David McKnight kicks off this Power of Zero Show episode by stressing that, in his opinion, tax rates in the future are likely to be much higher than they are today.
Why? Because the U.S. has a national debt that continues to grow at an alarming rate. It has hundreds of trillions of dollars in unfunded obligations for programs like Social Security, Medicare, and Medicaid.
At some point, the Government is going to need huge infusions of cash to meet such obligations.
The so-called “Widow’s Penalty” is a very compelling reason, David believes, to consider doing Roth conversions while today’s tax rates are still around.
And that’s true even if you don’t think that future tax rates will be higher than the current ones…
David explains how, when a spouse passes away before the other, the surviving spouse often inherits a tax problem at a moment in life when they’re least equipped to deal with it.
The ugly truth is that, in many cases, surviving spouses earn nearly the same amount of income as before while being forced to operate within a less favorable tax framework.
That means that income that previously fit comfortably inside the 24% tax bracket can suddenly spill over into the 32%, 35% or even 37% bracket!
David touches upon the fact that one of the most important tax planning windows in their entire lifetime occurs during the years when both spouses are still alive and filing taxes jointly.
Remember: this topic is crucial because tax consequences don’t necessarily end with the surviving spouse.
Whatever remains in your IRA may pass on to your children.
David’s advice is to move money slowly enough that you don’t rise into a tax bracket that gives you heartburn, but quickly enough that you get all the heavy lifting done before tax rates go up for good.
Mentioned in this episode:
David’s new book: The Secret Order of Millionaires
David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track
Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David’s Tax-free Tool Kit at taxfreetoolkit.com
