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The 60 Min. Retirement Tune-Up
Jenny Jones has been advising in the area of finance for nearly 20 years.
I remember when I first got into the financial planning and insurance business nearly 2 decades ago. As I set through countless hours of continuing education, one thing became very clear to me. Interest rates were almost guaranteed to change every year, the tax rates were subject to change every so many years, and corporations would always find a way to make money for their shareholders.
The GOP (Grand Old Party) tax plan of 2017, was a plan that proved all my finance teachers correct yet again. I remember saying to myself during many hours of homework assignments, “This can’t be true, because more people would know about this”. Enough with the history lessons and now on to (3) survival tips for the new tax plan.
One area where you need to address immediately is your 401k or IRA (Individual Retirement Account) retirement plan. You should reallocate (a technical financial term, which simply means adjust) your retirement portfolio every year, but this year more than ever. I will try not get to technical, but in short the tax plan permanently lowers corporate taxes. I am not sure you know this or not, but our current president, Donald Trump, is a business owner and naturally his tax plan would favor businesses, primarily corporations.
1: Adjust your retirement portfolio to capture the expected growth of corporations, which I expect to be better than in the past. Look for mutual funds whose primary objective is domestic growth of capital (initial investment).
One major change in the plan does directly affect retirement plans, but does not affect the middle class in my opinion. As a planner and advisor I must share it here. Currently people are able to switch to a Roth IRA (Named after Senator William Roth 1997) from a traditional IRA and then switch back or revert back to the traditional IRA if it appears not to be favorable for tax reasons. Again, this is a strategy not generally used by the middle class, but nevertheless, it was there and will be going away with this new tax plan.
2: If you do not currently have a Roth IRA, going into the 2018 year you need to get one as soon as possible. A sweeping tax plan, just as this one can change everything to do with taxes concerning your retirement. A Roth IRA has more benefits then I can explain in this post concerning taxes.
In closing, I would like to share the most valuable piece of information and reading this far will be well worth it. I share and expand more in my upcoming book, but if your retirement plan encompasses your company pre-taxed 401k or retirement plan and that’s it then you are making the biggest mistake on your retirement journey. Its tax plans like the one which was just announced that will have control over you for the rest of your retirement life. At the start of this blog I shared with you that two things you can count of that will change from year to year. One of them was taxes and it has been noted and is on record that the so call “inventor” of the 401k, Mr. Ted Benna, admits to making a mistake by popularizing the IRS Code 401 paragraph K.
3: If you have everything concerning your retirement future in a (pre-taxed) 401k or IRA account then a sweeping tax plan like this proves that you are making a mistake. The reason is because you will always be at the mercy of tax changes, which can happen every so many years.
If you woke up tomorrow and the government said they need the tax revenue from all the (pre-taxed) plans to pay for the more than 2 trillion dollar deficit or to fund the near bankrupt social security reserve fund, what option or out do you have if all of your money is in a pre-tax plan? The answer is none. I will host more workshops and boot camps this year as a result of sweeping tax changes. Please download our app or visit our website for more financial education.