Planned Assets Planning Blog

For decades, tax-deferral has been one of the most powerful ideas advocated by financial advisors, the government and financial press.  But is it still the best option for everyone?

It’s often quoted “Why pay income tax now on money you don’t need now?  Instead, you can defer taxes, grow more assets, and ultimately have more money after-tax.”  This concept has always been based on the belief you will be in a lower tax bracket when you retire, but is this still the case? 

To answer this question we must first look at look at Federal, not to mention state, income tax history.  Federal taxes started out at a low 7% for the highest income earners, in 1944 it moved to 95% and over the years it has average 65% for the highest earners.  Now the highest earners are paying 35% and capital gains is at a low 15%.  As we look at the economy, follow the financial press, review our corporate national debt and those in political power do we really believe tax rate are going to remain at this level?  Furthermore we are well aware that tax increases are being pushed for those in the highest brackets that is not where most of the money is.  While it may help to increase the 35% bracket and even capital gains eventually it falls on the middle brackets (25 & 28%) to provide the money and allow 55% of the nation not to pay income taxes.

Deferral of taxes has always made sense, up until now:

Change is coming and coming quickly and it is past time for all of us to reconsider the concept of deferring tax on our investments, above any match of our employers. The reasons are many but the most obvious:

1.     Probability income tax rate will increase on the affluent Americans followed by an increase on the rest of us.

2.     Unusually low return on investments, the volatile market and unlimited printing of money by the Fed.

3.     Our tax and spend government.

If you believe taxes will go up, then is now the time to defer income?  Taxes are on sale and we might be better advised to move money from or stop deferral of investment, pay the tax and move assets to tax free investments for the future.

With the Billions of dollars that has been printed with nothing to back them up except national faith and credit at some point someone must pay and this is normally called inflation. The value of the dollar becomes less, we have to make more to buy the same products and even if brackets stayed level inflation will push us to a new level of tax.

Where is the largest pool of untaxed money today, it’s in our IRAs, 401(k)s and qualified plans.  If this is where the money is, don’t you think the government is considering how to get more of it?  Would you borrow money from a bank that says you can borrow as much as you like, but we will tell you when it’s time to pay it back and what the rate is?  Even if you do not need the money at 70.5 you have to start taking it due to Require Minimum Distributions.

The question you must ask yourself, whose retirement am I planning anyway, mine or the government? 

Is now the time to have a conversation concerning your plans for retirement income and how you can develop retirement income you can count on?  Time is not on your side concerning retirement planning; regardless of when you plan for retirement it will get here before you know it.  A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

A typical retired couple may add as much as 20% to their after-tax retirement income by coordinating when to use different categories of their money in retirement?

Most individuals have three financial legs to support them in retirement: (1) Social security benefit; (2) qualified retirement savings and (3) non-qualified savings and investments.  A majority of couples and individuals may by selectively coordinating how they use assets within these three sources actually improve after-tax retirement income up to 20%.  Unfortunately, most overlook the importance of coordinating use of available assets, resulting in higher tax.

Why?  There are several reasons why many Americans lose up to 20% of possible retirement income:

1. Knowledge:  The United States Income Tax system actual consist of two systems.  Those understanding the system, rules and loop holes always pay less in percentage of income.  Of course those who do not have this knowledge always pay a greater percentage of income.  The problem is most are not even aware of what they do not know and spend most of their energy obtaining minor savings and missing savings opportunities contributing to successful retirement.
2. Planning:  The majority of American retired retire without a written retirement plan.  Successful business requires an effective written plan if it hopes to succeed and your retirement is your business.
3. Conventional Wisdom:  Too many professional planners, as well as pre and post retired people stick with conventional wisdom even if it is wrong.  As all of us have told our children, “just because everyone else is doing it does not make it right”.  Conventional wisdom may actually cost you 20% more in tax than necessary.