Episode #6: Planning Around Tax Reform


The Principle:

Tax reform will almost certainly affect your retirement. Find out how to plan accordingly around recent tax legislation out of Washington.

(Click the featured times below to jump forward in the episode)

Honest Takes:

[00:15] – Tax Reform Takeaways: You Might Need To Adjust Your Withholdings.

  • You might’ve found yourself in a new tax bracket. If so, you need to adjust the amount of your income that is being withheld by Uncle Sam for federal income tax. Especially if you’re in a lower tax bracket, this number might have also decreased.

[2:05] – Tax Reform Takeaways: Invest In A Roth. 

  • If you don’t have a Roth investing account, it’s worth looking into opening one. A traditional IRA or 401(k) enables you to invest tax-deferred. This means any gains you incur on your initial investment will be taxed. With a Roth account, the government taxes your initial capital, but then allows you to keep all of your gains tax-free. In order to help explain this concept, think of it like a harvest. You’re given the option of paying a tax on your seed (I.e. Roth IRA) or your harvest (traditional retirement accounts). As your seed tends to multiply, it’s better to pay the tax on that initial seed. This is especially important given we don’t know whether tax rates might rise again in the future. We’re currently in a period of historically low tax rates. Roth accounts allow you to pay taxes at a fixed rate rather than a variable rate in the future. This isn’t to say traditional accounts don’t have a place in your retirement. We’re simply trying to help you plan effectively for the future.

[5:00] – Tax Reform Takeaways: Your Heirs Could Foot The Bill.  

  • A gentleman came in to see us who had about a million dollars in a variable annuity. He’s in an incredibly high tax bracket which means his kids will probably be in a high tax bracket as well. This particular account did not come with a Step-Up in basis. (Side note: A Step-Up in basis is a tool that basically helps to minimize the tax burden on your assets as you pass them along to your heirs.) Without it, this gentleman’s heirs were about to be left with an immense tax bill from the government. It’s important to know how your investments are taxed.

Today’s Truth:

Other Virtues:

The host: Brian Bowen – Contact

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