How to Keep More of Your Money During Tax Season and Make Tax-Free Withdrawals

 

social security card and money conceptTypical tax-deferred or tax-advantage savings plans haven’t proven themselves to be a guaranteed way to help people keep more of their savings protected from the tax man. This is for two reasons. First, the tax bill does come due when account owners withdraw money as income and secondly, because of the fees that providers levy upon these accounts. While some financial providers may offer very low fees, it’s more common to find yearly fees of over one percent, according to Forbes. That’s even true for group retirement accounts that are offered at work. The common wisdom about deferring the tax bill really only does put off the inevitable and might even result in losing more money to taxes and fees.

Qualified vs. Non-Qualified Savings Plans

Qualified savings: Qualified plan examples include a typical 401k or 403b or a traditional IRA. They might allow savers to deduct savings, within limits. They also offer tax advantages to employees, such as certain tax deductions. Qualified plans have to follow the rules and restrictions that have been defined by the IRS. One major restriction is that they include penalties for withdrawing money early, so they are hardly liquid.

Individuals and families who might want to access their own savings for investments outside of the plan, education, and other uses will be unlikely to benefit from a qualified plan because of the restrictions. For example, it’s very conceivable that some account owners will need to find third-party loans for their needs even when they have adequate funds saved inside of their qualified account.

Nonqualified savingsParadigm suggests considering a private and non-qualified retirement plan. The proprietary plan is considered non-qualified because the income is taxed in the year that it’s earned. However, this move allows an account owner to enjoy an income later without concerns about taxes either on the base contributions or any gains that the money earns later. If the account holder wants to access his or her own money to invest, handle an unexpected bill, or help a child with tuition, this can be done without the “gotcha” of tax consequences that could potentially be much worse than just handling the taxes on the money as it is earned.

In fact, Zacks reports that nonqualified plans are often offered as a perk for their top employees. According to Zacks:

Nonqualified retirement plans are often offered by small businesses with a limited number of full-time or executive employees or by large corporations that wish to offer additional benefits to top-tier executives. In both instances, nonqualified retirement plans are used as recruiting and retention tools.

Companies use these sophisticated tools as a way to retain and attract top talent and successful executives. This is because they can offer perks inside of nonqualified plans that would be forbidden in a qualified plan. These alternatives may also be offered to high-income individuals who would normally already exceed the allowed contribution levels inside of a qualified plan.

Employers may have good intentions when they set up qualified plans for employees. They may help some workers save. Still, many employers reserve nonqualified alternatives for their top employees.

How Do Private and Nonqualified Retirement Plans Save Money?

You can choose a nonqualified savings plan that offers you these advantages:

  • Guaranteed returns on your money
  • Tax-free withdrawals of both your contributions and growth
  • Total liquidity of funds
  • Tax-free transfer of wealth to heirs of any funds left

You can also remain flexible about the way that you use your own own money. When you set up a qualified plan, you almost have to be psychic about your needs in 10, 20, or 30 years. With a nonqualified plan, you are free from concerns about tax penalties that may get levied on you just because you need access to your own funds. You can become your own bank and financial company and enjoy access to your own savings when you need them.

How to Learn More About Private and Nonqualified Plans

Finally, you don’t have to work for an organization that offers an unqualified savings plan. You can set up your own private plan. In this way, you can reward yourself in the same way that corporations and nonprofits reward their most valued and sophisticated employees. By setting up a private plan, you have the chance to customize it in a way that works well for you and your family. Contact Paradigm Life to learn how you can enjoy the benefits of this better way to save.

What You Don’t Know About the US Tax System Can Hurt You

 

Closeup portrait puzzled clueless young woman with arms out asking what is problem who cares so what I don't know isolated grey background. Negative human emotion face expression reaction perception

Are you counting on using a traditional, tax-deferred savings plan to support you with retirement income? These products seem to provide a common way for Americans to save for the future. The elephant in the room is that 401k, 403b, and traditional IRAs work pretty much the same way. That is, they offer tax-deferred contributions and growth, but taxes still need to get paid when the money gets withdrawn as income.

In order to really benefit savers, they rely upon the assumption that account owners will pay lower taxes during retirement than they do now. According to “How to Access and Bequeath Your Savings Tax Free,” this assumption may not be valid and is one major reason why current retirement plans are failing.

