Discover 3 Commonly Overlooked Opportunities

(Before they’re gone!)

Many high earners have tax-saving “turbocharger” tricks up their sleeves that you may have accidentally overlooked.

You’ve been doing everything right when it comes to retirement savings. As soon as you could, you began contributing the maximum amount to your retirement plan. You have followed the strategy, year after year. But there’s one big problem

You might have a tax target painted right on your back as a result of your current savings strategy.

Most Americans who are contributing to retirement plans receive a current tax deduction for their contribution. But, when you’re old enough to start taking money out, the entire amount of your withdrawal is taxable at your future income tax rate.

The goal is that when you’re no longer earning income, your tax rate should be lower.

Unfortunately, this strategy doesn’t always work out for high earners like you.

With tax rates on top earners at 37%, the standard strategy doesn’t work the way it’s intended. In modern times, the top tax rate has fluctuated between 28% and 50%. This could potentially cause you to defer tax at a 37% tax rate only to have to pay tax at 50% if tax rates go up!1

The larger your pool of tax-deferred money, the more you’ll be sending Washington’s way when you’re older.

Many high earners have figured out some commonly overlooked strategies to reduce their taxes by tweaking their current saving strategy. One is to contribute to a tax-free Roth account. You don’t get this year’s tax deduction, but if you follow the rules, you can take the money out tax-free when you’re older.

Sounds great, right?

Well.. about that. These techniques, especially Roth conversions, are often used by wealthy taxpayers. And they’re a target for legislative change.

It’s possible that Roth conversions could disappear entirely, or disappear for those in the higher tax brackets.

That’s why it’s so critical for you to determine whether you’re eligible for these retirement turbochargers as soon as possible.

We’ve designed this exclusive guide for hard-working savers — just like you — who don’t deserve to be punished for doing the right things. You’ll read about what retirement boosters you might be missing out on that you could be eligible for (without even realizing it).

You may be asking yourself questions such as:

  • Am I aware of all the retirement savings benefits that are available to me?
  • How much of my savings are in tax-deferred accounts that will be taxable once I’m no longer earning an income?
  • What strategies do I have in place to manage my tax exposure in retirement?
  • Have I discussed my strategy after retirement with a financial professional?

If these questions resonated with you, you’re in the right place, so keep reading...

Exploit low-earning years

Because income tax rates and brackets can (and do) change frequently, it’s sometimes difficult to know if you’re making the right decision to do a Roth conversion. No one really knows whether future tax rates could be lower than what you’re paying now (unless you’ve got a crystal ball).

No crystal ball? Seize the days when you know your earnings will be lower than usual, so you’ll naturally be in a lower tax bracket. Did the past few years result in a job change, business launch, or some other career pivot? All these events could have led to a drop in compensation, so make use of it!

If you’re retiring this year or you just recently retired, assuming you haven’t reached age 72 yet, you could have an opportunity. The years between retirement and required distributions can also be good ones for Roth conversions.

Either way, be on the lookout for lower-income years that lend themselves to Roth conversions. Make sure that you don’t convert too much and push yourself into a higher tax bracket.

Critical questions to ask include:

  • Am I anticipating a low-earning year this year or in the near future?
  • Do I have a strategy for implementing Roth conversions any time I have a year with (relatively) low income?
  • How much can I convert without pushing myself over the edge into a higher tax bracket with higher income tax rates?
  • Have I discussed my strategy for conversions with a trusted financial professional?

Fill ‘Er Up (Tax Brackets, That Is)

At first, this second strategy may seem a little counter-intuitive, because it could involve paying more taxes now than you would have otherwise. It’s known as filling up your tax bracket.

As long as the current tax bracket that you’re in is lower than what you can expect later, filling it up without going over the bracket ceiling could help you reduce taxes throughout your lifetime.2

You might already know that the tax brackets can contain a fairly wide range of incomes.

For example, in 2022 the 24% tax rate is applicable to married couples filing jointly making between $178,150 and $340,100.3

Suppose you and your spouse earned $240,100. You’d have an additional $100,000 of income that you could earn and still pay only 24% tax on. If you think later on you might move up to higher tax brackets, due to an act of Congress or because you earn more, you can see that you could save in taxes by accelerating some income into your current lower bracket.

