Retirement planning is an important factor in your long-term financial health. Whether that’s 35 years from now or 35 days, everyone should have some sort of plan to secure an income when they’re ready to stop working.
One of the best tools to do that is with a tax-free retirement account (or TFRA). This tried-and-true strategy is how the rich build generational wealth tax-free. The best part? When set up properly, these tools are IRS compliant and available for those who qualify (some restrictions might be age, profession, geographic location, and marital status).
Retirement planning is something everyone should consider, regardless of how far away retirement is.
One of the best ways to secure your financial future is through a tax-free retirement account.
TFRAs are special tools that are IRS compliant, allowing you to earn and grow your retirement income over time and give you more control over your financial security.
Tax-free: Also called tax-exempt; a strategy whose income does not get taxed upon withdrawal since taxes were already paid earlier, such as with a Roth IRA or Roth 401(k).
Tax-deferred: Tools where tax is paid later, such as the sale of a stock, payments from annuities, or distributions from a traditional IRA.
Tax-advantaged: A term referring to investments that are either tax-exempt or tax-deferred.
Tax-efficient: Strategies that, while taxed, are at the best possible rate of taxation or leverage other tax rules to minimize that rate (such as tax loss harvesting).
As lucrative as the term “tax-free” is, very, very few things are truly without tax. When we use the term “tax-free,” such as with Roth IRAs and Roth 401(k)s, the income from these vehicles are tax-free since tax was already paid on the money paid into them. In other words, contributions are made with after-tax dollars rather than pre-tax dollars, as is the case with other investment vehicles such as buying stock.
“Tax-efficient” refers to strategies that, while they might not be tax-free, remain compliant with the IRS’s regulations but leverage the best tax rate possible for you. These strategies can be used by anyone, but they’re especially useful for those in higher tax brackets where tax-free options aren’t available.
When we develop strategies for our clients, we’ll identify options that fit your income, financial goals, situation, and qualifications so you can make the best decisions and help you make the most of your nest egg.
