Jan 17, 2022
Retirement & Income Planning from SEP IRA, 401K, to Roth IRA + Tax Brackets to Buckets
- BRT S03 EP03 (102) 1-16-2022
What We Learned This Week
- Retirement & Income Planning
- Qualified Plans: ie - 401K & Roth IRA
- SEP IRA for business owners, can defer 25% of income if setup correctly
- Tax Brackets - tiered system of 10%, then 12%, 22% up to 35% - with more income, pushed into higher bracket and you pay more
- Tax Buckets (3) - Taxed (W2 income), Tax Deferred (401K, IRA), Tax Free (Roth IRA, Life Insurance)
Guest: Denver
Nowicz, President - Wealth For
Life
https://wealthforlife.net/brt/
Denver is an advisor with nearly 20 years experience working with clients in investments and insurance, designing retirement plans with a combo of both. He takes us through different strategies for clients to get the best allocations for their money over the long term. It is the Combo Strategy of both Offense and Defense, the synergy of the mix, not ‘All or Nothing’.
Notes:
Tax deferral with 401 K, not tax savings
Advisor suggests 401 K, get immediate benefit
Vs. ROTH IRA (put 6.5 K) after tax at 59 ½ get money tax free
Tax Brackets – 10%, 12%, 22, 24,35
$430 K and above, taxed at 35%
If you move money to a 401K, save percentage on taxes, then pay taxes later in retirement.
Cap Gains 15-20% on investment income
Save 15-20K / year on taxes over 25 years = 400 – 500K or more
Retirement – expenses will be 80% of pre-retirement income, unless you make more $, maybe 90%.
If you earn $100K a year or more, taxes are biggest expense in retirement.
Build Tax Free Income – start now, have an Exit Strategy
Tax Buckets –
- Taxed – income, W2
- Tax Deferred – 401K, IRA pay taxes later
- Tax Free – ROTH IRA, insurance, Muni Free Bonds
Balance funds in each bucket – 20% Taxed, 30% Tax Deferred, 50% Tax Free
Combine tax buckets with income mapping - where money comes from in retirement
Business Owners – SEP IRA has high limits, put up to $61K / year.
Qualified Plan – owner has to balance with salary – 25%
Earn 240K – put 61K tax deferred in SEP IRA
Qualified Plans – has rules
High income, big SEP IRA, then pay 35% tax on all money, withdrawals and gains.
Tax brackets are broad and dropping a bracket not as easy.
RMD - Required Minimum Distribution
Sell Business – use installment sales trust to lessen tax blow
Layer money to lessen taxes
ROTH Conversions and 401 K Roth could pay huge amount in taxes.
Pay taxes, down 25%
When people do 401K plan, rarely do Long Term math.
Under insurance umbrella, have tax advantages, grows tax free
Take money out of policy as loans at 5% interest vs. 20-30% taxes
3 to 1 Tax Free Matching has similar setup to a mortgage with a house – you put in $250K and bank puts in $750K = 1 million dollar home. Earn more on $1 million vs. just your $250K.
Earn more interest on larger asset over time.
Conservative, banks like insurance. No loan docs, no personal guaranty.
Most advisers talk stocks, stocks are good asset, but have risk and may be slow.
Create income streams, diversification.
https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
2022 Fed Income Tax Brackets (for taxes due in April 2023)
Single filers
Tax Rate Taxable Income Bracket Tax Owed
10% $0 to $10,275 10% of taxable income
12% $10,276 to $41,775 $1,027.50 plus 12% of the amount over $10,275
22% $41,776 to $89,075 $4,807.50 plus 22% of the amount over $41,775
24% $89,076 to $170,050 $15,213.50 plus 24% of the amount over $89,075
32% $170,051 to $215,950 $34,647.50 plus 32% of the amount over $170,050
35% $215,951 to $539,900 $49,335.50 plus 35% of the amount over $215,950
37% $539,901 or more $162,718 plus 37% of the amount over $539,900
61% of Americans paid no federal income taxes in 2020, Tax Policy Center says
The top 20% of taxpayers paid 78% of federal income taxes in 2020, according to the Tax Policy Center, up from 68% in 2019. The top 1% of taxpayers paid 28% of taxes in 2020, up from 25% in 2019.
https://www.taxpolicycenter.org/ - tax stats and articles
More Info on WFL and Tax Free Matching: HERE
Link to Taxes Show on 10/31/2021 w/ Denver: Here
Link to Offense / Defense Show on 6/6/2021 w/ Denver: Here
Link to Shows, Denver was a Guest: Here
‘Best Of’ Topic: https://brt-show.libsyn.com/category/Best+of+BRT
Investing Topic: https://brt-show.libsyn.com/category/Investing-Stocks-Bonds-Retirement
More 'Best of Investing': Here
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