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What Are Some Stealth Retirement Moves for the Wealthy?

by Scott Antritt
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Retirement procedures and strategies vary slightly depending upon your income bracket. High income earners do not qualify for certain options that are available to those who earn less. There are ways to get around this if you are diligent and consult a professional.

Backdoor Roth IRA

Since 2010, restrictions have changed allowing anyone to convert a traditional IRA to a Roth IRA. While some question why the IRS has elected to restrict who can open a Roth IRA but not who can convert to one, the fact is the option is available and should be taken advantage of by those who want to. When considering a backdoor Roth IRA, you must consider the following: you must pay tax on any gains in the amount transferred to a Roth in addition to paying tax on any pre-tax contributions. You must also think about your non-Roth IRA presence at all financial institutions. Determining your non-taxable income includes all of your accounts.

After-tax 401(k) Contributions

While the contribution limits of a 401(k) are outlined in detail by the IRS, after-tax contributions can be a good way to save money for retirement. While you must pay tax on the contributions, the earnings can compound and will not be taxed until they are withdrawn. At that point, they are taxed as income. Depending on the specifics of your situation, it is not always the best option to invest in an after-tax 401(k) but instead a taxable account. Long term gains are taxed at a lower rate than income in the highest tax brackets. This is something to keep in mind when making your decision about what type of 401(k) to contribute to.

Personal Defined Benefit Plans

For those who are self-employed, a personal defined benefit plan is worth considering. The regulations of this plan are more strict and the administrative costs of maintaining an account can be costly. However, for many, the benefits outweigh these details for many individuals. A draw is being able to contribute large amounts of money that will allow a certain type of lifestyle to be achieved during retirement. Additionally, the potential for large tax savings during retirement on that income is enough for people to give a personal defined benefit plan significant thought and speak with a financial advisor for more information.

For the highest earners in the country, finding ways to protect as much income as possible is important. As outlined by Forbes, the top tax bracket will pay 39.6% of their earnings to federal taxes. Once state and other taxes are deducted, someone could pay more in taxes than they are permitted to keep. For this portion of the population, shielding money can start with the three strategies listed above.

Retirement procedures and strategies vary slightly depending upon your income bracket. High income earners do not qualify for certain options that are available to those who earn less. There are ways to get around this if you are diligent and consult a professional.

About Caldwell Trust Company

Caldwell Trust Company is an independent trust company with offices in Venice and Sarasota, Florida. Established in 1993, the firm currently manages over $800 million in assets for clients throughout the United States. The company offers a full range of fiduciary services to individuals, including services as trustee, custodian, investment adviser, financial manager and personal representative. Additionally, Caldwell manages 401(k) and 403(b) qualified retirement plans for employers.

 

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