Setting Aside Dollars for the Future:
There are three periods of time to consider:
Contribution -- |
pre-tax dollars; or after-tax dollars |
Accumulation -- |
growing with current taxes; or tax-deferred; and |
Distribution -- |
subject to ordinary income taxes; capital gains; or tax-free |
NET After Tax Results:
If tax brackets remain the same during the three periods,
(as the following slide demonstrates) then:
Pre-Tax dollars accumulating Tax-Deferred, but, distributed subject to ordinary income taxes
(e.g., qualified retirement plans)
results in exactly the same NET value as:
After-Tax dollars accumulating Tax-Deferred, and accessible free of income taxes (e.g., Roth IRA, 529 plans, and cash value of life insurance)
|
Tax Deferred Growth
Tax Bracket of One-Third at Contribution and Distribution
What if tax brackets are NOT the same?
|
In the last 100 years, the top marginal income tax bracket has only been lower than the current top bracket of 35% TWICE
1986 top bracket was 28%
1929 top bracket was 25%
What if the tax bracket at Distribution is 50%, then (as the following slide demonstrates)
- After-Tax dollars accumulating Tax-Deferred and Distributed Tax-Free produces a HIGHER result than
- Pre-Tax Dollars accumulating Tax-Deferred and Distributed subject to ordinary income taxes
|
Tax Deferred Growth
Tax Bracket of One-Third at Contribution, BUT One-Half at Distribution
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