Archive for Tax Planning

Roth IRA/401(k)?

Income tax rates, established under the 16th amendment in 1913, move like a pendulum in a clock. The movement is extreme at each end from ultra high top rates (94% in 1945) to low top rates (24% in 1929). Over all the years the average top rate has been 58% (this does not include state, city or local taxes). At the end of 2016 the top rate is 39.6% plus the 3.8% Obamacare surcharge for a grand total of 43.4% at the federal level. The new Trump administration is proposing 3 rates of 12% – 25% and a top rate of 33%. Think long term in your life. If these lower rates do take place then over time a “regression to the mean” states that rates have to rise in the future (during your retirement years).

One of our goals, at Founders Group, is for each client to have 80% – 100% of their retirement income to be TAX FREE for life. It takes time and planning. It cannot be done at the last minute.

My question to you ……… wouldn’t it make sense to sock money away in tax free investments when rates are low, today, and then harvest the money when tax rates are higher in your retirement years??? There are a few fantastic vehicles to accumulate money for tax free retirement income. For the “do-it-yourself” crowd there are Roth IRAs or Roth 401(k) plans. The problem with both is there are so many strings attached (how much you can contribute, when you can take monies out, etc). Here is some information on Roth’s:

You can take money out of your Roth IRA anytime you want. However, you need to be careful how much you withdraw or you may get stuck with a penalty. In order to make “qualified distributions” in retirement, you must be at least 59 ½ years old, and at least five years must have passed since you first began contributing.

You may withdraw your contributions to a Roth IRA penalty-free at any time for any reason, but you’ll be penalized for withdrawing any investment earnings before age 59 1/2, unless it’s for a qualifying reason. Money that was converted into a Roth IRA cannot be taken out penalty-free until at least five years after conversion.

Not sure whether the money will be counted as contributions or earnings? Well, the IRS view withdrawals from a Roth IRA in the following order: your contributions, money converted from traditional IRAs and finally, investment earnings. For example, let’s say your IRA has $100,000 in it, $50,000 of which are contributions and $50,000 of which are investment earnings. If you withdraw $60,000, the IRS will consider $50,000 of that to be contributions and $10,000 to be earnings. So any penalty would apply only to the $10,000.

There are more sophisticated vehicles that magnify a Roth program and make Roth’s look like child’s play. These programs have been around since 1913 and require education and guidance by a professional adviser.

Tidy Up Your Financial Files Part 3 of 3

Now that you have your system down, staying organized is a matter of upkeep. Put all incoming bills in the same spot daily. Mark the due date on the calendar; then after you pay the bill, write “paid” on it, then file.
Here’s an idea for gathering those tax documents year-round. Use a three-ring binder with pockets to house all the tax material you get during the year, such as 1099’s, acknowledgements of charitable contributions and proof of estimated taxes. For electronic records, print them out and place in your binder. The payoff: When you meet with your accountant or tax preparer (or sit down with TurboTax) in 2017, you’ll have everything at your fingertips. You’ll be glad you spent the time to organize those files.

Tidy Up Your Financial Files part 2 of 3

Now that you have your files in order, what do you keep and what do you toss?
Organizing isn’t just purging; it’s knowing what to save. Anything tax related gets saved at least three years. Anything tax related that reflects a loss, save for seven years. Insurance policies? Get rid of older versions and keep the new ones when they arrive. Keep receipts for transactions until you get the monthly bank and credit card statements that reflect them. Then keep the monthly statements until you get the year-end reconciliation. For guidelines on what to keep, check out IRS publication 17, at; learn more about how to protect your information at

Taxes Do Make a Difference

Politicians believe in “static” accounting for taxes and regulations. They think that if taxes are increased or more stringent regulations are implemented, then, people will just sit there and take it… History has shown that when given the opportunity people will vote with their feet and leave when the pain is too much.

Arthur Laffer, advisor to President Ronald Reagan and creator of The Laffer Curve, has coauthored a new book on the subject. In conjunction with Steven Moore, Rex Sinquefield and Travis Brown the new title (shortened here) is The Wealth of States.

As his economic investigation shows and he states “Taxation doesn’t generate revenue, it moves people”. Laffer, a devoted Californian (high state tax rate of 13%) moved to Tennessee (one of the 9 states with no income taxes).
Check out Laffer’s website:

He shows an interesting comparison of the individual income taxes in different states.

For instance, a couple earning $300,000 gross income from wages and salaries would save more than $17,000 a year by moving away from California to a no tax state. You can estimate potential tax savings at

Many people have already moved from high tax states and saved huge amounts in taxes. Remember it is what you “net” not your gross that counts. So, if you move to, a no tax state like Texas, and save $15,000 in state income taxes, and your salary drops by $15,000 per year… you are no worse off!!! See Travis Brown’s website… ( …that shows how adjusted gross income “grows legs” and walks away.

The big tax loser states are: California, New York, New Jersey, Massachusetts, Ohio, Michigan and Illinois. The big gainers are states with no income tax: Tennessee, New Hampshire, Alaska, Florida, Nevada, South Dekota, Texas, Washington, and Wyoming.

Lafffer’s book will really enlighten you on how taxes and regulations severely hurt a person’s wealth building ability.


The Bad Old Days

It is tax season. The average person has seen their taxes go up. Those in the upper income level have seen their taxes skyrocket.

At this time of year I hear people complain and say… “I have had it. This year I am going to do something about lowering my taxes.” Funny thing is they have been saying that for years and they do not do anything about it. Why? Procrastination. (Sounds a little like you?)

Congress placates everyone from mid March to mid April claiming they want to simplify the tax code and make the tax returns easier to complete. They never do anything about it. Again, Procrastination.

The media, what a laugh, on April 14th each year presents last minute tax saving ideas. Procrastination again.

Trust me all of this is talk and is not planning. Your tax planning should be completed by August to September of each year… not after the year has passed!

Below is a link to a recent Barron’s article. You can see what tax rates will be increasing to for everyone. Take heed! I remember when the maximum tax rates in the U.S., in the bad old days, were at 91%. So, the stated article projections are not that far off. Take a deep breath!

When you are done reading the article you may want to contact us for professional assistance to lower your taxes in the future. By the way… We do not procrastinate in helping our clients lower future tax rates. The procrastination disease is the number one reason for financial failure.

Contact us at 713-871-5919 or email:

Bad Days Are Back Article: