Can A Roth Help You Minimize Your Tax Loss?

Can A Roth Help You Minimize Your Tax Loss?

June 5, 2018

By Jeremy Reif, CRPS®, Financial Advisor and Owner of Point Wealth Management

Dealing with retirement can be tricky.  Do you plan for the here and now and everything that goes with it or do you plan for the future and try to take an educated guess as to what might happen? This is especially true when it comes to taxes. Is it better to pay taxes today under the current low rates, or pay them later when they could potentially be higher? What can you do today to lower the probability of paying those higher taxes?

The Tax Dilemma

In December 2017, Trump’s much-anticipated Tax Cuts and Jobs Act passed Congress and changed the tax rate system. The government often makes changes to taxes and tax rates, and this will probably continue in the future. The question is, how much will taxes go up by the time you retire? While we can’t predict the future, the current state of economy points to higher tax rates down the road. Let me give you a scenario to show you why this could happen.

Government Programs Need Our Tax Dollars

Most of us American citizens know that there are government benefits out there that are either available to us now or will be in the future. The most well-known of these government programs are Social Security, Medicare, Medicaid, and the Affordable Healthcare Act (or ObamaCare). These programs are funded by tax dollars. It is also publicly known that Social Security, Medicare, and Medicaid are grossly underfunded. While it’s too early to tell, the initial conclusion is that ObamaCare is also not funded appropriately due to the myriad of loopholes available in the program. I know about the loopholes because I help my clients qualify for the subsidized health insurance by using those same loopholes.

In the next 10 years, the baby boomer generation will be in retirement. With such a large part of our population leaving the workforce, there are not enough people coming in to keep up or grow or sustain the even larger amount of people collecting on all of these benefits. How will these programs pay for the benefits they provide? By raising taxes to cover the deficit.

Is There A Solution To Increased Taxes?

With that scenario laid out, it is my professional opinion that taxes will go up in the future. This begs the question for those who are planning for retirement: How do I minimize my taxes over my lifetime? Pre-retirees want to know the ideal way to save their hard-earned money and where they should take their money from when the time comes.

There are several strategies to use to help minimize taxes and there is no right answer. But one tool that is commonly used is a called a Roth IRA; either a regular contributory Roth IRA, a Roth 401(k) or a Roth Conversion. Unlike the tax-deferred traditional retirement accounts, with a Roth IRA or other Roth products, you pay all taxes up front (your contributions are made with after-tax dollars). The perk is that you receive tax-free withdrawals in retirement (after the age of 59½). When you decide to withdraw the money, you don’t have to pay taxes on any of the growth. Does it make sense for you to pay a little tax today at these historically low tax rates and save yourself the possible higher taxes in retirement when you need the money the most?  

Like any financial decision, the solution to the tax question depends on your unique situation. My job is to help you understand your life circumstances and guide you in choosing the best course of action for your finances. Contact me a call to discuss your options and ask any questions you may have. Schedule a call and meet me virtually.

About Jeremy Reif, CRPS®

Jeremy Reif is an independent financial advisor with more than a decade of experience in the financial services industry. He is also the owner of Point Wealth, LLC, an independent financial planning and investment management firm. With advanced credentials and training in retirement planning and financial planning, Jeremy focuses on helping individuals and families pursue financial independence. Regardless of the services he’s providing, he focuses on talking openly about financial planning, the industry, common questions about retirement planning, and more to help everyday investors gain more confidence in their financial opportunities. Based in Wausau, Wisconsin, Jeremy serves clients throughout the state and can work virtually with clients throughout the country. To learn more, visit http://pointwealthmanagement.com and connect with Jeremy on LinkedIn.

Investment Advisory Services offered through Retirement Wealth Advisors, (RWA) a Registered Investment Advisor. Point Wealth Management, TCM, and RWA are not affiliated. Securities offered through TCM Securities, Inc. Members FINRA-SIPC. Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss.

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