Do you have the retirement plan that gives you a small tax break, now, in the current tax year, and pay a bigger tax later when you finally retire? In addition to the bigger tax, you are forced to start paying the tax at 70 1/2. It is worth repeating, you pay a higher tax later and you are forced to start paying that tax at 70 1/2. No one explained that before? Is there a possible solution?
This is an important topic because many working adults are planning to retire, eventually. Most of them had no idea how it will play out when they retire. They feel by contributing at the place of employment they will be AOK at retirement. Think again. Let's think about it. Why would the government give you a tax break this year to help you save? Answer: to tax you later when taxes are higher. Have you ever sat down and done the math on what the short term savings will mean in retirement?
Many will lose all their tax deductions by the time they retire. The kids will be grown up and, hopefully, out of the house by then. Maybe your only job for raising kids is spoiling the grandkids and then send them home with their parents. If you play your cards right, your house will be paid for and you will have no tax deduction for that. By losing some of these deductions it increases the amount you will have to pay when you retire.
Many people are doing well enough to retire early. With traditional retirement planning and savings, you cannot withdraw from your retirement account until you are 59 1/2. You may have to be locked into your job until the government says you can take the money without any penalties. Many working American's may not realize this is occurring to them. It can be 30 years later when an employee may start realizing this and feel knots forming in their stomach because for their entire career they had no idea that this was going on and if there was another way around it.
American's live by immediate gratification. If we want something, and cannot afford it, we put it on a credit card and worry about it later. The new Ford's have the latest technology in their next year's model, you'll finance it just so you can have it. Even some families don't talk about life insurance until it's too late and have to pull out of savings to handle everything. Since retirement is so many years in down the road, many put it to the side and claim they will deal with it later. This could mean bad consequence, such as finding out you will pay more taxes in retirement that you would have thought. To make it even worse, there is a way around it, even if you have to pay a little more taxes throughout the years of employment verses paying a higher tax at retirement.
Once we start thinking outside of the box and find there is a problem ( with a solution) and you need to change it, fast! The unfortunate part is, many financial planners are either not aware of any Tax-free retirement plans or resist the change due to what they are used to. They may even throw out slandering comments towards tax-free retirement. If a financial advisor or planner starts doing this, ask them to provide proof or evidence to support their statement. I have yet to have one provide me evidence it's bad news.
This tax-free retirement uses the chassis of an Indexed Universal Life insurance contract. Allocating similar funds to a traditional retirement account, you fund a Indexed Universal Life insurance and you would receive the upside gain of the market, but not the downside loss. Which means, you do not have to recover when the market goes south. This will allow the cash in the policy to increase at a much faster pace. If designed right with an expert, you will prevent yourself from making a taxable event with life insurance by putting the right pieces together to have the right amount of death benefit to match the funds that are being contributed.
If you decide to retire early, you can without any worries or burden of a penalty for early withdraw. Once you start withdrawing the money, it is tax free, partly because of after tax dollars. This complies with tax code Section 7702 (a). This will allow you to enjoy the fruits of your labors during your working years to enjoy the money you put to work for you, so you do not have to work harder. All of this allows you to enjoy an income stream for the rest of your life. With the right planning in place, you can achieve your financial goals and pay less in taxes.
The planning process starts with working with the right expert on the subject. Every situation will be different and end results may not be the same compared to others in the plan. Plans are subject to approval based on underwriting guidelines of the particular company. By talking to an expert, you will have a plan that will be best suit for your wants, needs and budget.
Butch Zemar
www.EliteBenefits.net