Has your CPA ever throw his or her arm out of socket to congratulate themselves for saving you a few dollars in taxes this year by recommending you fully fund that tax-deductible retirement plan? Do you really want a CPA that only focuses on this year ignores your unknown future tax bill on the retirement plan?
Based on average tax rates, most taxpayers receive less than a 10% tax benefit for contributing money to traditional retirement plans. This means for every $10 contributed to a 401k plan you only save $1 in taxes this year. However, at retirement your distributions are taxed at your marginal tax rate; the rate of tax you pay on your last dollar of income. By default, this rate will almost always be higher than your average tax rate when you contributed to the plan. Additionally, this future rate is also unknown, so how will you plan for that?
Taxable retirement plan distributions can potentially make tax-free income sources like social security taxable up to 85% of the amount received. This is a form of double taxation that potentially can be avoided with proper planning. Perhaps instead of following that advice to save a few dollars today, you should create a strategy that may help you save thousands of dollars in retirement. Most competent financial advisors will be well versed in this tax discussion and design plans to best handle this future potential ticking tax bomb.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Eric D. Griessel and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results.oes not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Eric
