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ProActiveFinancialPlanning.com |
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The Financial Planning Center Comprehensive Financial Planning
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How to Manage Your Investment Risk |
Avoid Paying Unnecessary Taxes
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Common Investment Mistakes or Poor Investment Decisions?
Diversification vs. Asset Allocation-Managing Investment Risk Hope for the Best but Plan for the Worst Summary |
Don’t
pay taxes you are not required to pay.
Utilize tax-advantage accounts (IRAs –Traditional, Roths,
SEPs, SIMPLE, Education, or qualified plans) before investing in
taxable accounts. Yes,
you can have both a qualified retirement plan through your employer
and an IRA (Roth/Traditional). You
may now be entitled to receive a nonrefundable tax credit in addition
to a tax deduction on your contributions.
Click Traditional IRA or Roth IRA, to determine what IRA may offer you the best benefit. Many investors ignore the tax-free growth and tax-free distributions unique to a Roth IRA while maximizing their contributions in their employer’s tax-deferred accounts. Because of compounding and the absence of taxation, investor’s wealth grows exponentially exposing them and their beneficiaries to a potentially enormous tax obligation in the future. Withdraws from a Roth IRA are not taxable as income to you or your beneficiaries unlike tax-deferred accounts. Perform cash flow analysis to estimate (don’t guess) your future tax bracket to assess whether a tax-benefit is more advantageous now or in the future. If you contribute to a Traditional IRA, you may be able to deduct all or part of your contribution from your taxable income (How much is deductible?). Lowering your taxable income may place you in a lower tax bracket reducing your taxes considerably. Always consult your personal tax advisor to help determine which IRA is best for you. For more information on IRAs, visit the IRA Center. Transferring an employer’s qualified
retirement plan to a self-directed IRA does not create a tax
obligation or penalty. In
fact, self-directed IRAs offer many more tax
advantages and investment options that may better suit your investment and tax needs than
qualified plans such as mutual funds, stocks, bonds, CDs, annuities,
etc. Furthermore, named beneficiaries other than spouses of an IRA
may be able to stretch their required distributions over their life
expectancy. This is not
an option available to beneficiaries of a qualified plan resulting in serious tax
consequences and the loss of tax-deferred compounding.
This module is available by email in a seven-page, printable version upon request. Contact ProActive Financial Planning to Request.
Disclaimer Always consult your personal tax or financial advisor who is familiar with your unique tax situation to assist in determining which retirement accounts would be best for you. |
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