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Missed Fortune – Redirecting Unnecessary Taxes Toward Retirement

Posted on | April 8, 2012

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Seeing Your Tax Liability In a New Light

It’s the time of year that people are doing a lot of thinking and talking about their taxes. That’s a shame, because if we thought about our taxes throughout the rest of the year, we might actually recognize the impact they have on us.

For instance, if you’re part of a married couple earning over $70,000 or you’re a single earner making over $35,000 a year, your tax burden takes virtually everything you earn for the first 3-4 months of the year. If you’re making in excess of those incomes, your marginal income tax rate is somewhere between 30-35% depending upon where you live.

What if there was a way to direct otherwise payable tax money into causes you support rather than into the tax man’s coffers? Let’s be perfectly clear, this is not about evading taxes, it’s about knowing how to pay exactly what you are required to pay, and not a single dime more.

The remarkable side effect of people redirecting otherwise payable tax money into more productive causes is that it actually increases tax revenue for the government by promoting greater corporate and business growth. In other words, these tax strategies help government rather than hinder it.

These strategies also greatly empower the individual who is trying to build a retirement nest egg. Most average Americans have roughly $4,000 per year in unnecessary taxes that they’re paying. Or you may get an average tax refund of about $4,000 each year. So what’s the significance?

If you could take that $4,000 a year and instead of going on a tax refund spending spree, you disciplined yourself to redirect it into an account where it could accumulate tax-free and experience compound interest, that money will grow and grow. It could mean a difference of $300,000-$700,000 more in your retirement fund. If you’re under 40 years of age and start using this strategy, it could easily amount to an additional million dollars in your retirement nest egg.

That could translate into $40,000-$80,000 per year in predictable tax-free retirement income for the rest of your life. That’s the power of compounding that money over time.

Now you can start to understand why it makes sense to put that extra $4,000 to work now so you can reap the benefits in the future.

A Strategic Rollout Now Makes a Huge Difference Later

If you have the bulk of your serious retirement money in an IRA and you’re waiting until you’re 70 ½ to start taking minimum distributions, there’s a good chance you’re going to pay much higher taxes than you thought. This is partially because of the deferred taxes that Uncle Sam is waiting to claim when you start accessing your money. But there is also the distinct likelihood that taxes are going to increase as a result of continued government spending as well as expiration of the Bush tax cuts.

It may be a good time to consider doing a strategic rollout that will roll your money over from the IRA, pay the necessary taxes at today’s lower rates, and move the money into a vehicle where it can grow tax-free from today forward.

The ability to pay the applicable taxes now, and then to generate tax-free income from then on will make a dramatic difference in how much you’ll be able to save by the time you reach retirement. There’s also the added benefit of that money remaining tax-free when you ultimately pass on and leave it to your survivors.

With the right savings vehicle, you get the best of all possible worlds: Safety, Liquidity and Predictable rates of return while your money accumulates tax-free.

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*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

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