likely “when” tax rates increase, are you prepared to take a hit? What are some strategies you can implement now to prepare for a future increase in tax rates? These two strategies are sure to soften the blow later on.
(Click the featured times below to jump forward in the episode)
Tax rates are historically low right now, but we also have $22 Trillion in national debt. Just how big is a trillion dollars? For most of us, it’s such a big number that we’ve totally lost sight of it. Because of this staggering number, tax rates are bound to increase. So how can you plan accordingly (and lower your stress level in the future)?
The first strategy you’ll want to implement now is considering a Roth. Often it’s a decision between an IRA and a Roth IRA or maybe a Roth option in your workplace retirement account. Which one is right for you? That depends on if your tax rate will be lower or higher in the future. You are limited in how much you contribute to a Roth each year, but it’s a decision you’ll want to seriously consider as it will mean a lot when you get to retirement. There may be additional benefits with a Roth as well when it comes to RMDs and the inheritance your heirs get tax-free after you die.
If you make over the income limit to contribute to a Roth, the second strategy may be worth considering: cash value life insurance. This strategy is good for high net worth people or high earners who are not rich yet. Most of the CEOs of Fortune 500 companies have this type of retirement vehicle as well as most senators.
Neither are great decisions to make on your own, so be sure to reach out to an advisor and do a lot of research to see if it is right for you. Implementing these tax strategies now could make all the difference in your retirement.
Listen to the entire episode to hear more about both strategies or click on the timestamps below for a specific segment. (Then tune in next week for more information about converting existing IRA money into Roth IRA money.)
1:23 – Why might tax rates be higher in the future?
3:03 – In 2015, a memo sent to the Speaker of the House said that our tax rates will need to double to cover expenses.
4:08 – What strategies can you implement now to avoid the pain of increased taxes later?
5:39 – Strategy #1 if tax rates go up: Roth.
8:27 – What are the major benefits to a Roth?
11:29 – Strategy #2: Certain forms of cash value life insurance.