Taking Full Advantage of Possible Tax-Free Growth


In December 2017, President Trump and his republican-held Congress passed a sweeping corporate tax reform bill lowering the corporate tax rate from 35% to just 21%*. This is a permanent decrease of corporate taxation that will remain in place until both houses of Congress pass a bill to increase it. They also cut income taxes on individuals in all tax brackets. This is good news in the short term, as we get to keep more of the money we earn and spend it on things we want. Taxes that were decreased on individuals, though, are scheduled to go back up, as those cuts have a “Sunset Provision” in 2026 and revert to the way they were, unless Congress acts to make them permanent.

This scenario is creating a great opportunity for people who are working, as well as retirees. The Roth provision of the IRS code allows for workers who qualify under the income limits to put money away on an after-tax basis. Those assets can then grow tax-free, as long as they have been held in the “Roth account” for at least five years, and the person has reached age 59 1/2. Many employers are also now offering a “Roth 401k” provision to their traditional 401k plans, which allows for high-income earners to also contribute to a qualified work savings account on an after-tax basis.

When George W. Bush left the White House, the national debt was approximately $8 trillion dollars; President Obama added $10 trillion during his tenure to bring the total to $18 trillion. As I write this article, according to usdebtclock.org, President Trump’s government has added approximately $4 trillion, making the debt $22.2 trillion. If the President doesn’t get spending under control and if he is re-elected, we could see a $30 trillion+ national debt by 2024. Eventually, it is my opinion, tax rates could possibly increase – substantially – on the individual American to try to pay down this debt. The U.S. had a top rate that exceeded 90% through the 1950s and early ‘60s and a 70% top tax rate from 1971-1980. Then, President Reagan got Congress to cut it to 50% starting in 1982. More recently, the top rate has fluctuated between the mid- and high-30s.**

I encourage clients to work with their financial and tax advisors to devise and implement a strategy that will allow them to take advantage of our current low personal income tax rates, and start adding to accounts that will possibly allow tax-free asset growth. This opportunity to add to Roth 401ks, Roth IRAs, and possibly convert Traditional IRAs to Roth IRAs, will hopefully last until at least 2026, when the sunset provision on the personal tax break goes away. It is fully possible that a more socialist-leaning president could rally Congress to raise rates significantly as soon as the 2020 election is decided. Employers who have added the Roth 401k provision to their plans and tried to disseminate this information in a timely and explanatory manner find that the message often falls flat with employees.

Determining the best savings vehicle for you and your family takes research and evaluation. Putting money into your traditional 401k or IRA to get the tax deduction now, may be more beneficial for your individual situation than the after-tax strategies listed above. Meet with your trusted advisors to determine which plan of action makes most economical sense for you. Personal income tax rates are at the lowest we’ve ever seen – don’t miss your chance to set yourself up for success in the long run.

* Peter G. Peterson Foundation **forbes.com


800.338.4586 olvinvest.com The Durant 607 E. 2nd Ave., Suite 100 Flint, MI 48502 jlagore@olvinvest.com
Securities offered through Sigma Financial Corporation, member FINRA/SIPC.
Investment advisory services offered through SPC, a registered investment advisor.
OLV Investment Group is independent of Sigma Financial Corporation and SPC. *It is not possible to invest directly into an index. Past performance is no guarantee of future investment performance. This article is for informational purposes only and should not be construed as investment advice.


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