taxes

Don't Wait for Congress – Give Yourself a Tax Cut Now

Your 401(k) and traditional IRA may be saving you on taxes today, but you'll owe taxes on them in the future. And who knows what rates will be then? In the meantime, here are two tax-taming strategies to consider instead.

Despite the Trump administration’s current attempts at lowering taxes, it’s tough to look at our $20 trillion national debt without wondering when — and how high — rates eventually will have to rise.

Another possible path: Life insurance

A Roth conversion is a popular choice right now, but it isn’t the only option. Rather than continuing to place all or part of their nest egg into a tax-deferred account, we’ve seen some savers redirect part of their funds into an Indexed Universal Life (IUL) insurance plan. The benefits can be considerable: tax-deferred growth, no contribution limits, income tax-free distributions, no penalties for withdrawals before age 59½, non-reportable income, no RMDs and a potentially income tax-free legacy (with the death benefit).

In his book, “The New Rules of Retirement Saving: The Risks No One Is Telling You About … And How to Fix Them,” Martin Ruby, a former actuary, describes in detail the strategy of converting an IRA to an IUL policy, which can significantly reduce taxes paid over many years through RMDs and the resulting taxation of the RMD money reinvested into taxable accounts. Ruby provides specific examples of how the strategy can be applied. Your adviser should be able to walk you through the pros and cons.

There’s an old Morgan Stanley ad that says, “You must pay taxes. But there’s no law that says you gotta leave a tip.”

It’s important to remember that deferral postpones taxes, but it doesn’t eliminate them. Eventually, Uncle Sam will want his share of the money you’ve been saving — and he can change the rules for how he gets it at any time.

That’s why many investors are looking at ways to put their own tax efficiencies in place — with strategies that will last their lifetimes.

If you’re worried about the money that’s piling up in your tax-deferred retirement plan, talk to your financial adviser and a tax professional about creating a tax-efficient strategy for the future.

Kim Franke-Folstad contributed to this article.

This is provided for informational purposes only; it is not intended to provide tax or legal advice. All individuals are encouraged to seek advice from qualified professionals regarding their individual circumstances.

About the Author

David Braun, Investment Adviser Representative

President, David Braun Financial and Insurance Services Inc.

David Braun is an Investment Adviser Representative and Insurance Professional at David Braun Financial & Insurance Services Inc. Braun has more than 25 years of experience in the financial industry, and holds Chartered Financial Consultant (ChFC), Certified Life Underwriter (CLU) and Life Underwriter Training Council Fellow (LUTCF) industry designations. Investment advisory services are offered through Resility Financial Inc., a Registered Investment Adviser. Insurance services are provided through David Braun Financial & Insurance Services Inc. CA #0678292

Most Popular

Dying Careers You May Want to Steer Clear Of
careers

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021
7 Best Commodity Stocks to Play the Coming Boom
commodities

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021

Recommended

11 Best Things to Keep in a Safe Deposit Box
savings

11 Best Things to Keep in a Safe Deposit Box

These valuables and documents, along with some items you hold dear, should be stored securely at your bank.
September 25, 2021
Tax Relief Available for California Wildfire Victims
Tax Breaks

Tax Relief Available for California Wildfire Victims

Following FEMA's recent disaster declaration, residents and businesses impacted by the California wildfires get more time to file and pay taxes.
September 24, 2021
Tax Relief Available for Hurricane Ida Victims
Tax Breaks

Tax Relief Available for Hurricane Ida Victims

People and businesses in Louisiana, Mississippi, New Jersey, New York and Pennsylvania impacted by Hurricane Ida get more time to file and pay certain…
September 24, 2021
9 Things You’ll Regret Keeping in a Safe Deposit Box
savings

9 Things You’ll Regret Keeping in a Safe Deposit Box

Locking up certain important documents and valuables in a bank vault could turn into a headache for you or your heirs.
September 24, 2021