Qualified Plans - Retirement Accounts and Your Finances
One of the most common recommendations of where to place your money to grow for the future is in Qualified Retirement Accounts. The most common of these being 401(k), Traditional IRA or Roth IRA. These retirement accounts can sometimes contribute to wealth being transferred out unknowingly and unnecessarily. These accounts are most often a great source for retirement savings and most people who have access to such accounts should consider using them, especially if you are getting a company match.
What do qualified plans do? They do two things. They defer the tax and the tax calculation. The part you are most interested in today is the deferred tax which is a good thing. But don't forget, they also defer the tax calculation. Remember this as well, the IRS is not going to ask you at what tax bracket you put the money in. Their only concern is what bracket you are in at the time of withdrawal.
If you listen to the wisdom of many advisors you may hear you may hear you should contribute to these type of accounts because when you retire, you will be in a lower tax bracket. They are not necessarily wrong because because most people do retire in a lower tax bracket. But the main reason for this is that they are broke. You do not have to be one of the "most" statistic and take the necessary steps to make sure you are not broke at retirement. One of those steps will be to meet with a qualified professional that can help you avoid areas you may be transferring your wealth unknowingly and unnecessarily.
If you do have to retire on less than what you are making when you are working, it can mean only one thing. You probably do not have enough money. More than a few people work their entire lives only to wind up retiring on two thirds of what they can hardly live off of while they were working. The other problem is the cost of things in the future due to things you may not have planned for today. Many people plan to have their home paid off before they retire. Would it be a problem if when you retire your medical costs were greater than your current mortgage payment? What about property taxes?
A traditional IRA is often recommended based on the assumption people will be in a lower tax bracket when they retire. If this is not the case, an IRA could potentially cost you more if congress raises taxes in the future.
What do you think? Will tax rates go up or down in the future?
Things to consider:
One thing that is certain, Tax Rates do change over time. The question is, up or down? The average top tax rate in this country since 1916 is over 60%.
If you do own one of the Qualified Retirement Plans, you should ask the following questions:
And if you have a LOT of money in a qualified account, this question is for you:
You must be just as savvy in the distribution of your assets as you were in the accumulation of those assets to avoid unnecessary wealth transfers.
WATCH THE VIDEO ON "QUALIFIED PLANS" BELOW:
What do qualified plans do? They do two things. They defer the tax and the tax calculation. The part you are most interested in today is the deferred tax which is a good thing. But don't forget, they also defer the tax calculation. Remember this as well, the IRS is not going to ask you at what tax bracket you put the money in. Their only concern is what bracket you are in at the time of withdrawal.
If you listen to the wisdom of many advisors you may hear you may hear you should contribute to these type of accounts because when you retire, you will be in a lower tax bracket. They are not necessarily wrong because because most people do retire in a lower tax bracket. But the main reason for this is that they are broke. You do not have to be one of the "most" statistic and take the necessary steps to make sure you are not broke at retirement. One of those steps will be to meet with a qualified professional that can help you avoid areas you may be transferring your wealth unknowingly and unnecessarily.
If you do have to retire on less than what you are making when you are working, it can mean only one thing. You probably do not have enough money. More than a few people work their entire lives only to wind up retiring on two thirds of what they can hardly live off of while they were working. The other problem is the cost of things in the future due to things you may not have planned for today. Many people plan to have their home paid off before they retire. Would it be a problem if when you retire your medical costs were greater than your current mortgage payment? What about property taxes?
A traditional IRA is often recommended based on the assumption people will be in a lower tax bracket when they retire. If this is not the case, an IRA could potentially cost you more if congress raises taxes in the future.
What do you think? Will tax rates go up or down in the future?
Things to consider:
- Our deficit is quite large
- Social Security is schedule to go broke
- Medicare.... same thing
- The Boomers are retiring
- We have fewer workers per retiree
One thing that is certain, Tax Rates do change over time. The question is, up or down? The average top tax rate in this country since 1916 is over 60%.
If you do own one of the Qualified Retirement Plans, you should ask the following questions:
- What is your exit strategy?
- What is your plan for withdrawing the money?
And if you have a LOT of money in a qualified account, this question is for you:
- How are you going to get the money out without paying all the tax?
You must be just as savvy in the distribution of your assets as you were in the accumulation of those assets to avoid unnecessary wealth transfers.
WATCH THE VIDEO ON "QUALIFIED PLANS" BELOW: