Let’s talk about tax brackets. They aren’t straight across the board but graduated based on income, meaning most taxpayers fall into more than one bracket. Current tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, and you could fall into as few as one and as many as all.
Check this example from Bankrate.com:
“Say you’re a single individual in 2021 who earned $70,000 of taxable income. You'd pay 10% on the first $9,950 of your earnings ($995); then 12% on the chunk of earnings from $9,951 to $40,525 ($3,669), then 22% on the remaining income ($6,484.50). Your total tax bill would be $11,148.50. Divide that by your earnings of $70,000, and you get an effective tax rate of roughly 16%, which is lower than the 22% bracket you’re in.”1
So if you’re in a high bracket and not too happy about it, consider changing up the assets in your portfolio as a tactic to help ease the pain. If you have a traditional, SEP, or Simple IRA, consider if it’s advantageous to convert it to a Roth. If you’ve got money in an HSA and can pay medical expenses another way, it’s worth considering investing your HSA contributions for the long-term, where your earnings can grow tax-free.
A tax deferral strategy might be another consideration when it comes to your qualified retirement plans. “High-income earners over age 50 can save $27,000 in a 401(k).”2 You don’t pay taxes on dividends, interest, and capital gains until you actually take a distribution—and typically, by the time you retire, you’re in a lower tax bracket.
Cash-value life insurance might be another route to go down. This tax deferral strategy allows higher investment limits for contributions, and the money grows tax-free (withdrawals up to the amount of premiums paid aren’t taxed).
--------
By clicking on these links, you'll leave our server, as they're located on another server. We haven't independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.
This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.
1 https://www.bankrate.com/taxes/tax-brackets/#
2 https://www.covenantwealthadvisors.com/post/tax-strategies-for-high-income-earners
3 https://www.businessinsider.com/personal-finance/why-is-estate-planning-important
4 https://www.hsph.harvard.edu/nutritionsource/processed-foods/