Do you want to help lower your taxes and increase your retirement savings? A Roth IRA, with its tax-free growth potential and tax-free withdrawals for you and your heirs, is a way you may be able to do just that (as long as certain requirements are met). And those are just a few of the benefits of a Roth IRA.
While selecting tax-efficient investments and making the most of tax-deferred accounts may help reduce your tax bill, it won’t eliminate taxes altogether. There are a few options available that do have the potential to generate income or earnings that you generally won’t have to pay federal income taxes on—including many municipal bonds, Roth IRAs, and college savings accounts.
Reducing taxes are a critical part of financial planning. The potential tax benefits of any strategy need to be viewed in the context of your overall investing plan. That said, there are some choices that can have a potential impact on your tax bill. There are many creative ways to reduce taxes.
Saving for retirement is a big job. Accounts that offer tax advantages can help and can be a key part of an overall tax strategy because they allow you to put off paying taxes. For savers, the key is to maximize the potential tax benefits of these accounts, if you and your adviser decide that attempting to defer taxes makes sense for you.
You may know your federal income tax bracket. But that’s not really what you pay. In fact, the middle 20% of Americans by income pay about 13% of income in federal income taxes. But that average hides a great deal of variation: Some Americans pay nothing, and others pay more than 30%. What determines the percentage you will pay? A lot of it is based on how much you make. But you can affect your tax bill by knowing the rules, managing how you generate income, choosing what accounts you invest in, and taking advantage of potential deductions. In general, there are three strategies to consider to try to manage your federal income taxes.
A LIRP is a life insurance strategy that functions in many ways similar of the tax-free characteristics of the Roth IRA. It
works by purchasing a cash value life insurance policy that the owner then “overfunds” for a period
of at least 10 years. The assets also grow tax-deferred in the life insurance policy and any residual benefit pays directly to a listed beneficiary tax-free.