Planning Fire

{{ show.title }}Trailer Bonus Episode {{ selectedEpisode.number }}
{{ selectedEpisode.title }}
|
{{ displaySpeed }}x
{{ selectedEpisode.title }}
By {{ selectedEpisode.author }}
Broadcast by

Summary

join the discussion: planningfire.com
Read this with me: https://amzn.to/2PLQG4A

​It is incredible to think that tax brackets used to be even higher than they are now, with the highest bracket being 50%, meaning for every $2 you earn, you only end up with $1 in the bank. They are slightly less now, but you should be looking for any way that you can save on the tax bill. Think about this, what do you spend more on than income tax?

Show Notes

It is incredible to think that tax brackets used to be even higher than they are now, with the highest bracket being 50%, meaning for every $2 you earn, you only end up with $1 in the bank. They are slightly less now, but you should be looking for any way that you can save on the tax bill. Think about this, what do you spend more on than income tax?

Kids
If you have children, there are quite a few things you can do to lower your tax burden.
  • Open a brokerage account, the first $1050 a year is tax free, and the next $1050 is only taxed at 10%.
  • You can provide them with $14,000 a year in gifts tax free.
That said, this can be complicated - now you need to file a tax return for each child, you have absolutely no control of the cash you give them and you may end up killing their chances for financial aid down the road.

That said, in the standard style of this book - I am going to hit you with this information in list style.
  • Educational Savings Account
    • $2,000 a year per child or grandchild
    • Can be rolled into another account if it isn't needed
    • If it is not touched, it is distributed at 30 with only a 10% tax penalty
  • Tuition 529 plans
    • Maximum contribution is four times the yearly tuition at the highest school rate in the state
    • You can reinvest two times a year
    • Can be rolled into a different 529 plan every year
    • Tip: first 2k into ESA's and the rest into a 529
  • 401k and/or 403b
    • Company match is literal free money
    • Individuals can invest $18,500 a year
    • Allocate into stocks and indexes, as they tend to preform with the market
    • Diversify, do not go heavy in loyalty to your company
  • Roth IRA (additional article on these: here)
    • You can invest $5500 post tax yearly, and that grows tax free
    • Can only contribute if you make adjusted gross income less than $116,000 (individual)
    • No penalty if over 59, or if you become disabled on withdrawal
  • Annuities
    • Grow tax deferred
    • Make tons of cash for those selling them
    • Do not buy these
  • Real Estate
    • If you own, you can claim depreciation, even if values go up
    • Growth is tax sheltered until you sell (and when you do you can 1031 if you are going bigger)
    • The growth potential is huge
    • See our post here

One interesting lesson they teach in this book is that you can actually encourage children to start a Roth IRA whenever, however it has to be their earned funds that get invested. As a great way to get kids interested in investing, have them invest (and monitor) their income into a Roth IRA, but then "gift" them their pay for spending. Get it started at an early age, the interest compounding over 40 years is INSANE.

There is of course a lot more that was covered in this chapter, but I wanted to share the highlights. That note about children and Roth IRA's was probably the best take away here. It is such a great way to teach the lesson early. I wish I had that kind of education

What is Planning Fire?

Spencer, Chris, Laura, and Sean meet up to discuss their business ideas and report on how their journey to financial independence is shaping up. This show covers all wealth development and financial independence (FIRE) topics. We would love your ideas and to join the discussions!