As we get closer to the deadline to submit our taxes, we pay a visit to our Tax Accountant. Now, if we are entrepreneurs, we are able to file an extension and file our taxes before October 15th.
What is the main job of your accountant? Your accountant’s job is to help you save as much on taxes as possible NOW. She will help you with itemized expenses, interest deductions and suggest you put your money in tax-deferred investments. If your accountant is not doing this, she is not doing her job.
Examples of tax-deferred investments include, but are not limited to, 401k, 403b, Annuities, Savings Bonds and more. But you will have to pay compounded fees with those.
Most people don’t even know there are fees associated with those and other investments. The fees can take up to 50% or more of your investment.
Again, these investments are tax-deferred. Therefore, when you need your money the most (when you retire and are over 59 1/2 and are able to take out your money), Uncle Sam is going to give you a call so he can get paid for all the money you deferred and grew during the time of saving.
For example, if you are accustomed to a $100k a year lifestyle and you take that amount from your tax-deferred retirement accounts, you will have to pay taxes on the full $100k. In today’s tax bracket, that would be around 25% (or $25k). So your net income would be around $75k.
Do you prefer to pay taxes now or do you prefer to pay taxes later? I am big on diversifying. I am not opposed for you to put some of your money in tax-deferred accounts because there are clear benefits to it.
Are there any other options?
I’m glad you asked. Yes, there are other investments that, even though you pay your taxes now, you will not pay any taxes on the growth of your money.
Not only that, but opposed to your 401ks or IRAs, you have no risk to lose your money, you don’t have to pay fees, and the growth of your money is tax-exempt.
What sounds better, tax-deferred or tax-exempt?
Tax-exempt investments are where wealthy people and financial institutions put their money. Even Tony Robbins in his book, “Money Master The Game,” recommends we put our money in tax-exempt investments.
Roth IRAs are a good example of tax-exempt investments, but there are restrictions, risks, and management fees. There is also another tax-exempt product in the U.S. that hardly anyone knows about, Index Universal Life. Most of the time life insurance is a horrible place to put your money, but if it is structured the right way, there are a lot of benefits to it.
So consider this and investigate further all of your options. I am here to help answer your questions regarding these investments.
Yes, there are instant benefits and gratification for not paying taxes now, but there are far better benefits to paying little taxes now, delaying your gratification and enjoying your money later.
Financial education is the path to freedom, stay informed.
Sara Chevere is the Creator and Founder of The Financially Fit Women. She helps women, couples, and entrepreneurs to become financially fit by teaching them about money. Sara has been in the Finance and Mortgage Industry for over 17 years. She loves to talk about money, and her mission is to educate and empower you to have the confidence to achieve financial freedom.
“Financial Education is The Path to Freedom” – Sara Chevere