Are Higher Retirement

Taxes on the Horizon?

How You Could Protect Your Savings and Investments
from a Potential Tax Tsunami


ARE HIGHER TAXES ON THE HORIZON? © FCM CONTENT SOLUTIONS 2021

 Introductio
“In this world nothing can be said to be certain, except death and taxes.

-Benjamin Franklin (1789

We’ve come to expect taxes to be what they are – an unavoidable part of life.

You work, day in and day out, and you pay your taxes, year after year. Then you
wait for that moment you can nally hang it all up and retire. That’s just life, right

But there’s one thing that most people fail to realize

Taxes could haunt them all the way through retirement if they are not careful.

If you don’t have a plan to protect your retirement savings, it could put a major
drain on your lifestyle. Or worse yet, force you back to work

You may be thinking you’ll pay less taxes when you retire. And that makes sense.
You’re no longer working, so you shouldn’t be paying as much in taxes. But
unfortunately, it’s the opposite that could wind up being true.

Here’s how the government plans on getting a piece of your retirement savings

All that money you have saved in a Traditional IRA or 401K

Think about how much you’ve been squirreling away into those retirement
accounts. Do you remember all those nice tax breaks you got

That’s right. All that money you contributed was pre-tax. When you retire, the
government wants the favor returned. All that money you saved, and all the
growth you’ve experienced, will be taxed as ordinary income

And there’s nothing you can do about it, unless you plan ahead

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 Required Minimum Distributions (The RMD Tax Trap

Even if you don’t need the money in your Traditional IRA or 401K, the
government is going to force you to withdraw it anyway. It’s called a Required
Minimum Distribution, or RMD

When you turn 72-years old, you must make a withdrawal. There’s no getting
around it. And you’ll have to do it every single year

This might not seem like a big deal to you. You might think you’ll need the money
anyway. But if you combine this with your other sources of income, it could push
you into a higher tax bracket or cause you to withdraw more than you wanted to

Taxes on your Social Security Bene t

How about those treasured social security bene ts

This is a similar problem to those pesky RMDs. Your Social Security bene ts
could push your taxable income higher than you want

And if you’re not careful, you could wind up paying taxes on up to 85% of those
bene ts.

Not to mention, your bene ts could also increase your Medicare premiums
(sometimes double). Kind of like salt in the wound, isn’t it?

Taxes on your investment Incom

Next, you’ve got your regular investment income, whether it’s some stocks and
bonds, or a small business you fund, or a real estate property. That’ll be taxed as
well.

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Depending on what your investments are, or how long you hold them, these rates
could vary. But as you’re about to learn, these rates could skyrocket very soon

Your biggest threat: FUTURE TAX INCREASE

Guess what? Taxes are considered “low” right now. In fact, they’re considered
“historically” low

The probability of future tax rates going through the roof are growing by the day.
This could turn your retirement taxes from a nuisance, into a ALL-OUT
NIGHTMARE

Think about all that money sitting in retirement accounts across the country. All
those Baby Boomers who did very well in life. That money will most likely end up
in Uncle Sam’s crosshairs

Here’s why tax rates could be set to explode

COVID-19 Respons

The Coronavirus brought about one of the biggest spending sprees this country
has ever seen. The CARES Act cost 2 Trillion dollars. And then came the
American Rescue Plan Act of 2021, a $1.9 trillion economic stimulus relief
package.

According to Forbes (7/28/21) …

“Higher taxes are coming

Because of the pandemic, the federal government is running higher de cits as a

percentage of GDP than we’ve seen since World War II.

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 Even before the pandemic, the government de cit was nearly $1 trillion a year.
This scal year (2020), the Congressional Budget Of ce projects the de cit will
nearly quadruple to $3.7 trillion.

At some point, regardless of which political party is in power, the U.S.

government will need to raise revenue to stem the tide of red ink.”

And it looks like they’re just getting started. We could see far more stimulus in the
near future.

But at some point, the government is going to have to actually pay for all this
assistance. And there’s a whole lot of money sitting in the hands of retirees to
help them do just that

Skyrocketing National Deb

Even before the COVID-19 pandemic, federal spending was out of control. But
now our good friends in Washington are off to the moon

According to Forbes (5/3/21)

“The U.S. national debt is rising at a pace never seen in the history of
America.”

“With a current debt exceeding $28 trillion – an increase of nearly $5 trillion in

14 short months, Washington is now debating an infrastructure bill with a price
tag close to $2 trillion.”

“Even without this additional spending, the national debt will approach $89
trillion by 2029

Go ahead and check out the running debt clock HERE so see how fast money is
being spent. It’ll make your head spin.

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It’s up for debate whether we’ll ever pay this back. And many economists claim
the debt doesn’t really matter. But interest alone (on the debt) could start taking a
huge chunk out of the federal government’s coffers.

According to The Balance (5/30/21)

“The interest on the debt is $378 billion. That's from the federal budget for  scal
year (FY) 2021 that runs from October 1, 2020, through September 30, 2021.”

That payment is growing fast. How is the federal government going to nance
that debt? Bingo – by raising taxes!

Biden Administratio

The last thing we want to do is bring politics into your retirement planning. But
public policy is going to play a huge role in your retirement, wether you like it or
not. You must be able to forecast, adapt, and adjust as you go, or you’re likely to
get crushed

The Biden Administration has been very clear they want to raise taxes.

According to CNBC (6/21/21)

“Biden’s top tax rate on capital gains, dividends would be among the highest in
the world.

According to Reason (6/16/21)

“Biden’s tax plan means 60% of taxpayers will pay more. And as many of 75%
of middle income households face a tax increase.

