It's Your Money - Take Control!

Tax Management Strategies for Wealth

It's your money - You've earned it. At Nations Choice Trusted Advisors™, our goal is to help you keep as much of it as possible. In many instances, you lose 50 - 60% of your money BEFORE you get to save or invest the first dollar. This is the result of paying taxes on income and then investing "post-tax" income.

As a simple example - if you make $200,000 and pay $100,000 in taxes you have $100,000 left to invest. We've done it this way forever. But there's a better way. You can not only keep that money in your pocket but also grow interest for your future with reduced risk.

An example - I'm 45, planning on retiring at 65 and living to 90. I have an income of $200,00 in a combined tax bracket of 66%. If I can keep that $100,000 paid to taxes I could save almost $1.4 million by minimizing my investment risk. I do this by "managing" my taxes and investing the money otherwise paid to taxes. My goal is to manage my money to create wealth and then pay taxes. By controlling how and when taxes apply to your income you can build wealth.

Wow! Most of us never knew there was another way. By now you are asking,” Okay, no kidding, but how do I get into a plan without paying income taxes?”

Two answers – First, qualified plans like your 401k* or IRAs are great starting points. While there are contribution limits and restrictions on high income, these are sound first steps.

The second answer is known by wealthy individuals. They use money that is never taxed as income. Borrow the money to pay taxes and deposit income as savings. You pay interest only on the loan rather than the much higher tax rate. The net difference can help you meet your retirement goals. To some, this sounds risky. In actuality, it is not a new idea and can help reduce the taxable leverage most people use today.

So, if a bank charges 5% to borrow money then you must earn 5% to break even, right? Wrong! It’s not about the earnings. Even if you earn $0 on the investment you are still approximately 45% ahead of what you would have been paying in taxes.

People tell me all the time, “I don’t borrow money because I don’t believe in leveraging.” You are achieving a guaranteed recovery of your own money that would otherwise have been lost to taxes. What's not to like?

These points are true for both companies and individuals. To understand the impact of these costs and other wealth drains, a company should look at the tax effect of their P&L’s. Individuals need to look no further than their personal tax returns. Remember, it is never about tax avoidance, rather it’s about proper tax management.

Reach out to us for a complimentary diagnostic review of how to control your income and your wealth for your company or yourself.

*Over the next few articles, Bottom Line will talk about how you can distribute 100% of your money from a qualified plan such as a pension, 401k, ESOP, etc. without personally paying any of the taxes due while still paying the IRS their due. Yes, you read that correctly, and yes, it’s part of the US tax code.

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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Any example provided in the article is hypothetical and is for illustrative purposes only. There is no guarantee that similar results can be achieved and past results are not indicative of future results. All investments involve varying levels and types of risks. These risks can be associated with the specific investment, or with the marketplace as a whole. Loss of principal is possible.