How To Avoid Tax Compounding?

Posted by:  BeamaLife Editor  on 11 Oct, 2008

You may have heard a lot about compound interest, but this is probably the first time you are reading about compounding your taxes.  When you reinvest your interest or return in the same investment vehicle; you are now eligible to get interest or return on the additional money.  In this manner, your interest is compounding or multiplying faster. Compounding has a definite advantage in the short run, but if done unwisely, it can create a significant tax liability as well. The biggest impact of compounding occurs in taxable accounts such as savings accounts, money-market accounts, or personal investment accounts. Compounding also has a negative impact in tax-deferred accounts such as traditional IRA, 401(k), pretax retirement accounts, and annuities. You might think – what is wrong in paying more taxes when we make more return or interest but there is a way where you can pay less tax on more return. That is why the Roth IRA and Roth 401(k) make more sense than the pretax IRA and 401(k). Permanent life insurance especially whole life insurance provides a similar benefit to the Roth IRA and Roth 401(k)—without stock market volatility.  It also offers flexibility to use your money before age 591/2, the earliest age you can take money out from any kind of tax-deferred retirement account without paying the hefty 10% IRS penalty. And, unlike any other retirement savings plan, permanent life insurance covers you for death and total disability if you add a waiver of premium rider to your policy.

Please call (877) 972-3262 to speak with a retirement specialist or complete your personalized retirement savings proposal now.