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Your Authoritative Guide to Tax-Free Retirement Planning in 2025
About this Episode
In this episode of The Power of Zero Show, David McKnight addresses different strategies for tax-free retirement planning in 2025.
Most Americans are a little nervous when it comes to the fiscal trajectory of the U.S..
According to expert forecasts, the likely extension of the 2017 Trump tax cuts would take the current $36 trillion of national debt beyond the estimated $54 trillion by 2034 – taking it all the way to $59 trillion.
A recent Penn Wharton study predicts that if the U.S. doesn't right its fiscal ship of state by 2034, no combination of raising taxes or cutting spending will arrest the financial collapse of the nation.
"Former Comptroller General of the Federal Government David Walker says that we may have to double tax rates within the next 10 years in order to keep our country solvent", says David McKnight.
Something important to consider is how to best shield your retirement savings from the potential tsunami of higher taxes down the road.
David recommends creating a balanced, comprehensive strategy that takes advantage of all the "nooks and crannies" in the IRS tax code.
The cost of getting money into tax-free vehicles is that you have to be willing to pay a tax.
The next nine years represent a historical opportunity to pay those taxes while they're on sale.
The approach David suggests thinking about can incorporate as many as six different streams of tax-free income – none of which shows up on the IRS' radar but all of which contribute to you being in the 0% tax bracket.
A tax-free investment means no taxes at all: no federal income tax, no state income tax, or no capital gains tax.
When taking distributions, tax-free investments should not count as provisional incomes – meaning that they don't count against the thresholds which cause Social Security taxation.
The Roth IRA is the first truly-tax free retirement account David believes you should be contributing to in 2025.
The second truly tax-free account worth considering in 2025 is the Roth 401(k).
The potential for a company match is the one thing that makes Roth 401(k) impossible to ignore – and turns it into an instant return on your investment.
After a Roth IRA and a Roth 401(k), the third tax-free alternative you should think about this year is a Roth conversion.
David discusses the ideal scenario in which you should opt for a Roth conversion.
Your IRA or 401(k) is the fourth stream of tax-free income David touches upon.
Tax-free distributions from your IRA or 401(k) are what David refers to as "the Holy Grail of financial planning" – since they do something no other strategy can do.
The life insurance retirement plan and tax-free Social Security are two additional strategies David dives into.
Tax-free Social Security is unique because it shields you from several risks, including tax rate risk, inflation risk, long-term care risk, sequence of returns, and longevity risks.
Mentioned in this episode:
David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
Hosts & Guests
No transcript available for this episode.
