When investing, there are three types of accounts that allow you to grow your wealth, with their own distinct benefits.
These consist of taxable, tax deferred, and tax free accounts.
“The most common type of taxable account that we see are CDs, which require you to pay tax on the interest earned. We really only recommend utilizing the taxable account for your emergency fund,” Jason says.
“The traditional IRA and 401(K) are great examples of a tax deferred account. You get an immediate tax deduction but will pay the taxes on your investment when withdrawn.”
Tax free accounts are the most efficient way of growing your wealth.
The most common ways of doing so are through Roth accounts.
In this type of investment, you are taxing the seed, not the harvest. It is important to look at the long-term gain that comes from tax free investing.
“We believe that based on the history of taxes, our nation is in one of the lowest tax settings. It makes sense to get your money into tax free accounts now, before the tax rates increase later,” Jason says.
“Many investors are also surprised that when they retire, they are in the same or higher tax bracket than when they were working. Talking with an independent advisor can help you to analyze your tax strategy.”
Taxes are a topic that are not typically discussed when financial planning but can have a large influence on your retirement.
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