Taxes can take a big bite out of an investment portfolio. Over time income withheld for taxes can
reduce returns and significantly impact an investor's long-term investment
strategy.
The more money you earn, the more you pay in taxes. Fair?
Maybe, maybe not. What's certain
is that there is no indication of tax rates getting any lower and a good chance
that they will go up in the future. And
when you add in increasing nonqualified investments that kick off dividends and
capital gains, you could be losing investment earnings to taxes. Most people are not even aware that Mutual
Funds can kick off phantom capital gains. Over looking the role taxes play in your long
term investing strategy can derail your success.
When preparing for retirement, investors want their investments to grow so
they can draw an income from it when they stop working. The standard is to contribute to a company
401K or IRA and then anything extra go into a taxable non-retirement
account. Making a contribution into a
ROTH IRA is a great choice, but more and more workers are getting phased out
due to income limitations.
So how do we partially take taxes out of the equation? Turning to tax-deferred
vehicles is a way to avoid taxes today and control your income stream in the
future. In a study by TIAA-CREF, 84
percent of the respondents claim that receiving a monthly paycheck during
retirement is important to them; yet only 14 percent of Americans have
purchased a tax deferred annuity. An
annuity can keep you invested in the market while limiting the tax
exposure. By keeping more assets
invested over time, helps your money work smarter for the long run.
Market environments, tax laws, and interest rates will always change, but
easing the tax bite is a great way to provide more success to your retirement
goal.
