From Retirement Now Newsletter July 1st 2021
If this guy cheats death I wouldn’t be surprised at this point.
Death and taxes are the two inevitable things in life. But it looks like one of the founders of PayPal, Peter Thiel went a long way in avoiding a lot of the tax part.
Since he’s philosophically a libertarian this makes a lot of sense.
He put two-thousand smackers in his Roth in 1999 and according to reports never made another deposit. By 2019 it had grown to five billion.
As long as he waits until age 59 ½ to withdraw the funds, it will all be tax free.
Not too shabby.
Now most of us won’t be able to do what he did. He was invested in high risk start-ups. He bought PayPal for one tenth of a penny per share in 1999. As of writing this, it is just shy of three hundred per share. And venture capital investments like that are highly risky and 100% of an investor’s proceeds could be wiped out. But when it works… fortune favors the bold.
For someone who is not Peter Thiel, essentially is not a venture capitalist, does not have an eye for spotting the next big futuristic technological service… it’s probably not worth taking the risk of speculative investments that could go belly up losing 100% of invested funds.
But that doesn’t mean a Roth IRA can’t be used to great effect.
Quite the opposite.
Here’s a few:
-Take advantage of marginal tax brackets by contributing to Roth when in a lower bracket
-Enjoy tax free growth on your investments
-Dividends and interest payments are not taxed
-Convert IRA to Roth in retirement to lock in today’s tax rates, in case rates rise in the future
-Provides an additional source of funds in retirement to draw from to help you manage staying in a lower tax bracket that could potentially reduce, maybe even eliminate taxes on your Social Security benefits
-Have a source of funds you can tap into in retirement without tax consequences for big purchases, like an RV or gift to a child
-Use it as a tax-free inheritance for your kids
-Diversify your accounts in terms of how they are taxed.
That last one is really important today.
Why?
Because most people today have a concentration of their wealth in employer sponsored retirement plans like 401k’s. Every penny from these accounts will be subject to taxation when withdrawn during retirement. And when you reach age 72 you will be forced to start taking money from these accounts and claiming it as income for tax purposes whether you want to or not.
Take a quick mental inventory of your wealth. Where is it mostly located?
If you said in your employer sponsored 401k/403b/TSP/Rollover IRA, etc… then you are not alone.
And if you were thinking that all that money is yours, think again.
Uncle Sam hasn’t been paid yet from those funds. And if he wants to (and has the sufficient votes in Congress) he can raise tax rates, which effectively gives him a bigger ownership share in this 401k joint venture you have with him.
Which is why if there are steps you can take to essentially buy out your “silent partner on the Potomac” you might want to look into them while tax rates are currently at historical lows.
If you want to know how all this could possibly affect you personally in your retirement, then feel free to click here and book an informal 15-20 minute chat with me and we can talk about it.
And if I feel like my services might line up with some of the challenges you’re facing in retirement I’ll let you know, otherwise I’ll try to point you in the right direction for help.
Regards,
Chris Hammond
