Taxes account for the most expensive burden you'll experience in your lifetime, but there's a way to troubleshoot this unnecessary financial burden.
Taxes account for the most expensive burden you’ll experience in your lifetime, says financial planning coach Rao K. Garuda, CLU, ChFC.
In addition to federal, state, city and death taxes, there are 59 other varieties. Relatively few taxes, however, account for the bulk of the burden on citizens, says Garuda, president and chief executive officer of Associated Concepts Agency, whose clients include retirees, people planning for retirement, physicians, business owners and other professionals.
He thinks his fellow Americans deserve a shot at keeping more of their money.
“When I came to the United States, I had less than $10 in my pocket, but I had an excellent education as an engineer. When I married a physician, I realized how expensive it is to make a good living here,” says Garuda, who quickly applied his analytical engineering mind to understanding the complicated tax system.
Garuda identifies some of the most expensive and common tax hurdles affecting Americans and offers advice on troubleshooting our tax system.
The IRA tax — great on the front end, but terrible down the road.
An IRA is tax-deferred, which means it will accumulate value over time. But when you withdraw from it, you will be heavily penalized with high taxes. That’s why you should convert this asset to a Roth IRA, which allows your money to grow tax-free.
Since the money put in was already taxed you don’t have to pay any taxes when you take it out, and, overall, you’ll save a significant amount of money.
Too many people don’t take advantage of creating tax-free income via insurance products.
From a financial perspective, retirees and professional planners run into a significant issue: seniors, blessed with good health, who outlive their money. But with certain insurance products, retirees can create tax-free income while covering the later years of retirement — and protect their wealth if they become severely ill.
There are certain insurance products tied to the stock market that can help people accumulate assets in the long run. Many of these products offer a tremendous upside for potential without the downside of increased risk.
Missed opportunities — people who don’t take advantage of free money in a 401(k).
Perhaps the company you work for is, like many others, bureaucratic to the point of being impractical. Your employer may not have done the best job communicating details about benefits, such as matching 401(k) contributions, or you may not have taken the time to learn them.
Now’s the time; this is free money! If your employer is offering a 50% match on your first 6% of contributions to the 401(k), you should be contributing at least 6%. Educate yourself on your company’s plan so you can take full advantage.