Assuming That You Will Pay Lower Taxes on Income During Retirement is Risky

Anybody who follows the current political campaigns knows that a lot of the rhetoric centers around taxes. On both sides of the aisle, politicians speak about who pays too much, who doesn’t contribute enough, and of course, what these taxes are supposed to buy. Typically, candidates zero in on different groups of people who should have their taxes raised, hoping their potential constituents are in some other group. One thing that most candidates skirt around is that current tax rates are almost certainly untenable, and giving breaks or raising taxes on certain groups of people may not be enough to service the deficit or even provide government services.

The Washington Post put it pretty succinctly in a recent article:

“The present campaign rhetoric will ultimately prove hollow. If middle-class Americans need or want bigger government, they will have to pay for it. Sooner or later, a tax increase is coming their way. There is no tooth fairy.”

The Post article went on to analyze some proposals from politicians in either party. For example, increasing the rate on the top tax bracket to 50 percent would generate $100 billion. That seems like an awful lot of money, but the federal deficit for 2015 exceeded $400 billion. It wouldn’t be enough to pay bills and probably wouldn’t do much to address the income inequality that has become another talking point on the campaign trail. Alternatively, plans that reduce corporate taxes in order to stimulate the economy aren’t expected to increase revenue enough either, with anticipated shortfalls that range in the trillions of dollars over the next decade.

Who Do Traditional Retirement Plans Help?

Traditional retirement plans are great for financial planners, investment companies, and banks that all serve to profit from the use of their client’s money. Not only do these organizations get to hold your money, but according to a Forbes report, “Why 401ks Have Failed,” many charge you way too much for the privilege of doing so.

You could do a great job of saving for a comfortable retirement. Still, if you defer taxes, you could find yourself paying more taxes on your withdrawals than you would have if you would have just paid them in the year that you earned the income in the first place. If you do, deferred savings plans might work out pretty well for the government too, but they might not work out so well for you.

You also usually have to follow some strict rules just to keep your money in these plans. For example, you may get penalized if you withdraw your money early, so you give up the use of your money now in order to enjoy benefits later. If you do end up paying taxes at a lower rate, it could work out for you; but if you don’t, you got a pretty bad deal.

Learn About a Better Way to Build Wealth for Retirement and Your Heirs

Of course, your retirement plan should be centered on helping yourself, your spouse, and your family. The government and the banks have plenty of resources, and they may rely upon you paying your fair share, but you shouldn’t need to get tricked into paying more than your fair share. This is particularly true during your retirement years when your entire strategy should rely upon preserving wealth and minimizing fees and taxes.

There has to be a better way to minimize taxes and build wealth for retirement, and there is. Contact Paradigm Life to learn how you can build a better retirement, while also making a plan to leave wealth to your heirs.

You CAN Have it All: How to Enjoy the Retirement of Your Dreams

Man relaxing on the tropical beach, ocean viewDoes the idea of saving enough money for your dream retirement stress you out? Even though you’re well-off now, you might worry about whether or not you’ll have the funds to maintain your style of life when it comes time for you to retire. This is a common concern that many people in your situation have. However, with the right preparation and strategy, you can avoid the stress of potentially running out of money during retirement.

Map Out Your “Dream” Retirement

In order to determine where you stand in terms of your retirement, it’s important to first figure out just what constitutes your “dream” retirement. Sure, you may have a good idea of this in your head, but you need to get it on paper so that you can put a monetary figure on the type of lifestyle you desire. Consider making a list of your ideal retirement criteria. For example, where would you like to retire? Costs of living can vary greatly from one place to the next. How do you see yourself living (in a home, in a condo, or even on a boat)? And what kinds of hobbies will you partake in?

Keep in mind that the average person needs between 75% and 80% of their current annual salary to fund their lifestyle once they retire, but if you have higher standard of living, your figure could very well be higher than that.

