Andrew Corbman has advised numerous clients on how to maximize the benefits of fixed index annuities, life insurance, and long-term care insurance options. Today he discusses one of the best strategies for retirement: tax deferrals. Read his blog below to learn more:
If compound interest is king in the world of personal finance, then tax-deferred savings can be considered the queen. This is because the money you save from paying tax up front can be used to beef up your nest egg, which only grows bigger over time, thanks to compound interest. Andrew Corbman laments that few people are financially savvy enough to maximize tax-deferred savings, which unfortunately can hurt their retirement in the long run.
Tax-deferred savings can be accumulated in several ways:
1. Traditional IRAs and 401(k)s – One of the simplest ways to accumulate tax-deferred savings is to set aside money in your IRA (individual retirement account) or 401(k), which is your employer-sponsored retirement plan. Andrew Corbman explains that investments in these accounts are tax-deferred. These investments include stocks, bonds, mutual funds, and fixed annuities, among others.
2. Roth IRA – Roth IRAs differ from traditional IRAs because they are funded with after-tax income. However, they are still a means to accumulate tax-deferred savings because the investment in these accounts can grow tax-free. One might even say that Roth IRAs are better than traditional tax-deferred IRAs, but Andrew Corbman believes that this is a case to case basis.
The only downside to traditional IRAs and Roth IRAs are their limits and withdrawal rules. For example, contributions for the former should not exceed $5,000 while it’s $5,500 for the latter. Therefore one should explore as many tax-deferral options as possible to maximize their investment income.
3. HSAs – Like IRAs, HSAs or health savings accounts are tax-deferred as well. The interest earned through these accounts are not taxed and may even be tax-free as long as they are used to pay for qualified medical expenses. Andrew Corbman shares that more people should consider HSAs because of the rising healthcare costs in the country.
This is but a brief overview of the most common ways to accumulate tax-deferred savings. Andrew Corbman shares that there are more tax-deferred retirement strategies such as fixed deferred annuities, variable annuities, and whole life insurance, but for brevity, these shall be explained further in another blog post.
Stay tuned to read more from Andrew Corbman.