Investment Strategies with Aileron

By: Bill and Cindi Porter, AILERON INVESTMENT ADVISORS

Q: How important are taxes when making investment decisions?

A: “It is not how much you make – but how much you keep that counts” is a famous quote by Robert Kiyosaki that refers to the three players in your investment world: you, your money, and the IRS.

 

Without strategic planning, you may lose part of your investment earnings to the IRS. Every dollar saved by legal tax avoidance results in 100% profit (tax-free). For example, let’s suppose you have two identical $100,000 investments. One is in a tax-free Roth IRA and the other in an ordinary taxable account. Both accounts earned 6% and accumulated for 30 years. Keep in mind there is no upfront tax deduction for Roth IRA contributions, however, qualified distributions are income tax-free. In the taxable account, you would have given a part of your earnings to the IRS in taxes every year (let’s assume an average of 20%). Those taxes may result in significant lost future earnings. With the Roth IRA account, the earnings are not taxable, so the IRS will get nothing, and all your money is still at work. Thirty years later, the Roth IRA would have grown to $574,350, but the taxable account would be nearly 30% smaller, at only $408,170. The tax savings may make a significant difference in someone’s lifestyle at retirement. In this example, the extra $166,180 is meaningful. Today many 401(k) plans also offer a Roth option. There is only one advantage to a Roth IRA, but it is very big: all the earnings will be income tax-free, so the IRS does not share in your profits.

Some accounts are taxable, some tax-deferred, and others are tax-free, so tax planning is most effective when it is done prior to investing. A conversation with your trusted financial advisor should include a discussion about not only how much you might make, but also about how much you might get to keep.

 

This is for education only. Before using this information in any way discuss it with a financial professional. There are many risks associated with stock trading. You may lose some or all of your financial investment. Securities offered through Dempsey Lord Smith, LLC Member FINRA/SIPC. Securities offered through Integrated Financial Planning Member FINRA/SIPC. Advisory services offered through Dempsey Lord Smith, LLC. All the information in this letter is published in good faith and for general information purposes only. We do not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information is strictly at your own risk.

Send your investment questions to: submissions@SuwaneeMagazine.com.

All the information in this letter is published in good faith and for general information purposes only. We do not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information is strictly at your own risk.


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