Work With a Wealth Strategist

Once you have a better idea of what constitutes your “dream” retirement, you can start doing some research into what that kind of lifestyle is going to cost you. Of course, it’s also a good idea to begin consulting with a dedicated wealth strategist, who will be able to handle the research for you and determine how much money you’ll need to save in order to achieve your goal. When figuring out this number, you and your wealth strategist will also need to consider other contributing factors, such as:

  • any remaining debts owed
  • inheritances
  • monthly expenses

Be Prepared for Setbacks

Keep in mind that no matter how much you save or how diligent you are about saving for your retirement, there are always going to be setbacks. The last thing you want is to have to pull money from your retirement fund early in order to cover a financial emergency, such as a major home repair or medical bill. This is where it’s helpful to include in your retirement planning a “rainy day fund” or “emergency fund” of sorts, and plan your contributions to each accordingly. This will provide you with added peace of mind in knowing the money you’re contributing to your retirement fund will stay there until you retire.

Consider Investing in Real Estate

These days, real estate is being leveraged as quite an important tool for funding anybody’s “dream” retirement. Specifically, investing in real estate and turning properties into rental incomes is a great way to enjoy additional money after you’ve retired without needing to go out and find another job. Not to mention, you can enjoy a number of tax advantages when you own a rental property. Depending on the location of your rental property and how much money you’re willing to put into it, you can easily bring in $200 to $1,000 more on a rental each month. Of course, you’ll also have to subtract the costs of maintaining the property, along with any other monthly expenses such as included utilities.

Of course, owning a rental property isn’t the only way to generate retirement income from real estate; you can also look into real estate flipping.

Get Out of the Stock Market

This is going to sound unconventional, but one of the best things you can do now to ensure a more financially stable retirement down the road is to get your money out of the stock market. There are so many other viable alternatives to putting your money into the volatile stock market, including:

  • real estate (mentioned above)
  • investing in gold and silver
  • peer-to-peer lending

Are you ready to start building your own wealth outside of Wall Street? If so, then Paradigm Life is here to help; contact us today to find out more about how we can help you achieve your dream retirement.

What to Plan for When Creating Your Estate Plan?  

House on blueprint with copyspaceEstate planning isn’t just something for people who actually live in palatial estates. An estate simply means a collection of all of the assets that a person intends to leave to heirs after they pass away. Even people with more modest estates will want to make sure they can maximize their assets, reduce death tax burdens, and have their estate divided according to their wishes. This is what proper estate planning should accomplish. Sadly, it’s a duty that is often neglected.

Fifty-five percent of Americans don’t even have a will.

You might think about estate planning as a way to help protect your family or other heirs. The most basic part of this is to create a will that helps communicate your intentions after you are gone. This seems basic, but according to Forbes, 55 percent of Americans lack even a simple will. If you don’t have a will or another way to communicate your intentions, you could leave your own family open to costly legal battles and family strife. Of course, that’s the last thing that most of you want to happen after you’re gone.

What to Plan for When Creating Estate Plans

Minimize taxes: Even though the IRS allows each individual an exemption of over $5 million, fifteen states and D.C. have their own death taxes with much lower exemptions, according to a recent Tax Foundation report. For example, the New Jersey estate tax exemption is only $675,000. Also, unlike estate taxes, inheritance taxes are actually charged to heirs after the estate has been disbursed.

Maximize communication: Once you’re gone, it’s unlikely that you’ll be able to come back and explain your intentions. It’s a good idea to make a will and keep it current. You can even create a will on your own online, but you can get professional assistance for an affordable price too. It’s particularly affordable when compared the cost of probate that your family could incur if they have a dispute. Simple tools like payable-on-death accounts really aren’t good enough on their own because they don’t contain any information about how you want that money used or shared.

Naming Beneficiaries on a Life Insurance Policy is a Simple and Effective Way to Plan

One way to clearly define how you want your assets distributed is simply to name beneficiaries on a life insurance policy. You can assign percentages of the proceeds to different heirs, and you can also name secondary heirs that inherit in case the primary beneficiaries pass away. Collecting a life insurance death benefit is simple and straightforward. In addition, inheriting from the proceeds of life insurance usually doesn’t trigger a tax filing.

Cash-value and permanent life insurance policies offer many benefits as an estate-planning tool, and because you own them as an asset, they can also help you while you are still alive. You can learn more about the benefits of whole life insurance policies from Paradigm Life Insurance here. For a free consultation, simply contact the company via the contact page.

