This may be one of the wonders of finance – planning in the triangle. Imagine a triangle where each point has different benefits. During retirement you could mix and match the tax benefits to strive to reap the greatest amount!
The top tip of the triangle is the tax-free section. This bucket of money provides tax-free income. Roth IRAs are a perfect example. You contribute already taxed dollars and future distributions of both the contributions and the growth are tax-free. (Just a reminder - there are a few rules to know about the distributions). There are other tax-free avenues too. Municipal bonds, tax-exempt mutual funds, 529 savings plans, and cash value life insurance fall into the tax-free arena.
The bottom right tip is the tax-deferred section. Many over save in this arena to get current tax savings. These contributions provide a deduction to income in the year contributed, grow tax-deferred, and both contributions and growth are taxable upon distribution. 401(k) plans are popular tax-deferred strategies (and most have Roth savings options for the tax-free component). Other tax-deferred savings strategies are 457 plans, pensions, and SEP IRAs.
The bottom left tip is the taxable section. Your investments are made with after-tax dollars like the tax-free section, but the gains, interest, and dividends are taxable in the year realized or earned. Stocks, mutual funds, bonds, CDs, savings, limited partnerships are a few of the examples of taxable investments.
The progressive schedule of taxation reveals the exciting part of the triangle. If planned properly, you can manage your taxes during retirement by taking some taxable income and some tax-free to manage your tax liability!
You can have some tax benefits now and in the future. Having a team to help you devise a plan to reduce taxes now and in the future can help you save money.
Call us at 602.923.9800 or email affinitywealthadvisorygroup@ampf.com for a complimentary consultation.
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