Whether or not the Biden Administration will get these tax increases passed into
law is another story. But no matter what party stays or comes to power, there will

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 come a time when the federal government will need to either 1) increase taxes or
2) decrease spending.

It’s much easier to call for tax increases on those who “can afford it” (no matter
who ts that de nition), then to cut programs for those in need

Another important note: Provisions of the Tax Cuts and Jobs Act that impact
individual rates are set to expire in 2025 which would automatically raise rates for
most tax-paying individuals.

Options for Protecting Your Wealt

On top of the national debt and COVID-19 spending, we’ve got droves of retirees
ooding into Social Security and Medicare, and calls for programs like Medicare
For All and Free College.

It doesn’t matter if you agree with these programs or not, the government will
need to raise more tax revenue to cover the costs. There’s no way around it.

Now, for the good news

Although taxes are hard to get around, there are some great options for limiting
your exposure. And by utilizing these options, you could save yourself tens of
thousands of dollars in taxes in retirement, if not more

Here’s how you could keep more of your hard-earned money in your pocket
(where it belongs)

Smart Retirement Withdrawal Strategy

According to MarketWatch (9/3/21)

“Smart withdrawals can reduce taxes, extend your nest egg.

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 “Less well known but more tax-ef cient retirement-spending strategies can, by
reducing the tax hit on your withdrawals, actually extend the life of your next
egg, and that could mean the difference between running out of money and
leaving something to your heirs.

How and when you withdraw your money in retirement matters. You’ll most likely
have different income coming from different sources, and how and when you tap
those sources can either tip you into a higher tax bracket, or save you a small
fortune

Determining (and implementing) the right withdrawal strategy can be tricky. There
are many moving parts, so it’s best you know what you’re doing, or work with a
quali ed advisor who can steer you in the right direction

Roth Conversio

Most people save in a 401K through their job, or with a self-funded Traditional
IRA. You fund these accounts with pre-tax dollars, meaning you didn’t have to
pay taxes on the money you contributed.

When you save in a Roth IRA (or Roth 401K), you contribute after-tax dollars,
meaning you already paid the taxes.

But’s here’s the best part – with a Roth, your money grows tax free. And when
you withdraw that money in retirement, you won’t have to pay a dime in taxes.

Say tax rates went up 15% to pay for all this government spending. You still won’t
have to pay a dime. Sounds pretty good, right

And if you saved in (or converted to) a Roth IRA, you won’t have to deal with
Required Minimum Distributions either. That gives you more exibility with your
withdrawal plan

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 Bottom line: converting some (or most) of your money to a Roth could save you a
fortune when you retire. And it’s a well-known strategy that successful retirees
are putting to good use

Annuitie

Annuities have been growing in popularity for years now, and while they may not
be for everyone, they do have some tax advantages.

Annuities come in many shapes and forms. But generally speaking, if you buy
one with pre-tax dollars (say the money you have saved in a 401K or Traditional
IRA) you will be fully taxed on your payments

If you buy one with after-tax dollars (money you’ve already paid taxes on), you
will only get partially taxed on your payments. Any principle payments are tax
free. Any gains you made on the investment, will be taxed

If taxes are set to rise, and lifetime income is something you’re interested in,
looking to an annuity could be the right move for you. You can use money that
has been taxed at today’s (or yesterday’s) rates, to lock in guaranteed income
and avoid higher taxes in the future

Municipal Bond

According to Forbes (1/21/21)

“These tax havens collect income from the funding of projects like toll roads in
Denver and a convention center renovation in Chicago … they’re actually the
safest bonds you can buy other than U.S. Treasuries.

Municipal bonds, also known simply as “muni bonds” are debt securities issued
by state and local governments to pay for certain projects.

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 You buy the bond, meaning you are loaning the government money for the
project. In return you get interest payments for your money, and once the bond
reaches its maturity date, you get your principle back

Investors love them because they are exempt from federal income taxes (in most
cases). And if you live in the state where the bond is issued, they are usually
exempt for the local and state tax as well.

Combine this with their safety, and you’ve got a great option

Life Insuranc

According to Investopedia (2/24/2020)

”Proper tax planning should do two things—reduce your taxes while you are

alive, as well as after you die. Permanent life insurance gives you the potential
to cover these two bases at once

“You can transfer your assets tax-free (income and estate) to bene ciaries and
also build up tax-deferred growth of cash inside the policy.

“Permanent life insurance is one of the most powerful tax planning tools you
can nd.

Life insurance can be a great way to protect your wealth from the tax man.
Especially if you’re a high-income earner. And your family will love you for it!

There are different types of insurance to consider: Universal Life that pays a xed
interest, Variable Universal Life that offers different investment options, an
Irrevocable Life Insurance Trust if you have north of $4 million, and more

Just like annuities, these products can be complicated and confusing, so make
sure you work with a quali ed advisor to ensure you are getting the right product
for your situation

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 Conclusion

These are just a few of the options that are available for reducing your taxes in
retirement. Everyone’s situation is different, and will require a speci c tax
planning strategy to provide a tax-ef cient plan.

It’s critical you educate yourself on all of your available options and make a plan
with a quali ed advisor

If you’re afraid taxes could go higher, the time to prepare is now. Don’t wait until
the ball drops and you’re left holding the “tax bag.”

You’ve worked hard to build up your wealth. Now, it’s time to nish the job and
protect that wealth, so you can enjoy a successful retirement and pass your
wealth onto your loved ones

If you have any questions about guarding your portfolio from higher taxes in
retirement, give us a call (or email) anytime. We’re always here to help

858-461-495
dustin@presidiocm.co
www.presidiocm.com

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