Posted on | October 27, 2009 | No Comments
Recently, we discussed the concept that “time is money.”
We pointed out every 90 days that go by without implementing asset optimization strategies that leverage maximum-funded, tax-advantaged insurance contracts can result in a loss of $100,000 or more in future retirement resources (when tax savings are calculated into the equation).
Well, there’s even more to the issue of the time-value of money.
Consider this: A dollar doubling every period for 20 periods tax-free would amount to over $1 million by the end.
However, if it were taxed as earned (in a 25% marginal tax bracket, which most Americans are in) as it doubled over the same 20 periods, it would only be worth $72,000.
Why is that?
When it’s taxed as earned, you have to pay tax on the gain every period.
So at the beginning, your money doubles from $1 to $2. You pay tax on that gain. Then what’s left doubles again, and you pay taxes on that gain — and so on for 20 periods.
By the end, if you’re in a 25% marginal tax bracket (as most Americans are on their last dollars earned), instead of $1,048,000, you would have $72,000.
Now that’s if you’re in a 25% marginal tax bracket. If you live in 41 of the 50 U.S. states that have a state income tax, you’re more likely to be in a 32 to 33% tax bracket.
And if the government eventually increases taxes to cover the skyrocketing federal debt, some experts estimate you could end up in a 50 to 60 percent tax bracket.
It would be far better to accumulate your retirement savings on a tax-free basis. Even if you’ve already started saving in 401(k)s, IRAs or other qualified plans, you can start now to transition your money through strategic roll-outs and be on your way to accumulating your wealth tax-free.
It is indeed possible to optimize your assets in savings accumulation vehicles where your money: 1) accumulates tax-free; 2) can be withdrawn tax-free (even before age 59 ½ – without penalty); and 3) transfers to your heirs tax-free when you pass away.
Find out more and begin now to empower yourself, and your financial future.