It’s Time to Change the
Way We Save For Retirement

It used to be safe to assume a lot of things about retirement savings.  401k, 403(b), and IRAs were obvious winners because they deferred taxes to later in life when you could safely assume you would qualify for a lower tax bracket because you no longer had employment income. But deferring taxes isn’t the fool-proof strategy it once was.

At first glance, saving now and paying taxes later seems like a fantastic idea.  It is the selling point of many personal retirement plans and the key to the most common American retirement strategies.  However, few participants consider the actual cost of choosing to defer.  If you are putting off paying taxes on the income you save for retirement, you are writing a blank check for Congress to cash out of your account.

Who Really Controls Your Retirement Savings?

The government will always have full control over income tax rates and choosing a tax-deferred account only makes sense if you are certain that your future tax scenario is more favorable than your current tax scenario. 

With the government posting massive annual federal budget deficits and every candidate running for office offering a new plan for taxing and public benefits—we can only assume that we know the rate at which we will be taxed this coming spring if even that.  Odds are that taxes aren’t going down, and in the event that your savings in a tax-deferred IRA outlive you, the taxes your beneficiaries pay just took a major hit as well.

The SECURE Act’s new “Success Tax

The SECURE act — which stands for “Setting Every Community Up for Retirement Enhancement” — has added another wrinkle in distribution and taxation of IRA’s that have been inherited by a non-spouse beneficiary.  Prior to 2020 inheritors could spread distributions over their lifetime, spreading the tax burden over decades.  Under the new law, beneficiaries must deplete the entire account within 10 years of the original owner’s death.  So larger distributions will be taxed in higher brackets and more of that hard-earned money saved in your IRA will go toward the federal government and not your children and grandchildren.

In a 2009 study, Lincoln Financial Group conducted a study that showed the combined cost of all taxes paid by retirees was their single biggest expense. As taxes rise, the additional burden will make it increasingly difficult to provide a sustainable retirement income.

The Devil You Know Beats the Devil You Don’t

Smart investors are changing the way they look at retirement savings.  Instead of taking an immediate tax deduction on ordinary income you will probably serve your long-term interests better if you pay your  taxes owed at current rates and invest it in TAX FREE high yield Indexed MEGA ROTH Private Plan.

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