So Much for Good Behavior: Banks Don’t Just Care About Your Credit

PrintWe tend to do everything we can to maintain good credit. We pay our bills on time, limit the number of credit cards we take out, and even pay for credit-monitoring services just to make sure we’re protected. A credit score above 750 is often seen as the gold standard and an ideal to strive for. The problem is that no one really thinks about what a great credit score will actually get you. The answer unfortunately is that your credit score only gets you so far with traditional banks. Let’s explore why banks care about much more than you and your credit score:

  1. Traditional banks are beholden to financial markets: You could have a perfect credit score and still not end up with favorable terms on your mortgage, a small business loan, etc. This is because banks’ interest rates – and even banks’ willingness to make loans – are driven first and foremost by the state of the financial markets.
  2. Traditional banks are looking out for their own financial interests: In economic downturns, banks tend to be tight with lending, no matter what your credit score. They simply don’t care that you may be especially qualified and/or desperately in need of credit.
  3. Traditional banks want to make as much money off you as possible: No matter what your credit score, a bank is a business, and your excellent credit does not automatically give you any special privileges. Banks will still hit you with the highest interest rate that the market will bear, and they will unilaterally decide how much credit you are worthy of receiving.
  4. Traditional banks won’t offer you any leniency with repayment terms: Even if you have perfect credit, you will never receive any breaks from your bank if you should fall on hard times. In fact, every missed or late payment will equal a hit to your credit score.

Your good credit does not guarantee you the credit you need from traditional banks. Banks are, first and foremost, beholden to financial markets and looking out for their own financial interests. They also are out to make as much money off you as possible, with no chance of leniency on repayment terms. The only way to avoid becoming entangled with traditional banks is to avoid them altogether, and the best way to do this is through a concept known as infinite banking.

To learn more about how infinite banking can turn you into your own bank and eliminate your reliance on traditional banks, go to Paradigm Life’s Infinite Banking at a Glance.

3 Ways to Help Your Family Avoid the Inheritance Tax

saving money as a family piggy banks cutoutInheritance taxes and estate taxes are both called death taxes; however, they aren’t exactly the same thing. An estate tax gets levied against the owner’s assets before they are distributed to heirs. An inheritance tax is actually levied against some heirs after they are distributed and need to be reported on state income tax forms.

The federal government and some states have estate taxes. According to the Tax Foundation, six states have an inheritance tax. These are Nebraska, Kentucky, Iowa, Pennsylvania, New Jersey and Maryland. As a note, New Jersey and Maryland have both state inheritance taxes and state estate taxes.

Inheritance taxes and estate taxes are both called death taxes, but they aren’t the same thing.

Take Steps to Protect Your Family From Inheritance Taxes

However, Forbes reports that many states have much lower exemptions and estate planning may need to account for them. This is true for many fairly high-net-work families that don’t consider themselves ultra-rich. Inheritance taxes can be more difficult to control because they don’t depend upon as much upon the size of the estate; they may also depend upon who the heirs are. Also, state laws different, so rules for your heirs might be different than your own local laws. In some cases, this can make estate planning fairly complex.

However, there are some general tactics that can help preserve the value of the assets that you hope to leave to your family and other beneficiaries:

  • Distribute assets early: You may be able to pass some assets on to beneficiaries as gifts before you pass away. You might consider this for family heirlooms, business assets, and other things that aren’t easily converted to cash. Some kinds of family businesses might also be exempt from death taxes. In some cases, gift taxes may need to be considered if you plan to give away very valuable assets or large sums of money.
  • Leave your estate to people with exemptions: Typically, spouses have exemptions from inheritance taxes. Children, particularly dependent or disabled children, may also qualify for larger exemptions than heirs that are not members of your family.
  • Use life insurance to transfer wealth: Proceeds from life insurance policies do not usually trigger taxes. That is one reason why sophisticated and wealthy people use life insurance as a means to preserve assets and transfer wealth. Permanent life insurance can be one of the simplest and most effective ways to leave money to the beneficiaries of your choice without worrying about paying taxes. It can pass on the value of your estate as cash to the people that you name as heirs in whatever proportion that you choose.

Learn Why Sophisticated Estate Planners Rely Upon Permanent Life Insurance to Transfer Wealth

Would you like to simplify estate planning? You might do that with a permanent life insurance product that can help you preserve and access your wealth while you are still enjoying your lifeAt the same time, this kind of cash-value insurance can help you transfer the most wealth to your heirs. You can set up a free consultation today by calling or emailing Paradigm Life. Simply visit the Paradigm Contact page to get started.

