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).
Having a high net worth doesn’t have to mean paying high taxes. With the guidance of tax and financial professionals, you can uncover better ways to manage your money. If you want to discuss options, give our office a call today at (540) 720-5656.
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Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. Megan is also a fully licensed Life, Health, and Annuity agent. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter.