We all know that most of the government stimulus money handed out to banks was freshly printed, right? The government has been printing money as if there was no tomorrow. Have you given any thought to how that will affect your your financial future? One result of all this "stimulus" money will be that we can bet on higher tax rates in the very near future.
If you do anything to help secure your future, you must protect yourself from increasing tax rates that are coming. Fortunately, there is a wonderful opportunity just ahead that will dramatically assist you in protected your hard earned assets.
According to the public awareness firm the Peterson Foundation, the government's debt was $184,000 per person last year - 2008. Just total up your family members and times that by $184,000 and you will see your family's share of the government's debt. A family of four has to cover $483,000 in government debt.
The debt breaks down like this:
Medicare: $36,300,000,000,000 (that's $36.3 Trillion!)
Social Security: $6,600,000,000,000
Public held debt, civilian and military retirement benefits and other liabilities and miscellaneous expenditures: $13,500,000,000,000
The total comes to over $56 Trilllion dollars which breaks down to $184,000 for every person in the country! These figures come from the U.S. Treasury itself.
So what does it mean?
It means the government will need to raise this money in the future. How? By taxing us. How else can they cover it? But here's the problem with the way taxes get paid...did you know that 43% of all those filing returns pay no taxes at all? It's true.
So who pays taxes? The top 25% of taxpayers - and that's you if you're earning $66,000 or more (in 2007). The top 25% paid 87% of the taxes collected in this country. So can we agree that the top 25% of all taxpayers will be paying this enormous debt?
And that's the current deficit. Ever seen that large billboard in Manhattan that ticks off the growing deficit? It shows the government debt piling up... minute by minute, second by second. The national debt grows by a few billion dollars every day! Sickening.
But there is something you can do to protect your family's finances... and that of your heirs, too. Would you like to know how?
Well, first let me say that the government actually wants you to do this... even though it will hurt them in the future. But they need money NOW! So they changed some rules for 2010 and you simply must take advantage of this rule change. Who knows how long it will last?
If you weren't aware - a Roth IRA grows tax free. It does this because you must invest after tax dollars into one. Then it grows tax-free. Compare this to a traditional IRA which allows you to take a tax deduction in the year that you contribute to one. But on a Roth, you've already paid taxes on that money so your future withdrawals, including any gains are tax-free!
Originally, IRA's were thought to be great because you could get a tax deduction now, and in the future, you'll be in a lower tax bracket so the withdrawals will be taxed at a lower rate. But that thinking is flawed. Even though you may feel that we are taxed to the hilt, in fact, today's tax brackets are historically very low. With government policies of today we can pretty much bet on higher tax brackets in the future.
So here's what you need to do. You must convert your traditional IRA's into Roth IRA's. The reason more people don't do this is because you will have to pay taxes on the amount converted. So there is an additional tax liability. But there's good news.
The government will allow you to spread any tax liability on a converted IRA over a three year period. As an example, if you convert $50,000 to a Roth IRA and that creates a $15,000 tax liability, you'll be allowed to pay $5,000 per year over the next 3 years. But now, that money will grow in your Roth IRA tax-free. You'll be able to withdraw it tax-free. And you'll be able to withdraw it without all those traditional IRA rules, like having to begin withdrawing at a certain age, etc.
So when the government raises taxes, your retirement savings will be safe. You'll even be able to pass your Roth IRA to your children and grandchildren tax-free.
This rule kicks in for 2010 so speak to your tax advisor. I am sure he will agree that this is a great move for your future.
So, just to recap, convert your traditional IRA to a Roth IRA. Pay the taxes over the next three years at today's lower tax rates. Then, watch your Roth grow tax-free. Wait as long as you like before withdrawing from your Roth. Pass it on to your heirs if possible... it will continue to grow tax-free. Leave a legacy!
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