While most people contribute to retirement plans to save on income taxes and grow their retirement fund, it’s highly possible they’ll pay more in taxes at retirement than they’ve saved!
Here’s an example – say you buy some seeds at a local feed store, and when you go to pay, the clerk asks: Would you like to pay tax on the Seed now and get the harvest tax-free, or get the seed tax-free and pay tax on the harvest?
Wouldn’t you rather pay tax on the seed and get the harvest tax-free? But that’s just the opposite of how qualified or regulated retirement plans work!
Regulated retirement plans give you a tax break on the funds you contribute, or the seed, but when you retire, uncle Sam arrives with a wheel barrow to collect his taxes on your harvest.
So if you put 5,000 dollars per year at a 20 percent tax bracket into a qualified plan, you end up saving 30,000 dollars in 30 years.
[for illustration purposes, the formula is:
Annual contribution ($5000) x tax bracket (20%) =annual income tax savings ($1,000).]
Let’s say after 30 years, your account equals over a million dollars. You retire and decide to take 75,000 dollars a year as income – the harvest.
If you’re retired for only 20 years, you’ll end up paying over 300,000 dollars in income taxes! You saved 30,000 dollars to pay out 300,000 dollars – in other words, you’re paying tax on the harvest.
Let us help you keep more of your harvest tax-free when you retire.
Call us or visit our website today!
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