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A Savings Vehicle That Makes All the Difference

Missed Fortune – Growing Your Money Tax-free is Essential To a Worry-free Future

Posted on | April 7, 2013

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Where the Crowd Goes Astray

Most people are conditioned to follow the crowd. This is especially true in how we approach saving for our retirement.

If we perceive that most people are putting their money into 401(k)s or IRAs, then we assume that these must be the ideal ways to save. In this case, however, there is no real safety in following the crowd.

The problem is that few people understand the difference between accumulating money in a tax-deferred account rather than in a tax-free vehicle. But it’s not just laypeople that don’t understand this distinction. Even tax attorneys and financial advisors are often unaware of truly tax-free methods to accumulate money.

Upon hearing the words “tax-free”, many people suppose that we’re referring to some sort of tax loophole that could be closed by Congress at any moment.

But the tax-free vehicle we’re talking about is no loophole. It is a perfectly legal tool for accumulating money tax-free and it has been grandfathered into the IRS code for over 100 years. Congress considers it such a sacred cow that it’s the only thing excluded from funding Obama’s health care law.

Once you understand that tax-free savings is possible, you’ll recognize that while the crowd’s preferred method of saving for retirement may be okay, it’s not the best way to save. People just don’t know what they don’t know.

The remedy is to empower yourself with knowledge. Then you’ll understand exactly how to create a dream solution that allows your retirement nest egg to accumulate tax-free.

At retirement, those who saved in tax-deferred vehicles like IRAs and 401(k)s will find that unpaid taxes will consume anywhere from a third to half of their savings. They’ll also face the prospect of being in an even higher tax bracket than they were in throughout their working years.

Lacking the deductions they used to enjoy and with higher tax rates looming, many people may outlive their retirement savings. When this happens, the fact that they went with the crowd won’t make any difference.

But it doesn’t have to be this way.

What Your Savings Vehicle Should Do

There’s still time to position your nest egg for a brighter future.

Ideally, you’ll want to have your serious money in a savings vehicle that provides some key protections. It will need liquidity for the times when you need to access your money. It should also provide safety for your principal so when the economy goes down your principal does not. Additionally, in those years that the market grows, your increase must become newly protected principal.

Your savings vehicle must also earn predictable rates of return. People who have broken with the crowd and found the optimal vehicle have been enjoying rates of return averaging 9.2% while netting 8.2% for the past 38 years. Even more impressive is the fact that they’ve continued to outperform other savings vehicles over the last 10 years—the worst decade since the Great depression.

They’ve learned how to rebalance and to use indexing to enjoy even better rates of return.

These are some of the benefits for breaking with the crowd and becoming educated about these alternatives that have existed for decades. Folks who do this arrive at their goal of financial independence much quicker. They also have much more money to show for their efforts.

For every million dollars they can generate up to $70,000 tax-free annual income that will last as long as they do without depleting their principal. And at the end of the day, this principal transfers tax-free to their spouse, their children or any other worthy cause they prefer.

On the other hand, folks who leave their money in IRAs and 401(k)s will have reason to kick themselves down the road.

Even if that’s where your money is today, you can get it out today with the least tax impact possible and roll it over into a vehicle where it will accumulate tax-free from that day forward. By linking your money to those things that inflate, you’ll no longer have to worry about inflation shrinking the purchasing power of your savings.

The only thing standing between you and that brighter future is the decision to step up and learn these strategies.

Start by visiting with a wealth architect today.

Bonus Missed Fortune E-Book: Baby Boomer Blunders The average Baby Boomer has less than $50,000 accumulated for retirement (which means many have less than that), primarily due to bad habits and having money invested in the wrong places where economic downturns can diminish their nest egg. Download this e-book

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

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