I’m very concerned about taxation. I believe the current administration will not only raise taxes on households making $400,000 per year, but on many more households making much less. With all the money going into these giant stimulus bills, I’m having hard time believing tax rates will ever go back down. How can I properly prepare for this idea from a financial perspective?
Michael; Chattanooga, Tenn.
If you’re right about tax rates going up and never coming back down, Michael, the Roth IRA is about to become the most popular financial concept. And so will every financial vehicle that resembles Roth IRAs.
To form a proper tax strategy as it relates to your investments, it’s important to understand the three primary types of taxes you can be subject to from a timing perspective, and more importantly how to avoid them:
- First there’s the tax you pay on your income now, and your ability to avoid it via traditional retirement plan contributions.
- Next there’s the tax you pay on investment gains throughout the year, which you can avoid with a handful of investment vehicles.
- And finally there’s the tax you could be subject to upon withdrawing money from retirement accounts as you use the money to live.
How NOT to spend your stimulus cash:Avoid purchases that require future payments
Determining your own long-term tax strategy is incredibly important, and to do it properly you do need to consider…