For years, many of us were told the same thing: save in your 401(k) or IRA, and by the time you retire you will be in a lower tax bracket. That is only sometimes true.
Tax-deferred is not tax-free
Most traditional retirement accounts — 401(k), 403(b), 457 plans and traditional IRAs — let you skip the tax today and pay it later. But “later” is when the account is at its largest. Every withdrawal can be taxed as ordinary income, often at the very moment you want the most from it.
The seeds and the harvest
Think of the money you contribute as the seeds, and the much larger amount you will eventually withdraw as the harvest. Would you rather pay tax on the seeds, or on the harvest?
Depending on your situation, there may be retirement planning options designed to help reduce current taxes and future taxes — and to give you more tax-free income in retirement. The right mix depends on your income today, your expected income later and your goals for your family.
Why coordination matters
Taxes touch every part of a retirement plan: when you claim Social Security, which account you draw from first, and what you leave to your children and grandchildren. That is why I work directly with your CPA or tax advisor, so the plan and the tax return work together.
Want to see how this applies to you? Book a 20-minute Clarity Call with Nancy or call the office at 561-997-8800 or Nancy’s cell at 561-690-6002.
This article is for general educational purposes only and is not individualized investment, tax or legal advice. Neither Osaic Wealth nor its representatives offer tax or legal advice; please consult your CPA or attorney about your situation.