There's an old joke that asks, "What's the difference between death and taxes." The answer: "Death doesn't get worse whenever Congress meets."
In reality, taxes aren't exactly a joking matter. Especially when considering the effect that taxes are likely to have on our retirement savings.
Here is the first scenario you need to be aware of. If a dollar doubles over 20 consecutive periods it will quickly add up to more than a million dollars. Do the math yourself. Take $1, then double it. Then take that 2 and double it again. If you do that 20 times you'll get over a million dollars, but only if it is tax-free.
Under this scenario, that same dollar, doubling for 20 periods, will only amount to $72,000 if it's taxed-as-earned.
What does that mean for you? If you sock away moneyf or your future into something that is taxable or taxed as-earned you'll likely have far less to withdraw than you anticipate.
Simply put, the worst way to save for the future is in CDs or money markets or things that are taxable.
The second scenario is to put your retirement money into something that is tax-deferred such as an IRA or a 401(k) or a pension or profit-sharing plan. This is the route most people choose to take.
In this case, you take the money that is tax advantaged on the "seed" money, with the intention of paying taxes later on the "harvest." The problem with postponing taxes for some future, unknown, perceived advantage is that future tax rates are almost certain to go higher rather than lower.
It's like a farmer who enjoys a tax break when he buys his seed in the springtime but has to pay the taxes, in the fall, when he sells his harvest.
This brings us to our third scenario, which is growing that money tax-free.
Keep in mind that there are very few rules, under the IRS Code, which allow you to accumulate your money tax-free, and to have access to it all through your retirement tax-free, and then, when you pass away, to transfer it to your heirs tax-free.
It should be easy to see which of these tax scenarios works most in your favor.
These are 100% legal under specific sections of the IRS Code, but even professional accountants and tax attorneys often don't know about them until they've been shown. But once they're shown, the light goes on.
The differences between these tax scenarios aren't widely understood by most people, but you can find out more through Missed Fortune.
See http://www.missedfortuneradio.com for additional information
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