CLIENT KNOWLEDGE BASE

    The Power of 0

    Missed this popular webinar?  

    Here are some key notes and strategies we learned around the Power of 0%

    Economic factors studied by Comptroller Walker though it is impossible for tax rates to stay this low, without the US defaulting.  With that premise in mind, we must consider the possibility of tax rates in retirement being far higher than they are today.  If they are, we do NOT want to be over leveraged into pre-tax accounts. 


    1. 1

      We ALL need to have a strong mix of the following retirement buckets:

      • Taxable (think brokerage, interest, dividends, real estate)

      • Deferred (think traditional IRA, 401k)

      • Tax Free
        • Life Insurance (LIRP)
        • ROTH 401k/IRA
          • Take advantage of ROTH 401ks through your business or job, if possible
        • HSA
    2. 2

      How do we determine the proper balance between these?

      • David recommends using the "magic number" calculator
        • You want to keep your Required Minimum Distributions low enough to stay in a 0% tax backet at retirement

      • If you are in the 24% marginal tax bracket OR below
        • Use post tax vehicles.  Tax rates WILL RISE!  While your taxes are on sale, tax advantage

      • If you are in the 32% or above, use pre-tax vehicles
        • Create a plan to convert to ROTH later.  
        • Anomaly Solutions for tax free conversions:
          • Real Estate Professional Status
          • The Anomaly Short Term Rental Strategy
          • Year of employment change or dip, convert!
          • Accelerated deprecation of a leveraged asset inside of your business to offset this
    3. 3

      What is the Life Insurance Retirement Plan?

      • Using Indexed Universal Life insurance

      • Use a feature to withdraw TAX FREE death benefit in your later years for long term care expenses

      • Tax Free net 0% loans for other needs in retirement
    4. 4

      Some of the Key Rules of the Power of 0% we learned:

      Rule #3: There is an ideal balance to have in your first two buckets in a rising tax rate environment. Your taxable bucket should contain around six months worth of expenses and your tax deferred bucket balance should be low enough that RMD’s are equal to or less than your standard deduction, as well as not cause social security taxation.

      Rule #8: You will need more than one stream of tax-free income in retirement. You never know when the IRS is going to legislate one of your tax-free streams of income out of existence. You need multiple streams of tax-free income working together.

      Rule #9: You really want to get all your heavy lifting done before 2026. You have seven years before the tax cuts end and every year you wait to take advantage of these low tax rates, is another year you will have to pay more than you need to.

      If you are interested in learning more about any of these strategies, we are here to help!  Reach out to your Tax PM on Soraban
    If you still have a question, we’re here to help. Contact us