Do you have money in a tax-deferred retirement account such as a 401(k), IRA or 403(b)? If so, you’re sitting on a tax time bomb.
I’m going to reveal the tax traps you face and show you how to move toward a 0% tax bracket in retirement (legally!) – but not by doing it the way most people do it, which is by being broke!
Conventional wisdom says, “Maximize your contributions to tax-deferred plans. Your money compounds without being reduced by taxes, and you’ll end up with more money during retirement.”
But like much conventional wisdom about personal finance, it’s not true…
The Society of Actuaries says if the tax rates are the same,
It doesn’t make any difference whether [the taxes] are taken away from you at the beginning (tax-exempt) or at the end (tax-deferred). It’s the same fraction of your money that is left to you.”
But most people look at their savings and think it’s all theirs. You may have forgotten you’ll owe Uncle Sam the taxes he let you defer all those years – on every penny you’ve put in and every penny of growth.
And according to Boston College’s Center for Retirement director, Alicia Munnell,
It’s a very big deal when people realize they only have two-thirds or three-quarters of what they thought they had.”
If the tax rates are actually lower during your retirement, you might come out ahead by deferring your taxes. But where do you think tax rates are headed long term? You must consider what tax rates might be during a retirement that could last 30+ years.
Most people we talk to think taxes ultimately must go up due to the aging demographics of our country and our unsustainable national debt. (Recently the debt passed $21 trillion for the first time.) If tax rates do go up, and you’re successful in growing your nest-egg, you’ll simply end up paying higher taxes on a bigger number. [Read more…] “How to Pay Zero Taxes in Retirement – Without Being Broke”