When it comes to taxation, investment and retirement, one should know tax consequences such as Tax Now, Tax Deferred and Tax Never.
- Tax NOW (or Always):
- These accounts include investments like stocks, bonds, and mutual funds. When you sell these assets after holding them for more than a year, you pay the long-term capital gains rate (ranging from 0% to 20%, depending on your tax bracket).
- If you hold investments for less than a year, you’ll pay short-term capital gains at your income tax rate.
- Tax LATER (Deferred):
- Examples include IRAs, 401(k)s, and 403(b)s. Contributions to these accounts are tax-deductible, reducing your current tax bill.
- However, when you withdraw funds in retirement, you’ll pay taxes at your highest tax bracket.
- Tax NEVER:
- Roth IRAs, Roth 401(k)s, and certain insurance products fall into this category.
- Contributions are made with after-tax dollars, so there’s no upfront tax deduction. However, withdrawals in retirement are tax-free.
Remember, a tax-efficient plan can position you for optimal growth and tax-free withdrawals in the future.
Contact Surya Padhi at Sure Financials for any question and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and New Homepage – National Association of Enrolled Agents (naea.org). Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for more information and contact us by calling +1908.955.0696.
