2. Saving on Taxes in Retirement and an alternative LTC option

If you’re like many of our clients, you contributed to a 401k or some type of tax-deferred account when the highest marginal tax rate was higher than it is today. Few people actually pay the highest marginal tax rate of 37%, but we talk about it because it’s a bell-weather for what happens with the lower tax-brackets. When the highest rate goes up the lowest rate typically increases as well. Which means our effective tax rate will go up. 

So, you contributed to a tax-deferred account and got a tax break in the year you contributed, which was great for you then! Now you have a window of opportunity to potentially save more in taxes later down the road, because we believe tax rates are likely to be higher. But you have to get moving on your plan soon. The tax breaks Congress passed in 2017 sunset in 2026, and it takes several years to properly transition your retirement savings to tax-free. 

The longer you wait to begin, the more you risk you assume of not being able to transition all of your money to tax-free. We do not recommend paying all the tax in your tax-deferred account in one year and moving it to a tax-free vehicle. We don’t want to double your taxes now to avoid your taxes potentially doubling the future.

But this is all useless info if you are not convinced tax rates will go up in the near future. Do you believe taxes are likely to go up in the near future? Our goal is to help you transition your assets where you will have 4 to 6 streams of tax-free income. But the cost of admission is paying some tax today.

Traditionally how the LTC coverage is obtained is buying a LTC insurance policy that may have a monthly benefit. For example, a person may say, “I’d like to have a $5,000 per month benefit.” Should you need LTC, the insurance company would send you a check for $5,000 per month, typically for a certain period. 

The problem is, if you die peacefully in your sleep typically all your money you put into the policy is gone. There’s got to be another way, right? We all want to believe we won’t need LTC, but what if we do? I had to find a way to help my clients have LTC coverage without the potential to lose the premium they put into their policy. So, here’s a possible solution. Some permanent life insurance policies provide several living benefits. One of which is LTC coverage through the addition of a rider benefit. 

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https://www.fool.com/retirement/2018/09/02/5-long-term-care-stats-that-will-blow-you-away.aspx