Issue 6: How The Wealth Maximization Account Complements Your IRA

Wednesday, March 4th, 2020

The subject for March is tax strategy. Specifically, one of the most common ways Americans save money for retirement and get a tax deduction—the IRA. My hope is that you walk away from this month's reading with a renewed vision of your future and new ideas of how to get there faster.

To know for yourself whether a financial product is the right fit, you must know more than one perspective. What was your opinion of whole life insurance before meeting with a Wealth Strategist and learning the benefits of a Wealth Maximization Account? There is a lot of misinformation out there about wealth strategy. The IRA is commonly lauded as the must-have retirement account. It is rarely (if ever) analyzed as being a financial tool that may NOT represent the best interest of those who use it.

"Success is achieved by people who deeply understand reality and know how to use it to get what they want. The converse is also true: idealists who are not well-grounded in reality create problems, not progress." - Ray Dalio

DEFINE YOUR RESULTS & PURPOSE

Recently I was part of an investment summit in Pasadena, California. The summit was small and revolved around a group of about fifty investors who were pitched by a handful of start-up companies.

At the end, we were broken into groups of eight and had 15 minutes to create a three-minute business pitch that would be made in front of the group. My group was assigned a technology that would notify parents if a child left a pre-set perimeter while in a public place.

We began, chaotically. The group instantly broke into three separate conversations about how the technology would work.

"Should the device be GPS, Bluetooth, or Beacon technology?" 

"Should it be wearable or disguised?

"Guys!" I reluctantly interrupted.

"These are amazing ideas, and if we had more time, I am sure we could figure out how to create the entire business plan. The only thing we need to do is create the three-minute pitch, not the entire business."

We got focused. We started by defining the problem in simple terms and tied the horrifying feeling of losing a child to the opening lines. We pitched and got an ovation.

It seems that most of us rush to how before ever properly defining the results and their purpose.

My challenge to you is to get crystal clear on the financial results you are REALLY after. When you meet with your Wealth Strategist for your annual review (or more often, if needed), your job is to come prepared with an outline of the results you want and their purpose. Your Wealth Strategist can use this information to help you determine your how.

THE BIGGEST BULL MARKET IN RECORDED HISTORY

The Great Recession is now over a decade in our rearview mirror. Many people have seen their IRAs rebound and grow sufficiently with recent stock market gains, improving the level of confidence in being able to retire one day.

The downside of an IRA is that it exposes you to unpredictable taxation, less financial certainty due to market fluctuation, and the possibility of your legacy going to Uncle Sam.

An IRA is structured to offer you tax advantages upfront with your contribution, and tax you at a rate the government determines in the future when you take distributions. If you're looking for more certainty and better financial strategy, the only way is to prepare now for future tax hikes.

PREPARE FOR TAX RATES TO GO UP: NATIONAL DEBT & YOUR IRA

Source: Investopedia

The IRA originated in the mid-70s and began to be utilized by the average American in the early 80s—peak earning years for Baby Boomers. In 1981, the National Debt was $90 billion dollars. Today, the National Debt is over $23 trillion dollars. How is the debt going to be paid back?

The IRA originated in the mid-70s and began to be utilized by the average American in the early 80s—peak earning years for Baby Boomers. In 1981, the National Debt was $90 billion dollars. Today, the National Debt is over $23 trillion dollars. How is the debt going to be paid back?

There are three ways the U.S can pay down the National Debt:

1. Cut spending

In order to have a major impact on the National Debt, spending would have to be cut so drastically that it would slow economic growth.

1. Drive economic growth

To drive economic growth, you have to create more jobs. According to The Balance, most jobs per dollar come from increased spending on infrastructure and education. Currently, the majority of government spending goes to our military.

3. Raise Taxes

Presidents are generally opposed to raising taxes. It can cost them elections. Some argue that cutting taxes, rather than raising them, drives economic growth, but the last time tax cuts had a significant economic effect on debt was during the Reagan administration, when the highest tax rate was 70%. (Today the highest individual tax rate is 37%.)

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