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Missed Fortune – Putting Otherwise Payable Taxes to Work For You

Posted on | July 8, 2012

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Thinking Beyond April 15th

If we actually spent more time thinking about our taxes throughout the rest of the year, we would have a far better grasp of the impact they have on us.

For instance, for a married couple earning over $70,000 or a single earner making over $35,000 a year, the tax burden takes virtually everything they 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 taxman’s coffers? Please understand, this is not about evading taxes, it’s about knowing how to pay only what you are required to pay, and not a dime more.

A surprising side effect of 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 anyone trying to build a retirement nest egg. Most average Americans pay roughly $4,000 per year in unnecessary taxes. Or they receive an average tax refund of about $4,000 each year. So what’s the significance?

If you took that $4,000 a year and rather than going on a refund spending spree, you instead redirected it into an account where it accumulates tax-free and experiences 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 begin using this strategy, it could easily put an additional million dollars into 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. It’s a classic example of the power of compounding that money over time.

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

Tax Free Growth is Your Greatest Friend

While many people just accept the paying of those taxes as a necessary part of their lives, few realize that there are powerful strategies that can enable them to lawfully redirect otherwise payable taxes to more productive causes. These are thanks to sections that are grandfathered into the IRS Code that allow a person to avoid unnecessary taxes while simultaneously building their retirement nest egg.

This is why you get certain tax deductions when you borrow to buy a home or contribute to an IRA or 401(k). And with the right tax-free vehicles, you can save 50-100% more money at retirement.

Done correctly, your nest egg should be able to accumulate tax-free once the applicable taxes have been paid. And not only will the money grow tax-free, but also it remains tax-free when you access it and when you transfer to your heirs. This can mean the difference between a retirement fund that is spent dry within a few short years, and a nest egg that continues to provide $70,000-$80,000 per year in predictable, tax-free income for the rest of your life through compound interest.

Imagine that you were to go out golfing and you bet your friend a quarter on the first hole and then proposed to double the amount of the bet on each subsequent hole. So, on the first hole you’d make .25 cents, on the second hole you’d make 50 cents, and so forth. By the time you reach the 18th hole, that bet would be $32,768. This illustrates the power of compounding over time.

Whether you’re getting a yearly tax refund or you simply haven’t recognized otherwise payable taxes that could be redirected to more productive use, you needn’t be one of the people who, on average, let roughly $4,000-$4500 a year slip through their fingers.

By wisely directing that money to more productive use, you can effectively take charge of your financial future.

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

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