If you think that you will be in a higher tax bracket in later years, it’s ideal to start with a Roth IRA from the outset. However, a Roth conversion allows you to convert your regular Traditional IRA to an after-tax Roth, by strategically paying income taxes at your current rate.

Critical questions to ask include:

  • Does filling up my tax bracket make sense, given my current and expected future earnings?
  • How much room do I have to convert without pushing through the ceiling of my current tax bracket?
  • Is there a way I can continue to fill up my tax bracket while it still makes sense?
  • Have I walked through my strategy with a financial professional?

Mega-Stuff Your Employer Retirement Plan

This is a time-sensitive strategy that may be on the chopping block in Congress.4 If you are eligible, it’s crucial to move fast. And to ensure it’s done correctly so it doesn’t boomerang around on you and leave you subject to unexpected tax liability.

A mega backdoor Roth (as this technique is known) can be an excellent way to turbocharge future tax-free income — if your employee retirement plan allows for it and if you do it exactly right. But if you get the details wrong, you could end up with much more taxable money than you’d planned.

For this strategy to work, your employer retirement plan must allow 1) after-tax contributions on top of your regular salary deferrals (not all plans do); and 2) in-service withdrawals.

You’ll also want to have already maxed out salary deferrals, IRA contributions, and have extra cash you’d like to stuff into your retirement nest egg and pay any taxes owed.

The total contribution for defined contribution plans such as a 401(k) is set each year, including catch-up contributions if you’re over age 50. When you add up maximum salary deferrals and any employer matches, you could still have thousands to add in after-tax contributions ($45,000 or more for some), if your plan allows.4

Then, as long as you have everything in place, you can roll those after-tax contributions over to a Roth account and enjoy the tax-free benefits in retirement.

Critical questions to ask include:

  • Is my retirement plan eligible for this technique?
  • Is this a good idea for my needs?
  • What do I need to put in place to execute a mega backdoor Roth?
  • Have I discussed implementing the mega strategy with a financial professional?

Explode Your Tax Savings & Retirement Opportunities

While you’ve been working hard and saving to provide yourself with a solid nest egg for the future, you may have unwittingly fallen into the trap of putting too much of your money into tax-deferred accounts. Too much in pre-tax retirement accounts may lead to a significant tax burden later.

Fortunately, you can follow the lead of wealthy earners and convert some of that money into tax-free Roth accounts, if you’re eligible. But Roth conversions are usually on the chopping block when it comes time to rein in some of the tax strategies used by the wealthy. Some proposals would get rid of them altogether, and others would only eliminate them for higher earners.

The mega backdoor Roth technique is also a potential candidate for elimination, and so there may be limited time available to take advantage of it. That’s why it’s urgent that you explore whether you’re eligible for these strategies as soon as possible, so you can build them into your current plan.

Once you’re ready to execute your strategies, you’ll need to ensure that you’ve got everything properly set up. While these arrangements are not that hard to understand at a high level, making sure that they’re implemented correctly can be more of an undertaking than you might think.

It’s critical to make sure that you know all the moving parts and what could go wrong because if it does, you might be in trouble with the IRS. The good news is that our team has a long history with these types of retirement tax turbochargers, and we know exactly what the hidden levers are that could make them fall apart.

We take pride in making sure that our clients maximize the retirement boosters that are available to them without running foul of Uncle Sam.

Our experience with retirement planning helps ensure that you have professionals who can steer you through the potential minefields without blowing up your nest egg. Schedule your customized, free Retirement Turbocharger Assessment as soon as possible.

It’s critical that you make the right moves at the right times to ensure that you don’t go into retirement with a big tax target on your back. You need a team of financial professionals who know the details of those moves and when to make them, based on your personal situation.

You’ve already made the wise choice to read through this guide for high earners, and the next smart step is to book your complimentary Retirement Turbocharger Assessment today to start exploring what you’re eligible for and what your options are for fueling up your retirement plan.

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