Tax-Advantaged Retirement Investing Is Good for Most People

Tax-advantaged investing is very good for most people at most times

A previous article, “The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that individuals are much better off with a well-considered financial viewpoint. A stable set of financial beliefs can help you to keep focused and on track throughout your life. This follow-up article discusses the value of tax-advantaged investing and how VeriPlan can model personal lifecycle taxes to improve decision making.

You should understand the specific potential economic benefits of tax-advantaged investing within the context of your particular projected lifecycle financial affairs and tax situation.

You should invest in tax-advantaged investment vehicles, when you are more likely to gain a net long-term after-tax benefit. For the majority of people, this will be most of the time.

How VeriPlan Can Help:

VeriPlan has extensively automated the projection and analysis of your tax-advantaged investments across your lifecycle. Giving full control to you, VeriPlan’s projections incorporate a detailed lifecycle model of your family’s federal, state, and local personal income taxes plus your other taxes, such as Social Security, Medicare, and property taxes. (See: VeriPlan helps you to decide what your lifetime tax-advantaged and tax-deferred investment strategy should be)

VeriPlan differentiates your projected assets by their taxability status using three account classifications: 1) regular taxable accounts, 2) traditional tax-deferred accounts, and 3) Roth ‘never-taxed after contribution’ accounts. VeriPlan enables you to control automatically how much of your future earned income and of your employer’s potential contributions would be deposited into your taxable and tax-advantaged accounts, including traditional and Roth IRAs, 401k, and other plans. (See: Traditional versus Roth tax-advantaged plan contributions)

VeriPlan automatically applies taxes on asset distributions and withdrawals, as appropriate, depending upon whether your assets are subject to current taxation, future taxation, or no taxation. In addition, VeriPlan automatically projects asset withdrawals from your tax-advantaged asset accounts in retirement to meet your projected living expenses and to conform to tax rules regarding mandatory withdrawals from traditional tax-deferred accounts.

Because VeriPlan instantly develops for you projections that incorporate a customized personal tax model, you can use it to compare the lifecycle economic impacts of different tax avoidance strategies. For an example of a tax-related decision that you cannot make without such a robust model of your lifecycle financial affairs, see this discussion of the factors that influence your decision whether to make current contributions to Roth or traditional tax-advantaged accounts: Factors that tend to favor Roth tax-advantaged plan contributions (Part 1 of 2) and Factors that tend to favor Roth tax-advantaged plan contributions (Part 2 of 2).

Related Personal Finance Reading:

Citizens Working Abroad: How to Count Your 330 "Qualifying Days" for Claiming $80,000 tax Free Each Year of Foreign Earned Income (Series 100: Individuals & Families)

The New Financial Advisor: Strategies for Successful Family Wealth Management

How to Tap Your IRA or 401(k) and Escape Tax: The 60 Minute Guide to the Early Withdrawal Rules

Roth IRA Book: An Investor's Guide

Roth IRA conversions: benefits and planning opportunities.(individual retirement accounts): An article from: Florida Bar Journal

Related Personal Financial Planning Posts

• The Investment Returns You Lose to Investment Sales Loads ( VeriPlan automatically tracks returns lost to investment sales loads Many justifications for investment sales load charges might be offered by financial advisors during the sales process, but once a front-end load is charged, your diminished portfolio will 'forget' about the load charge for the rest of your life. Loads become 'phantom' assets, which are rarely spoken of [...])
• Dodge and Cox Stock Fund (DODGX) picks up a +8 Fund Authority Score (The table below in this article presents The Skilled Investor's Fund Authority Score and other information for the Dodge and Cox Stock Fund (DODGX). The diversified investment fund strategy of the Dodge and Cox Stock mutual fund (DODGX) According to its website and its prospectus filing on the U.S. Securities and Exchange Commission EDGAR system, the investment [...])
• Time Spent on the Wrong Financial Activities Is Bad for You ( Spending your valuable time on the wrong financial activities is just plain bad for you A previous article, “The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that individuals are much better off with a well-considered financial viewpoint. This follow-up article discusses the [...])
• June 14 2007 Edition of the Carnival of Financial Planning ( Carnival of Financial Planning - June 14, 2007 Welcome to the June 14, 2007 edition of the Carnival of Financial Planning. The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security. This edition [...])
• Choose Sufficiently Mature Mutual Funds and ETFs ( Choose sufficiently mature mutual funds and ETFs Investing in more mature equity and bond mutual funds and exhanged-traded funds (ETFs) allows you to evaluate the historical consistency of a fund's record. On average, the future portfolio returns of more mature funds are probably no more predictable than for very young funds with a similar style or strategy. [...])
• August 9 2007 Edition of the Carnival of Financial Planning ( Carnival of Financial Planning - August 9, 2007 Edition Welcome to the August 9, 2007 edition of the Carnival of Financial Planning. The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security. This [...])
• Always Completely Diversify Your Investment Portfolio ( Complete portfolio diversification is always a better idea. On average, the securities markets will not pay you to hold any skewed subset of the overall market. Doing so is just a gamble that may or may not pay off. You should not expect to be paid any more for the added risk and anxiety. A previous article, [...])
• No Financial Planning Software or Calculator Can Predict the Future - Part 2 ( No financial planning software and no investment growth calculator can predict the future - Part 2 The future in not predictable, even with automated financial planning software. < < -- Go to Part 1 The future is fundamentally not predictable. The future of personal financial planning and investing is similarly unpredictable. The Skilled Investor's approach with VeriPlan is [...])