When you consider what it takes to establish a successful retirement plan, what comes to mind? Is it your annual rate of return; the safety of your principal; having a balanced portfolio; guaranteed income for life?
While all above are important, they are not the most critical factors that will determine whether you will run out of money before you run out of life. According to America’s IRA Expert, Ed Slott, the number one thing that will separate you from the retirement of your dreams is…TAXES!
When it comes to the success of your current retirement plan, how important are taxes? Let’s take a closer look. Do you know what the highest federal marginal tax rate in our nation’s history was? Would you guess 50 percent? How about 70 percent? What if I told you 80 percent would be too low? Would that get your attention? The highest federal tax rate in our nation’s history was 94 percent in 1944-1945. In fact, from 1936-1980, the highest federal tax rate never dropped below 70 percent. It was above 90 percent for 13 straight years from 1951-1963.
Most of the retirement funds in the U.S. have been saved in tax-deferred accounts like IRA’s and 401k’s. When you contribute to an IRA or a 401k, you are entering into an agreement with Uncle Sam. Do you know what IRA stands for? Most people believe it stands for Individual Retirement Account. This is not correct. Visit the IRS website and enter IRA in the search field. IRA stands for Individual Retirement Arrangement. https://www.irs.gov/pub/irs-pdf/p590a.pdf
When you contribute to an IRA you are making a lifelong arrangement with Uncle Sam. You are rolling the dice and betting on lower taxes in the future. When you make a tax-deductible contribution now, you are not “saving” taxes, you are “deferring” taxes until a future time. You are betting your future retirement success and income on the hope that you will be paying lower taxes in your future.
Uncle Sam has one major rule – You can pay him NOW, or you can pay him LATER, but you are going to pay him. And if you don’t have a plan for those taxes now, you will be at Uncle Sam’s mercy in the future when you need income the most. If you put your money into tax-deferred accounts, he will determine what your future rate will be. Remember 1951-1963, when the highest federal tax rate was 90+ percent? Can you imagine what your retirement would be like if you only kept ten cents of every dollar you withdrew to live on? It would be devastating!
Let this sink in for a few minutes. On September 8th, 2017, our national debt hit $20 trillion. Just six months later, on March 15th, 2018, our national debt had increased to $21 trillion. This was the fastest one trillion dollars increase in debt in our nation’s history.
Why is this important to the future of your retirement and how will it affect you when you retire? Simply put, at the current rate our national debt is increasing, our federal government will be forced to raise taxes in the future. We cannot continue to ignore this incredible debt. If your money has been saved in tax-deferred accounts, you will pay taxes on all your distributions at whatever rate Uncle Sam determines at that time, as will all your family members when they inherit your tax-infested accounts.
In 2018, due to the Tax Cuts and Jobs Act, we have seen some of the lowest tax rates in years. With such a discount on current taxes, ROTH IRA’s and tax-free life insurance accounts have never been more appealing. Wouldn’t you rather pay Uncle Sam now, when rates are as cheap as they have been in decades and continue your savings plan in accounts that will be forever tax-free? With the right type of planning, you can keep Uncle Sam off your back and pay him as you go.
When it comes to your retirement, IRA expert Ed Slott says, “It’s not what you make, it’s what you keep that counts.”
For more information on how you can start your tax-free retirement plan today, contact me at 417-581-9222 or email at http://email@example.com.
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