Monday, February 6, 2012

BEWARE! Your Tax Preparer May Be Sending You to Tax Hell…

BEWARE! Your Tax Preparer May Be Sending You to Tax Hell…

As tax season gets into full gear, I hear a lot of tax preparers, in attempt to “save” their clients on the amount of taxes they’d otherwise pay, advise them to make contributions into tax-qualified IRAs. But will that move really “save” you any money on taxes at the end of the day?

By funding a deductible IRA, you would pay less in taxes today – but according to current tax law, you are only postponing paying those taxes until a later date, more than likely when you are retired. As many so-called tax experts and financial gurus will explain, you’ll be outsmarting the IRS because by retirement, you’ll presumably need much less income (because you’ll have paid off the mortgage on your house and your children will be grown and out of the nest). So by implication, your taxes will be much, much lower. Seriously?
That Thinking Is Nonsense and Very Short-Sighted
I don’t know about you, but I’m looking forward to a much better retirement after all those years of hard work – and I just don’t quite see how I can do that on a significantly lower income than today. Besides I wouldn’t want anyone to tell me I’m “saving” money, when in fact I am going to HAVE to pay it back – is that called savings?
I hear daily, by virtue of my consistent interactions with seniors through the educational workshops I teach and private consultations with our firm, that many of those who followed this shallow theory now find themselves in tax hell, although their income may have indeed gone down.
You see, you cannot keep postponing your taxes forever. At some point, you must voluntarily withdraw those funds from your IRA, or the IRS will force you to do so, at which time you’ll be hit with an additional 50 percent penalty tax, on top of the regular tax on the amount you should have withdrawn.
What you must understand is that by the time your retirement rolls around, you will – if your situation is like most people’s – more than likely have lost the three most important and significant tax deductions you enjoy today: (1) mortgage interest (if you paid it off), (2) dependent children exemptions (they’ve moved out and are now taking their own exemptions), and of course, (3) you’ll be making no more contributions into that IRA (you’re now withdrawing, instead).
Now let’s think about this: with those deductions gone, what do you expect will happen to your “taxable income”? It will, of course, become disproportionately higher – just ask someone who’s currently retired to confirm this. Given their so-called advice, I think many of these tax gurus are completely delusional. I’m happy to be proven wrong, so would one of those strong advocates of the traditional IRA strategy please tell me what I’m missing here?
Another thing that apparently eludes many retirees is the fact that every dollar you withdraw from your IRA directly contributes to the amount of taxes you end up paying on your Social Security checks in retirement. Talk about a double-whammy! 
Did you know there are alternatives within the tax code that allow you to contribute after-tax money and then never have to worry again about taxes on those funds? Hey, all I’m advising here is knowing exactly what you’re getting into before you sign on the dotted line, because I’d hate to be talking with you years down the road and hearing, “I should have met you some years back” as I hear quite often.
The good news is that irrespective of where you are – even if you’re already retired – there are things you can start doing TODAY to begin keeping more of your hard-earned dollars, without leaving yourself exposed so that your retirement plan comes back to bite you later on.
Contact us TODAY to schedule your complimentary, completely no-obligation consultation with a knowledgeable financial expert who can explain money-saving alternatives your current financial advisor may not be aware of. 877.656.9111 or

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