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Tax Today, Tax Tomorrow Tax Free
recently read an article in The Wall Street it isn’t. Journal titled U.S. National Debt Will Rise Higher-income earners might say they to 98% of GDP by 2030, CBO Projects. make too much money to contribute to a Obviously, this grabbed my attention. Roth and therefore can only accumulate I have known for a good while now that assets in the first two buckets. To some the country’s debt problems are significant, extent this could be true; however, a lot of but just how significant are they? 401(k) plans now have a Roth component The author of the article, Richard Rubin, built in, allowing employees to contribute to wrote that the national debt, along with the Roth 401(k) regardless of income level. sustained federal budget deficits, would hit There also are strategies for high-income the highest levels since World War II over the earners to contribute to a Roth IRA outside next decade, according to the Congressional of 401(k)s, which would require the help of Budget Office. Deficits will reach or exceed an adviser. For those who have capped out $1 trillion each year for the foreseeable in funding 401(k) Roths and Roth IRAs and future. want to do more, properly structured life Lee Williams The debt held by the public is projected insurance has few limits in terms of what can to be 81 percent of gross domestic product be contributed. The biggest limits are income this year and reach 98 percent by 2030. A lot of this and insurability. comes from the recent tax cuts, along with the aging I find very few people get excited about having to population utilizing Social Security and Medicare. pay taxes and take required minimum distributions Taking this a step further, the federal debt is projected from the tax-today and tax-tomorrow buckets. I see to hit 174 percent of GDP by 2049, which is 30 percent a lot of people excited to get tax-free withdrawals for higher than the CBO projected last year. retirement. Ultimately, who knows what taxes will do? This data is something my associates and I talk The data detailed above points to it being about on a weekly basis, so we can brainstorm how to progressively likely each year that taxes will have to better help our clients manage future what-ifs. We have increase. Look back on the history of income tax monitored this situation for the last several years to help brackets in this country. I believe that today we have a plan for what we believe to be a heightened risk of a low tax rate, historically speaking. Knowing this, I am a future increase in taxes. If this thinking is sound, what firm believer that some tax insurance (tax-free bucket) can one do? in a financial plan makes all the sense in the world and There are three buckets where people could save and something I find very under-utilized in traditional invest money: tax-today, tax-tomorrow and tax-free. planning. Let’s start with tax-today. This bucket includes savings accounts, certificates of deposit, individual brokerage ~ Lee Williams offers products and services through accounts and most all other non-qualified money. This Nowlin and Associates. He also offers securities and money is taxed each year on the realized gains/interest. investment advisory services through Ameritas Investment The second bucket is the tax-tomorrow bucket. These Corp. (member FINRA/SIPC), which is not affiliated include the traditional IRA, pre-tax 401(k) and pre-tax with Nowlin and 403(b). The final bucket is the tax-free one. This bucket Associates. Contact includes Roths and properly structured life insurance. him at 334-703I’m a believer in checking all the boxes and not just 3454 or lee@ one. Unfortunately, most people I advise have most of nowlinwm.com. their money tied up in tax today and tax tomorrow. Yes, they got a tax break for most of the tax-tomorrow bucket with the thinking that in retirement they would be in a lower-income tax bracket. Sometimes this is the case, but a lot of times
MONEY MATTERS
Lake Martin Living 31
