oh, see the storm is threatening
my very life today
if i don’t get some shelter
yeah, i’m gonna fade away
These lyrics from the famous English rock band say so much. In our business of helping clients with their personal finances, we keep a close eye on our government’s tax policies. We are indeed facing a storm of new taxes that are threatening how our financial lives will play out. Without expressing any judgment on whether increasing taxes are good or bad for the country, I can say without hesitation, taxation is growing to be the most impactful variable in most people’s financial plans.
We all believe the saying about not having all our eggs in one basket. In financial speak, we use the word ‘diversification’. Diversification typically means buying lots of different stocks, bonds, and other assets so we don’t have too much money invested in any one place. Well, I believe that diversification also has a place when discussing taxation. With so many different tax treatments available for our savings (401K, Roth 401K, Traditional IRA, Roth IRA, After Tax IRA, Annuities, Cash Value Life Insurance, Long Term Capital Gains, Short Term Capital Gains, Ordinary Dividends, Qualified Dividends, …) it only makes sense not to have too much of our money subjected to any one tax treatment.
Now is a great time to reflect on last year’s tax returns and refresh your thinking about how much of your retirement nest egg you want in each type of tax treatment. If we haven’t already shown you a pie chart of your forecasted retirement tax treatments, give us a call and let’s set up an appointment to do so.
This is written as a general information article meant to help the reader understand basic concepts in personal finance.
Nothing in this article should be considered a guarantee of any investment performance.
An investor should consider his or her current and anticipated investment horizon and income tax brackets when making any investment decision. This article does not reflect factors for any individual reader.
Tax and/or legal advice is not offered by Mark Guthrie. Please consult with your tax professional or legal professional for additional guidance regarding tax and legal related matters.