Financial Planning Truths

Nobody wants to pay more tax then they have to, unfortunately very few people take the time to figure out the best legal ways to lower their life time tax bill. Most people have very little control over the timing of their earned income (pay check) so they think there is little they can do about their taxes. Everybody, however, has considerable control over what accounts they can put money into, and when they can take money out of those accounts. Doing it correctly can save you hundreds of thousands of dollars in taxes over your lifetime. In some of my earlier articles I talked about retirement and other accounts and the importance of investing in them to shelter or delay taxes on as much money as possible. But here is a quick refresher on what these are. There are individual accounts otherwise known as IRAs and there are employer sponsored plans, generically referred to as 401Ks. Your employer sponsored plan may be called something different such as a 403B if you work for a nonpr...

I am often asked that question in various forms especially around this time of year when people are thinking about their taxes. Sometimes it is a question from someone considering a promotion, new job or simply taking on overtime, other times it is people worrying about making too much money in their investments or their 401K and IRAs growing so large that they will have a “huge tax burden”. Granted our tax code is way too complicated, and many people including some financial planners, don’t fully understand how it affects your investment . I even head a financial planner the other night come up with a cute (but incorrect) phrase, “Your IRA is simply and IOU to the IRS.” While it is true you owe taxes on your traditional IRA and 401k only a portion of it will go to the IRS, less than 40% even with the worst planning. How much goes to the IRS depends on how well you plan, see my next article that talks about reducing taxes through planning.   In the meantime what you owe the IRS s...