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Missed Fortune – Higher Taxes and Your Window of Opportunity

Posted on | February 12, 2012

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The CBO Confirms Taxes Will Be Higher

The Congressional Budget Office (CBO) has recently released a new report that confirms the probability of taxes increasing 30% or more over the next two years.

This comes as no surprise to Missed Fortune listeners who are well aware of this likelihood due to expiration of the Bush tax cuts and the massive increase in the national debt.  The runaway national debt has soared from $9 trillion to over $15.3 trillion in just the past 3 years and it shows no signs of slowing down.

The president has been calling for higher taxes, which means that married couples earning over $200,000 and singles earning over $100,000 could be paying tax rates as high as 62.5%.  A poll taken in late 2011 confirms that many Americans appear more than willing to “tax the rich” out of a sense of fairness.

What most Americans don’t appear to recognize is that placing higher tax burdens on the job creators will also produce higher unemployment due to the disincentive to grow their businesses.

These higher tax rates will also be felt by those who have their retirement savings in 401(k)s and IRAs.  Not only will the tax rates go up, but also these individuals will have fewer deductions available to decrease their tax liability.  This means that they’ll be in a higher tax bracket than they were during the time they were working.

According to the CBO report, “In particular between 2012 and 2014, revenues in CBO’s baseline shoot up by more than 30%, mostly because of the recent or scheduled expirations of tax provisions.”  The report also references “the imposition of new taxes, fees and penalties that are scheduled to go into effect.”

The tax hikes will be dramatic and they’ll be coming from multiple directions.

This means that we have a limited window of time, before the end of 2012, in which something can be done to avoid paying higher taxes on your IRA or 401(k).

The Window of Opportunity

Those who wish to protect their retirement savings from impact of dramatically higher taxes would be wise to consider doing a strategic rollout.

This allows a person to move their money from an existing IRA or 401(k), pay the applicable taxes at today’s lower rates, and reposition their money into a vehicle where it can accumulate tax-free from that day on.  Not only can your money grow tax-free, it also remains tax-free when you access it at retirement and transfers tax-free to your heirs.

Instead of deferring taxes to a later date—when tax rates will almost certainly be higher—or paying taxes on your increase when your money compounds, harness the power of compound interest in a tax-free environment.   A dollar that doubles every time for 20 cycles grows to over a million dollars, but only if it’s tax-free.  That’s the miracle of compound interest that Einstein described as the world’s “least understood phenomenon.”

There are specific sections of the IRS Code that make this possible.

They are entirely legal and have been grandfathered into the tax code for generations.  The only reason more people, including tax attorneys and retirement planners, don’t utilize them is because they don’t understand them.

People who miss this window of opportunity before the tax hikes kick in will find that even a million dollar nest egg will be quickly depleted in just a few short years due to the taxes they’ll owe.

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

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