When you reach retirement have you thought about what tax bracket you will be in? Will you be in the same bracket that you are currently in? Will tax brackets stay the same or will they go up?
The bottom line is nobody is 100 percent sure about what the answers will be to these questions. We can’t control what happens with taxes as they are controlled by the government. What we try and get our clients to focus on is putting their money in places that will be tax-favorable
Where can you put your money that is tax favorable? The two main places that you can put your money that can avoid any taxation is permanent life insurance and roth IRA’s. Roth IRA’s are great tools, but they are highly limiting. If you make too much money, you can’t participate. The government dictates how and when you tap into the money. Don’t get me wrong as it is great if you can take advantage of it. The other tax-advantaged vehicle is permanent life insurance. You can build up the cash value inside the policy on tax deferred basis and then tap into it tax-free. You tap into it tax-free by withdrawing up to your cost basis first. Once you have hit cost basis you get a stream of income through preferred policy loans.
One of the main places people put money is in tax-deferred vehicles like 401k’s. While the tax deferral makes the money compound quicker, deferred compound taxes have to be paid on the backend. The more vehicles that you withdraw from at retirement that you have to pay income tax on, will potentially place you in a higher tax bracket.
The world today can be very litigious and the risk of getting sued is high. It is important to work with your financial advisors to create as much of a bulletproof plan as you can. While that would be the goal, it is very difficult to avoid all possible risk.
One necessity of this is to have the proper insurance planning. Two products that are protected from creditors are cash value life insurance and annuities. Often these products are used by physicians or others professionals to protect there assets with malpractice and personal liability being such a big issue in today’s marketplace. Premium financing has become very popular using insurance and annuities.
Not only do you get the creditor protection with the products but you also get tax advantages with each one. With Annuities the growth is tax deferred and with life insurance the growth in the cash value can be accessed tax free if used correctly. Annuities are not necessarily a good fit for everybody, but with the right application they can be very effective. To read more about cash value life insurance and annuities you can read about it on www.massmutual.com.
If you haven’t established a risk mitigation plan, you may want to speak with your financial advisors and take a look at how these products and others might be added to your plan.