3 Facts That Prove the Gender Pay Gap is Real

Male female income differenceMost people understand that average lifetime incomes for women are lower than those for men. However, some still argue that this is because of women’s choices to accept lower paying jobs. The issue isn’t really this simple, and the Bureau of Labor Statistics keeps statistics that demonstrate this gap in pay exists in almost all occupations. It even exists in corporate boardrooms. Average pay for male chief executives is $2,251 a week; but the average weekly pay for women in the same position is only $1,836. Consider three facts about the gender pay gap in order to decide if it is real or a myth.

  1. The Gender Pay Gap isn’t Just About Pay

The gap in compensation between men and women doesn’t just stop at paychecks. Women also tend to get weaker benefits. For example, women aren’t as likely to get offered a group retirement plan by their employers, according to the U.S. Department of Labor. As a consequence, women tend to accumulate smaller amounts of retirement savings. Female workers are also less likely to get offered group medical plans or have jobs that grant them paid time off.

  1. Women Aren’t Held Back by a Lack of Education

According to the official blog of the White House, women have earned the majority of college degrees since the 1990s. Also, women are more likely to work at full time careers and gain experience in their careers than they used to be, but the gap in pay between men and women has not evaporated.

According to the White House blog:

Today, more of the pay gap is unexplained, leaving a greater role for factors beyond differences in education and experience.

  1. In Fact, the Difference Between Men’s and Women’s Salaries Worsens With Age

Since it would be reasonable to assume that women would gain more experience as they age, it might also be fair to conclude that the gap between men’s and women’s salaries and compensation would close as they get older. The typical disparity in pay that gets quoted is is that women earn an average of .79 for every dollar that a man makes. However, the reality is that the differences get larger as women age, according to analysis of U.S. Census information by the American Association of University Women. Women who are mothers or members of minority groups fair even worse.

The Gender Pay Gap Makes Retirement Planning for Women Even More Critical

For both men and women, enjoying a comfortable retirement income requires planning and the right tools more than it may require a high income. Because women may earn less, they may need to plan even more. What Paradigm Life has found is that many people neglect making these plans until they are very close to retirement, and that can be a source of stress and even panic. It’s time to make the best use of the savings you have accumulated in order to maximize your wealth and minimize your tax burden. Learn more about how to plan for a successful retirement with Paradigm Life.

 

3 Things That Have Baby Boomers Shaking In Their Bonnets

Dollarphotoclub_74286777Baby Boomers have benefitted handsomely from dramatic increases in their home equity over the decades and generous pension plans. But that does not mean they’re riding comfortably into the retirement sunset. Quite to the contrary, Baby Boomers feel the same financial fears as the rest of the population – except for them, they’re already retired or approaching an age where they can no longer work. Let’s review the three main reasons that Baby Boomers are shaking in their bonnets about their uncertain financial futures:

  1. They fear running out of money before they die: Baby Boomers have worked hard all of their lives to save for retirement and done their best to reach very lofty savings goal. But was their savings goal the right goal? Will they have enough to live comfortably on for the rest of their lives? These fears keep them up at night, especially given the volatility of the financial markets and fears about steep inflationary forces eroding their nest eggs.
  2. They fear unexpected healthcare costs: The politics surrounding healthcare remain as intense as ever before, and the costs of healthcare just keep rising. Where does that leave the average Baby Boomer who counted on being able to receive high-quality, affordable healthcare coverage for the rest of their lives? No one can say for certain what the future of the U.S. healthcare system will look like – or how much insurance will cost 10 or 20 years down the road.
  3. They fear losing their financial independence: Baby Boomers are a fiercely independent generation that worked hard all their lives to secure their financial future without becoming a burden on their children. But with so much uncertainty in the financial markets and fears about rising inflation, most Baby Boomers do not feel financially secure, and thus, worry about losing their ability to live comfortably and with financial independence.

Despite everything they’ve done to prepare for retirement, Baby Boomers have no reason to breathe easy about their financial standing in the final years of their lives. They fear running out of money, unexpected healthcare costs, and losing their financial independence – and worst of all, most Baby Boomers believe it’s too late to reverse their fortunes.

