Taxes are on sale! Are your investments effectively balanced in the three tax buckets to take advantage of this?
Just like you diversify your investments, you also need to diversify your tax buckets.
Tax buckets are made up of taxable accounts, tax deferred accounts and tax free accounts. If these text buckets are not properly diversified, it will cause you to be in a higher tax bracket and could activate torpedo taxes on your Social Security benefits which is double taxation. If they are properly allocated, you can avoid this torpedo tax on Social Security and reduce your taxable income to the 10% tax bracket or lower.
Right now, with the tax rates being an all time low, taxes are on sale and this new tax law gives us a unique opportunity to diversify these tax buckets.
Some of the Taxable Accounts are the most common types of accounts but they are the most costly when it comes to taxes. These accounts are made up of savings accounts, money markets, CDs, mutual funds and start trading accounts.
Tax Deferred Accounts are very inexpensive to get because you get a tax break. now but they’re very expensive to keep because they cause higher taxes in the areas I have previously explained. Tax Deferred Accounts are made up of traditional IRAs, some annuities, 401(k)s, SEP IRAs and Simple IRAs.
Your Tax Exempt or Tax Free options are expensive to get because you don’t get the tax break now, but they’re inexpensive to keep because you don’t have to pay tax on the investment when you withdraw it. Therefore keeping you in a lower tax bracket. Some examples of tax Free Accounts include Roth IRAs, cash value life insurance and some annuities.
If done properly you can dictate to the IRS retirement how much taxes you are going to pay by strategically balancing your tax buckets!