Zenith Wealth Partners

Let’s Talk About Tax, Baby

Alli Masoero, CFP® – Zenith Lead Financial Planner 
Not Rich, Yet: A blog talking about finance in a way you’ll actually understand.

Let’s talk about you and meee (working together).

Tax diversification is when you allocate your money across various accounts with different tax treatments. And I am OBSESSED with it. Strategies like these and being able to do them for my clients is why I do what I do. Tax avoidance is the favorite game of the ultra high-net worth – why let them play it alone.

Tax-Advantaged: (401k, IRA, etc) Contributes pre-tax, grows tax-free, pays tax on withdrawal.

Taxable: (Brokerage, Individual, etc.) Generally stocks/bonds. You are only taxed on gains.

Tax-Free: (Roth) Contributes after-tax, grows tax-free, and tax-free on withdrawals.

Those are three different types of accounts, all with three different tax treatments. Diversification is when you spread your savings across all three types of accounts. Doing this will allow you to lower taxes now and into the future.

Older family members and the media know to scream ‘save in your 401k!!!!’ but it’s not often we hear them talk about anything else. I want to educate my clients and peers on the importance of saving in multiple accounts.

While 401ks grow tax-free, they are fully taxable in retirement. I found at my old firm where I worked with retirees – the majority of their money was in tax-advantaged IRAs causing them to pay an abundance of tax in retirement.

I want to make it clear that I am not telling you to stop contributing to your 401k. I am challenging you to think about your savings outside of it. 

Tax diversification is different for everyone, just like investment diversification. When you are trying to reduce your taxes it is integral to work with a professional like me. Everything is customized, everything.

All in a hards day work

All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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