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).