Higher or Lower Tax Bracket This is Kraig Strom from wealthycastle.com doing another blog post on the road sitting on traffic here in Southern California Freeway. I had a conversation this morning with another financial advisor. We were talking about the case we were working on together -- a joint client. I'm the mentor and this person I'm with is the inexperienced advisor, so we're partnering together to give better value to his client. Here's the thing: their question about this client's individual account IRA and 401K came up. He had money for an old 401K, so I asked what his opinion was regarding what to do with the old IRA money. His first stop was we need put it into a rollover IRA. That money would go into mutual fund and it would just sit there. It will save the client money from fees and just let it grow. Why would we counsel that person to rollover an IRA at this point in their life? I asked him, "Are we expecting that client to be in a lower income bracket when they retire?" We discussed then what their income projection for retirement was based on their current savings, what they're saving in the future, and what they plan to save. As it turned out, their projection is to retire with about $150,000 a year an income. Stop and think about this for a moment. If you paid attention to politicians in the last 10 years, anybody who made more than $150,000 is rich. We need to raise their taxes and go after those people, because they're making too much money. I asked my friend, "Why would we counsel this client and her husband to add more money into a tax deferred account so that they could get tax in the future at their highest possibly income tax bracket?" If they retire with $150,000 a year an income, they are not going to be in the lowest tax bracket. In fact, they will have no more than interest, no children to deduct, and no more business expenses. Here they are in retirement with $150,000 or more an income, and every diamond they put away in their IRA and their 401K is going to be fully taxable at their highest possible tax bracket. I guess the whole point here is that the education financial advisor have received from the last 20-30 years has been about the 401K and tax deduction. That was the message that has been taught and I have to say I believe it is absolutely wrong. If your plan is to retire with the same or better lifestyle that you have while you are working, chances are you are going to be in a higher tax bracket when you retire; not in a lower one. Who wants to shoot for a lower tax bracket in retirement? That's crazy! Why would you want to shoot for a lower standard of living when you retire? That does not make any sense. We need to shoot for a higher standard of living. We need to go for the best we can possibly get. That means we will probably be in the same or higher tax bracket, though. Sorry, I am on the rant on the way here to my next appointment, but think about it, when you put money in a 401K or IRA, you are not getting a tax deduction. You are getting a tax postponement. Are you really hoping that you will be in a lower tax bracket when you retire? If you are, is that really the goal you want to have? If you have questions about this or you already agree with me, please post comments here and on my pages on facebook, YouTube, or LinkedIn page. I will be happy to discuss this with you. Let me hear your opinion. This is Kraig Strom of wealthycastle.com. Have great day! We will talk to you again.

• published: 29 May 2015
• views: 65