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September 06, 2013 at 09:14 AM
Taxes account for the most expensive burden you’ll experience in your lifetime.
In addition to federal, state, city and death taxes, there are 59 other varieties. Relatively few taxes, however, account for the bulk of the burden on citizens.
Don’t we deserve a shot at keeping more of our money? When I came to the United States, I had less than $10 in my pocket, but I had an excellent education as an engineer. When I married a physician, I realized how expensive it is to make a good living here. I quickly applied my engineer-trained mind to understanding the complicated tax system.
Here are some of the most expensive and common tax hurdles I identified … and some troubleshooting advice.
• Problem: The IRA tax; it’s great on the front end, terrible down the road.
Solution: An IRA is tax-deferred, which means it will accumulate value over time. But when you withdraw from it, you will be heavily penalized with high taxes. That’s why you should convert this asset to a Roth IRA, which allows your money to grow tax-free. Since the money put in was already taxed, you don’t have to pay any taxes when you take it out, and, overall, you’ll save a significant amount of money.
• Problem: Too many people don’t take advantage of creating tax-free income via insurance products.
Solution: From a financial perspective, retirees and professional planners run into a significant issue: seniors, blessed with good health, who outlive their money. But with certain insurance products, retirees can create tax-free income while covering the later years of retirement — and protect their wealth if they become severely ill. There are certain insurance products tied to the stock market that can help people accumulate assets in the long run. Many of these products offer a tremendous upside for potential without the downside of increased risk.
