Stop us if you’ve heard this one before. There are only two things certain in life: Death and Taxes. What you may not have heard, however, is that you have at least some options.

Here at Financial Convergence, one of the most serioius risks we discuss with our clients is current and future taxation. Think about it. Every year, you have a general idea of what you’re going to make, and thus a typical idea of what you’ll have to pay in taxes. It’s the most predictable expense you have all year.

Are you thinking of current and future taxation when you make financial choices? If not, it's time to start including this notion into your financial decision making process. If you’re a good citizen like we think you are, you’ll be paying taxes until the day you die. However, there’s no reason to be a better citizen than you need to be, and pony up more to Uncle Sam. There’s a multitude of tax efficient strategies available to individuals at every income level, yet it’s mainly the wealthy that seem to take advantage of them. Which makes sense since they are masters at managing their taxation.

Free Analysis

Now with the biggest update to our tax code since 1986 recently going into effect, there’s a 7 year window to take advantage (as of right now, the individual tax cuts sunset in 2025). Personal income and pass-through tax rates are at their lowest rates in decades and probably will not go lower for quite some time, if ever. With a national debt above $20 Trillion (not including the additional 50 trillion in unfunded future liabilities), the bill will come due eventually. When it does, our government will have two choices: cut spending or raise taxes. In reality, the choice will have to be a blend of both strategies.

So, if taxes are the lowest they’ll ever be right now, does it make sense to defer taxation on our retirement strategies until some future date? This is what that would look like. Mr. John has been able to put away 500k towards his retirement over 20 years. That money has grown up to 2 million in a tax deferred account by the time he retires. He has dreamed and planned on sailing with his wife, traveling to see his grandchildren, and seeing the world. When Mr. John is ready to start utilizing that 2 million (which equates to about 80k a year in income) he no longer has any major tax write offs. He has sold his business, his kids are moved out, and he owns his house outright. Tax rates have gone up to combat the national debt and now his tax rate is 50%. Mr. John can no longer count on 80k a year, he has to figure out how to live off of 40k. His lifestyle choices have just been cut in half. Will it be the sailboat, his grandchildren, or the world he doesn’t get to see?

We don’t like living our lives with the level of uncertainty that Mr. John created for himself. We like to control our risk in every area that we have the power to do so, are you like that too? Luckily for Mr. John it’s not too late. There are options that create tax exempt savings for a tax free future, and one’s that can convert tax deferred dollars into tax exempt money.

Over the years, we’ve seen how even a little bit of strategy can go a long way in saving individuals hundreds of thousands of dollars in taxes over their lifetimes. With the recent tax changes, there is an unprecedented opportunity to change how future taxation might affect you. We know there is a lot of noise out there. We help our clients ask the right questions and provide a real world analysis of their tax effeciency. Register for a free 1 Hour Tax Efficiency Analysis.



Free Analysis