do you hear that that's the sound of the government coming to tax your retirement
accounts there is an old saying in accounting the tax code is written in pencil i am sure if you're
watching this you are doing a great job saving for your future and you're looking to keep as much of
it as possible you see if you go back through history whenever we the people do a great job
at saving for retirement congress finds a way to modify the tax code to bail them out for all
the excessive spending and where do they look for funding your nice fat retirement account what is
the secret to future tax-free income i'm about to give you the blueprint the earlier you take
advantage of your planning the better now the tax code actually includes several moves you can make
right now to create tax-free retirement income but the optimal window may only last until 2026
and no matter what your age planning now for a future of tax-free income is smart new tax
laws can change in a heartbeat and derail your retirement planning when you can least afford it
so let's do our best to stay one step ahead and not bury our heads in the sand this is part two
of the series how to create a one hundred percent tax-free income in retirement using current tax
brackets to create tax-free income there isn't much time to position yourself so let's dive in
Colin Exelby here and i provide financial planning for business owners and their families that just
makes sense i own the financial advisory practice celestial wealth management and provide advice
virtually to clients all over the country one of the optimal tax strategies that many people miss
during their working years should be to allocate the ideal amount of funds to the taxable
tax-deferred and tax-free buckets so that during your retirement all your income is tax-free or as
close to it as possible ideal amounts what do you mean by ideal amounts well this is a good spot to
point out important disclosures the information in this video is for educational purposes this is not
specific financial planning or investment advice in addition everyone's tax situation is different
you should discuss your tax situation with a qualified tax advisor before implementing
any planning strategy here's the good news with proper planning you can do it you can create a 100
tax-free retirement income but you want to plan now so that you optimize the ideal amount of money
you have in a traditional pre-tax retirement plan tax-free retirement plans health savings accounts
and non-retirement accounts so how do we efficiently
keep our retirement income as low as possible well first we take advantage of the tax rates today
before they are gone many people just don't realize how low tax rates are right now but we
can look back through history to give us some perspective before i actually looked up these
rates i too didn't really realize how low current rates really are while today's top rate is 37
many of us pay just 22 12 or even 10 percent this chart shows the top federal income tax rate
by year going back to 1913. look at the rates from 1941 through 1963.
the top rates were over 80 percent and most were over 90 now you might say well that's just not
me that's only for the mega wealthy well guess what the other brackets were much higher as well
right now we have the lowest rates since 1992. the 2017 tax cuts and jobs act created some of
the lowest tax rates for americans in history but they will not last forever to create a tax-free
income in retirement it's important to understand where tax rates were where we currently are and
where the sweet spot is so let's take a look at these two charts side by side the chart on the
left shows the tax rates in 2017 the chart on the right shows the tax rates in 2022 for the
purpose of this discussion i am going to focus on the married couple rates that are in the middle
what you see is that for most americans once you exceed the 10 tax bracket current tax rates are
lower the former 15 tax bracket is currently 20 percent lower at 12 percent of taxable income
the former 25 bracket is 12 lower at 22 percent of taxable income the former 28 bracket is currently
14 lower at 24 of taxable income and even the former 33 percent bracket is 5 lower at 32
it isn't until you get to the 35 tax bracket that the advantage goes away but what is really
interesting is the changes to the income levels that allow you to be in certain tax brackets
what i want to focus on are the two large jumps in the tax rates from 12 percent up to 22 percent
and from 24 up to 32 percent these are the big jumps to be aware of when creating your strategy
let's take a moment to talk about the difference between income and taxable income most people
roughly know what their income is but they don't really know what their taxable income is taxable
income is the income you are taxed on well geez that makes sense it is the income after all of
your deductions this is an important number and can be much lower than your gross income also in
this country we have what is called a graduated tax system as you move into a higher bracket you
don't pay that higher rate on all of your income the only income that is taxed at that higher rate
is the income above the previous bracket you know what is not taxed that little like button likes
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all right now we are going to look at the tax rates for married couples and if you're single get
married which just kidding but tax rates are much better if you are married so maybe consider it if
you're single the same principles apply but you move into higher brackets at lower income levels
for the married couple the first eighty three thousand five hundred and fifty dollars of taxable
income is only taxed at twelve percent once you have over eighty three thousand five hundred fifty
dollars of taxable income you don't move into the 24 bracket until you reach roughly 178 000 of
taxable income compare that to the 2017 brackets when the income threshold for moving into that 24
bracket was a much much lower 153 000 you know what's really wild well wild for probably me
and some CPAs who love this tax stuff but it is interesting let's look at the difference
between the current 24 bracket and the 32 percent bracket the next big jump until you make roughly
340 000 of taxable income you are still in the 24 bracket compare that to 2017 you can see that you
jump into 33 bracket at only 233 000 that's a 100 000 difference it's a huge difference and
is the largest sweet spot in the tax code so why is this so important to understand
this tax law is set to be in place until 2026. if congress can't agree to extend them and let's be
honest they can't agree on a lot right now they go right back to the 2017 rates and what if congress
decides to accept the current Biden tax proposal well then tax rates could be even higher than that
in my opinion it is a good bet that for now tax rates are as good as they are going to get you
either use them or you lose them protect yourself now from the revenue starved congress eventually
we will have to pay for all of this borrowing and the low hanging fruit is your tax deferred
retirement accounts trust me the last thing you want is to diligently save for all of these years
and then lose to the tax man a huge amount of those savings in the coming years it's my opinion
that taxes may rise significantly potentially derailing the retirement plans of many people
but i believe the strategies in this video series can help you be prepared alright now that we know
what provisional income is from part one of this series and what tax rates currently are we have
the rules to craft your strategy for a tax-free retirement income what can you do to prepare
yourself watch this video next part three of the series how to create a 100 percent tax-free income
in retirement and let's discover the optimal amount to having tax deferred retirement accounts
like 401ks 403bs and IRAs just click on the screen to watch the video next get clear be clear