February 5, 2018 | Categories: Smart Money Taxes

How to help reduce the impact of taxes for your investments

With the new Trump Tax Plan that was recently enacted, there are many questions that people have about taxes and their money.  In this continually changing world we live in, it’s important to stay current.

There are different ways for your money to grow tax deferred, or even tax free!

It’s been said that there are only two things that are certain: Death and Taxes

Both of these will effect each and every one of us in various ways.

While the new Trump Tax Plan can offer some potential benefits and tax savings, it can be important to know what some of your options could be so you can benefit from tax savings.


With an Individual Retirement Account (IRA), your money is not taxed on the front end.  This can allow you to contribute more of your money so it can compound at a greater rate before you retire.  You would save money by not being taxed on the amount that you contribute.  Your money is not subject to any taxes as long as it remains within the IRA.  Just remember that when you turn 70 ½ years old, then you would likely be subject to RMD’s (Required Minimum Distributions), with the word “required” being the key word.  If you are still working, then you might not be subject to this until you retire (always check with your tax professional).

401(k), 403(b), TSP plans and other tax advantaged accounts offer many of the same benefits.

Roth IRA

With a Roth IRA, you pay the taxes on the front end.  Your money grows tax free, and then any withdrawals are not subject to any taxes.  So while you would have to pay the taxes up front (which many people are not thrilled about), you get the benefit of not having to pay any taxes on it in the future.  And you would not be subject to any required minimum distributions, so you could have more control over your money and withdrawals.

With the ever increasing federal deficit, there are a number of people that feel like taxes could go up in the future.  They like knowing that their money that is in a Roth would not be effected by tax increases, thus they could experience some added benefits.


There are different types of annuities from variable, fixed and fixed indexed.  Some can be set up for growth, others for protection of principle and others for income.  For the purpose of taxes, many annuities will allow your money to grow tax deferred, so you would not have to pay any taxes on the money until you withdraw it from the annuity.

If you had money that is non-qualified (meaning it is not in an IRA, 401k, Roth or any tax advanced plan), then it could grow inside of the annuity for years without you having to pay taxes on it.  For example, say you took money from a savings account and purchased an annuity, this money would grow tax deferred and would not be subject to taxes until you withdrew it.

If you had money that was inside of an IRA, 401k or Roth and put in into an annuity, then you would experience the same tax benefits.

Life Insurance

There are different types of cash value life insurance such as Whole Life and Indexed Universal Life (to name a couple) in which you put in after tax dollars to fund the policy.  Any gains would grow tax deferred.  You could withdraw some of the money per a policy loan which would not be subject to taxes.  Note that this is not a distribution which is different than a loan.  It’s possible that you would not have to pay back the loan to your policy.  Upon your death, the death benefit could pay back any outstanding loans and still give your beneficiaries a nice death benefit which could also be tax free.

Please note that with all of these (IRA’s, Roth, Annuities, Life Insurance), it can be beneficial to work with a financial professional to help ensure that everything is set up properly.  Tax laws can change in the future.  Always check with a tax professional prior to making any investment decisions.  This is general information only, and not intended to be investment advice.

The main point of this article is that there are a number of different ways to help reduce your tax liability now or in the future.  It’s certainly not a one size fits all approach.  Many people have experienced the benefits of having different accounts such as:

Account #1 – Money inside of an IRA or 401(k) that has not been taxed yet and is growing tax deferred until they will take required minimum distributions at 70 ½.

Account #2 – Money inside of a Roth IRA that has already been taxed and is growing tax deferred.  There will be no taxes due when it’s withdrawn in the future.

Account #3 – Money in an annuity that is growing tax deferred.  Depending how it’s structured, it could be for growth, added protection or income (or all of these).  No taxes are due until money is withdrawn.

Account #4 – Money in a life insurance policy that has already been taxed.  The policy value is growing.  You could take money out and not pay taxes if it’s a policy loan.  The death benefit could go to your beneficiaries tax free.

Imagine the potential benefits of having the majority of your money in different tax advantaged accounts so you can maximize the potential tax benefits based on your important financial goals!

As mentioned earlier in this article, many people are concerned about the increasing federal budget deficit.  The trillions of dollars that the U.S. government owes continues to grow.  Hopefully this will not be the case in the future.  With this deficit, where will the government get the money to meet all of the different obligations from Social Security, military spending, aid and more?  Many people feel like there could be some tax increases in the future which could have a big impact on their money and finances.  This is why it can be very important to have a good portion of your money in some of these tax advantaged accounts with the proper planning and strategies.

Using the proper tax strategies with your investments can mean more of your hard earned dollars staying in your account, and not going to Uncle Sam.  Just think if you could save a few thousand dollars in taxes every year.  How much could this savings be over the next 10 years?  20 years?  30 years?  It can really add up.  With this extra money, you could have greater financial security and some added piece of mind.  You could have more money to give to charities you support, your family, to travel with, or do whatever is important to you.  Let’s be as tax efficient as possible with your money!

Please note that I am not licensed as a tax professional.  Always consult with an accountant and CPA if you have any tax questions. 

February 5, 2018 | Categories: Smart Money Taxes

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