Every year about this time, people start talking about and considering things like
IRA contributions. Most of the time, tax-sheltered investments make great sense.
The federal and state governments have designed their tax laws to encourage such
savings. However, that said, there are three situations in which it may be a poor idea
to use tax-sheltered investments:
IRA contributions. Most of the time, tax-sheltered investments make great sense.
The federal and state governments have designed their tax laws to encourage such
savings. However, that said, there are three situations in which it may be a poor idea
to use tax-sheltered investments:
You know you'll need the money early
In this case, it may not be a good idea to lock away money you may need before
retirement because there is usually a 10 percent early-withdrawal penalty paid on
money retrieved from a retirement account before age 59 1/2. But you will also
need money after you retire, so the "What if I need the money?" argument is more
than a little weak. Yes, you may need the money before you retire, but you will
absolutely need money after you retire.
retirement because there is usually a 10 percent early-withdrawal penalty paid on
money retrieved from a retirement account before age 59 1/2. But you will also
need money after you retire, so the "What if I need the money?" argument is more
than a little weak. Yes, you may need the money before you retire, but you will
absolutely need money after you retire.
You don't need to save any more for retirement
Using retirement planning vehicles, such as IRAs, may be a reasonable way to
accumulate wealth. And the deferred taxes on your investment income do make
your savings grow much more quickly. Nevertheless, if you've already saved enough
money for retirement, it's possible that you should consider other investment
options as well as estate planning issues. This special case is beyond the scope of
this book, but if it applies to you, I encourage you to consult a good personal
financial planner--preferably one who charges you an hourly fee, not one who earns
a commission by selling you financial products you may not need.
accumulate wealth. And the deferred taxes on your investment income do make
your savings grow much more quickly. Nevertheless, if you've already saved enough
money for retirement, it's possible that you should consider other investment
options as well as estate planning issues. This special case is beyond the scope of
this book, but if it applies to you, I encourage you to consult a good personal
financial planner--preferably one who charges you an hourly fee, not one who earns
a commission by selling you financial products you may not need.
Your tax rate will rise in retirement
The calculations get tricky, but if you're only a few years away from retirement and
you believe income tax rates will be going up (perhaps to deal with the huge
federal-budget deficit or because you'll be paying a new state income tax), it may
not make sense for you to save, say, 15 percent now but pay 45 percent later.
you believe income tax rates will be going up (perhaps to deal with the huge
federal-budget deficit or because you'll be paying a new state income tax), it may
not make sense for you to save, say, 15 percent now but pay 45 percent later.
Does it always make sense to save more for retirement? Can you put too much money into your IRA or 401(k)? CPA & bestselling author Stephen L. Nelson provides the surprising answer to this question.
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