Timeless Tips and Tax Advice

June 7, 2012

Many investors are looking for a hot, flavor-of-the-week investment tactic to bring them success.  With a long-term outlook, though, it is important to develop a sensible investing strategy that will withstand the test of time.  In today’s show, we cover some timeless retirement planning and business tips to help you reach your goals.

A recent email from a podcast listener actually inspired today’s show.  This particular listener’s income is too high to contribute to a Roth IRA, so he wanted to know if it is more advantageous to contribute to tax-deferred accounts or suck it up and pay taxes on his income now while rates are historically low.  First, let’s cover the different pots of money that you can hold your retirement assets in:

  • Tax Free:  If you invest your money into a Roth account, you do not get a deduction for your initial contribution to the account, but your money grows tax free and you do not pay taxes when you take distributions in retirement.  Another advantage:  you are not required to take distributions from your Roth account at age 70 1/2.
  • Tax-Deferred:  If you contribute money to a tax deferred account (Traditional IRAs for example), you may defer paying taxes until retirement distributions are made.  In an ideal situation, you would be in a lower tax bracket by retirement and pay less in taxes.
  • Taxable:  If you choose to hold retirement assets in taxable accounts, such as a savings account or investment account, you will pay taxes on account earnings and capital gains each year.  Advantages:  there are no limits to how much you can save and there are no required withdrawals in retirement.

Our belief is that just like you diversify across different asset classes, you should also utilize tax diversification when planning for retirement.  If you are above the threshold for contributing to a Roth IRA, see if your company offers a Roth 401k option.  You should also contribute to tax-deferred accounts as well as hold a portion of your assets in taxable accounts.  By not putting all of your eggs in one basket, you are leveraging yourself for the possibility of tax rates increasing or decreasing by retirement.

To close out the show, we shared some principles from The Business Guide or Safe Methods of Business, a sort-of business Bible published in 1904.  We were blown away by how relevant these principles are to running a successful business today.

Safe Principles and Rules:

  1. Remember that time is gold.
  2. True intelligence is always modest.
  3. Don’t cultivate a sense of over-smartness.
  4. A man of honor respects his word as he does his note.
  5. Shun lawsuits, and never take money risks you can avoid.
  6. Never forget a favor, for ingratitude is the bases trait of man’s mean character.
  7. Remember that the rich are generally plan, while rogues dress well and talk smoothly.
  8. Remember that steady, earnest effort alone leads to wealth and high position.
  9. Never be afraid to say no.  Every successful man must have the backbone to assert his rights.
  10. To industry and economy add self-reliance.  Do not take too much advice, think for yourself.  Independence will add vigor and inspiration to your labors.

The Money-Guy Team is heading out to celebrate the nuptials of Bo and his lovely bride-to-be.  Maybe we will even post some pictures on our Facebook page!  Thanks for listening and have a great weekend.

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