I heard a presentation today that I really liked. It was given by a bank rep to local customers. She helped the investors designate their money in short term and long term, and understand the power of tax-deferral. The first ‘pocket’ of money she discussed were funds in the checking account. She would ask, “Is this short-term or long-term?”
“Short term”, would be the reply. And how does that match up with taxable versus tax-deferred? Obviously – taxable.
Now the savings account. Again short-term and taxable. Then retirement savings. Definitely long-term, but these monies are always tax-deferred. Alright, now the last ‘pocket’ – CD‘s.
Answer=long-term…but, wait a minute, the interest on CD’s is taxable and we agreed that long-term money should be tax-deferred when possible.
“What’s the big deal?” someone in the audience asked.
Reply: It’s a very big deal if you look at the amount of interest you keep rolling year after year in the context of what it costs you in Social Security taxation!
Think about it – if your modified adjusted gross income (MAGI) exceeds $34,000 (for a married couple), than up to 85% of your benefit is TAXABLE.
Ding, ding, ding. Lights went off everywhere in the audience.
The solution the advisor recommended was a fixed annuity (with a rate that beats the bank), that carried an income rider with a roll-up of 6%.
Now THAT’s a ‘pocket’ of money worth talking about!
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