With tax day coming up April 15, people can avoid potentially tax bills in . Financial security expert Pamela Yellen, a two-time New York Times best-selling author, has a strategy to pay zero taxes legally in retirement.
Most forms of are taxed. In many cases, people face the unhappy surprise of paying more taxes when they are retired than they did while they were working. retirement accounts such as a 401(k), IRA, or 403(b) can be like on a tax time bomb, Pamela says. Why? The common assumption that people will pay less in taxes when they retire doesn’t pan out for many retirees.
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“Taxes are already one of the for retirees, and they are likely to increase in coming years,” Pamela says. “The ballooning national debt, which recently passed $21 trillion for the first time, and growing government expenditures as more people retire practically guarantee it.”
There are two main reasons many Americans are paying higher taxes in retirement than they did when they were working: Required Minimum Distributions (RMDs) mandate that retirees start drawing money from tax-deferred accounts around age 70½ – whether they want to or not. This often pushes them into a higher tax bracket. RMDs and income from other sources can also end up forcing to pay taxes on up to 85 percent of Social Security benefits.
“Financial planners and CPAs are seeing some retirees’ double or more because of this,” Pamela says.
How can people avoid the tax time bomb? Pamela recommends a wealth building strategy she calls Bank On Yourself that utilizes a specialized form of high cash value dividend-paying whole to save for retirement for several reasons:
- It uses after-tax money, which grows tax-deferred and can be accessed tax-free under current tax law.
- Withdrawals are not subject to RMDs that can push people into a higher tax bracket.
- The IRS does not count income from this method when determining how much taxes people pay on Social Security income. Income from these plans also won’t increase Medicare premiums, unlike distributions and tax-exempt bond income.
“If, like most folks, you believe tax rates will go higher in the long term, you can eliminate unpleasant surprises by paying taxes up front,” Pamela says. “Then the money in your retirement savings can be truly yours to keep, without being counted against you.”
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Published at Wed, 27 Mar 2019 06:16:19 +0000