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 (603) 261-3736.
Bob has a passion for making your money work hard for you. He takes profound joy in ironing out a plan for a long and comfortable retirement, no matter what your current income or level of wealth. With a work ethic second to none, he has a zeal for transforming uncertainty into stable ways for you to protect your future and your family. He knows that the quality of your life you enjoy today can remain as rewarding—or even better—after retirement.
With a strong background in information technology, Carol is instrumental in building operational policies and strategies that keep the organization functioning smoothly. Carol’s organizational skills and her flexibility to jump from priority to priority along with her commitment to customer service makes her an essential part of the Grimard Financial team. When Carol is not working with the Grimard Financial Family, she is a very creative and accomplished photographer.