The good news is that there is still hope for Baby Boomers, and it starts with radically rethinking your wealth-building strategy. To learn how you can achieve financial freedom at any age, visit Paradigm Life’s  Optimizing Retirement Income.

Inflation Is Rising Faster Than Your Income: What Now?

Economic and stock market success concept showing man jumping from coins to cashWe’ve all heard reports about wages staying relatively stagnant year after year. This news is depressing, especially as we face an increasingly uncertain future, with astronomically rising healthcare costs and zigzagging financial markets. We are doing our best to save money and prepare for the day that we’ll no longer be working, but what happens if inflationary forces eat away at our savings and leave us in financial peril? The truth is that there are steps we can take now to secure our financial future and create a strong buffer against inflation. Let’s explore the best strategy to adopt when you find inflation rising faster than your income:

  • You need a hedge against inflation: When inflation is on the rise, you cannot count on your bank to keep your savings from losing its value. You need an investment that will be separate from the financial markets, not beholden to them. You need a hedge against inflation.
  • You need a secure place to put your retirement savings: If you’re worried about your spending power becoming eroded by inflation, you can’t count on Wall Street to help you retain your spending power. In fact, Wall Street is the antithesis of a secure investment. You need an investment option that is stable and earns you a steady rate of return.
  • You need assurances you’ll have enough money to last you the rest of your life: The scariest thing about inflation is that it’s impossible to predict how much worse it will get over your lifetime. When you’re retired and no longer earning an income, you need to know the money you’ve saved will be enough to last you the rest of your life. You need to know your money will keep working for you, providing you with a steady flow of cash to last you the rest of your life.
  • You need to minimize your spending and debt: While there are strategies you can take to protect your income, you also want to take steps to curb your spending and eliminate your debt. The more money you have, the farther you can make it stretch.

The one investment product that acts as a hedge against inflation, secures your retirement savings, and gives you financial independence for the rest of your life is a whole life insurance policy. With a whole life insurance policy, you can provide yourself with a steady cash flow for the rest of your life.

For more information about how a whole life insurance policy can protect you from destructive inflationary forces, visit Paradigm Life’s the Whole Truth about Whole Life Insurance.

School Should Make You Smarter: So Why Are Your Tuition Decisions So Stupid?

Education cost and high school fees as a graduation hat shaped as a hot air balloon being lifted up by the flames of the  burning of money as a metaphor for financial money stress.Let’s face it: The cost of a college education is quickly spiraling out of control. Whether you’re still paying back your own college loans or facing the prospect of helping your children pay for theirs, there is no escape from the essentialness of college – or from the huge price tag that comes with it. Because college is pretty much mandatory for giving us a competitive edge in the working world, we’ve gotten to a point where we’re willing to shell out anything and take on any amount of debt. These decisions aren’t always so smart; let’s explore how college debt turns even the smartest among us into suckers:

  • Banks are the real winners of high tuition bills: Most students cannot afford the soaring costs of tuition out of pocket, so they turn to banks to finance their debt. Consequently, banks get to laugh all the way to … well, the bank. They are able to fleece students and families, charging arbitrarily high interest rates that aren’t even necessarily based on market rates.
  • The only way to take on debt responsibly is to avoid traditional banks altogether: Although it may seem unbelievable, there is a way to avoid traditional banks for college loans, and it starts with a whole life insurance policy. With a whole life insurance policy, you can borrow against your policy’s cash value to fund whatever you’d like, including college tuition bills.
  • You need to be able to set your own repayment terms: When you access the cash value of a whole life insurance policy, you set your own repayment terms because you are your own bank. That means that if you or your children aren’t in a position to repay loans immediately after graduating (a very real possibility in a still-weak job market), you don’t need to start repaying that loan until you are ready.
  • You need a steady cash flow to get through school: One of the worst things that could happen while you or your children are in school is to run out of money before you graduate. School costs are continually rising, and you need a steady cash flow to carry you through. A whole life insurance policy, with a cash value that grows continuously, is the answer to this very scary possibility.

You don’t need to fall into the college tuition trap that has become the banking industry’s bread and butter. You need to avoid banks altogether, so you can set your own repayment terms with your college loans and generate a steady cash flow that will get you and your children through school.

To learn more about how to use a whole life insurance policy to fund college, visit Paradigm Life’s Life Insurance as a Cash Flow Resource.