Avoiding the Tax Time Bomb

Today’s Prep:

Are you nervous about all the taxes you might have to pay in retirement? We talk through strategies you can implement now to reduce your taxes down the road.

(Click the featured times below to jump forward in the episode)

Equipping Points:

If most of your retirement savings are sitting in a 401(k) or IRAs, you’ll need some strategies to handle the taxes you’ll have to pay when you withdraw from these accounts. On today’s episode of the podcast, Eric shares a few different strategies that will reduce your tax burden in retirement.

The tax you owe later is hard to calculate since you won’t know what taxes will be down the line. Reducing the amount you currently put into a 401(k) is one strategy, but then where should that money go? Check to see if your plan as a Roth contribution in the 401(k). Another place is to put money in the Roth IRA, as long as you are within the income limits. Doing both puts you in a great position for retirement.

Is it okay to have both a traditional 401(k) and also a Roth IRA? You can’t ever have too much saved for retirement. If you are eligible for the Roth contribution, it’s a great account to put money away in. If your income is over the limit to contribute into a Roth IRA, what are your options?

In the tax-free toolbox, there are three tools: Roth accounts, municipal bond interest, and life insurance. Life insurance proceeds are tax-free. There’s no limit to what you can put in life insurance. It can accumulate tax-free, take it out tax-free, and it passes tax-free. High income earners will use life insurance as an accumulation vehicle.

If you chose to pursue a Roth conversion, what do you need to know? How much should you convert to a Roth IRA? It really depends on how much tax you’re willing to pay. Most people want to stay under the 25 percent tax bracket. This is a conversation you should be having with your financial advisor.

Listen to the entire episode or use the timestamps below to skip ahead.

[0:46] – What are tax strategies to consider?

[1:11] – Reducing the 401(k) contributions.

[3:22] – If you don’t have a Roth option at work, should you do a Roth IRA?

[4:41] – Would funding a cash value life insurance be a good strategy?

[7:48] – What do we need to know about Roth conversions?

 

Today’s Takeaway:

Qualified plans do two things: they defer the tax, but they also defer the tax calculation.

-Eric Peterson

Related Resources:

Navigating the New Administration’s Tax Plan

Retirement Readiness Pop Quiz

What Creates A Sense of Urgency With Your Financial Plan?

More From Eric:

The host: Eric Peterson - Contact - Call: (515) 226-1500

Subscribe To The Podcast:

Apple Podcasts  -  Google Podcasts  -  Spotify  -  Stitcher  -  iHeartRadio  -  TuneIn

Check out some other recent episodes

Retirement Income Planning Essentials

September 23, 2021

What do you need to know about retirement income? From Social Security to planning for inflation, Eric breaks down the basics of what you need to know and how to make a plan that fits your future.

Read More

Easy Financial Improvements To Make

September 16, 2021

What’s a simple way to make your financial planning better? Today we are going to discuss some easy steps you can take to improve your financial plan.

Read More

Empty Nest Syndrome

September 9, 2021

Have all of your little baby birds left the nest? Today, we discuss the kind of financial decisions you may make in this next stage of life.

Read More

Retirement Quiz – Is That Your Final Answer?

September 2, 2021

We quiz Eric with a few multiple-choice questions all about retirement. Which one will he choose? Do you agree?

Read More

Moving On From Financial Mistakes

August 26, 2021

Instead of getting stuck in a rut after a financial mistake, it’s important to move forward in the right direction. So, what can you do to recover? Find out on today’s show.

Read More

Common Complaints About Financial Advisors

August 19, 2021

Are you feeling frustrated when it comes to your financial planning? If so, these three common financial complaints might make you feel like you aren’t alone, but also give you hope for a better scenario.

Read More

Navigating Retirement Disagreements Between Spouses

August 12, 2021

What do couples tend to argue about when it comes to their money in retirement? Eric talks through what you need to do to get on the same page.

Read More

5 Most Common Retirement Planning Mistakes

August 5, 2021

Do you have a strategy in place to avoid these retirement planning mistakes? Eric talks through what to do instead to make sure your plan is a success.

Read More

The Retirement Countdown

July 29, 2021

In those final years before retirement, what should you be considering and doing now? We tackle a list of things you should do in the years before retirement.

Read More

Mailbag: Do I Need Long-Term Care Insurance If I Expect an Inheritance?

July 22, 2021

Looking for a way around paying for long-term care insurance? Will an inheritance cover it? Eric answers this question and two others from the mailbag.

Read More

Leave a Comment