Since day one, my compass for financial advice giving has been focused and easy to read. When making recommendations for a client, I consider what I would do in their position. If it is an older client, I simply ask, “What would I do if they were my parents?”
It should come as no surprise that my clients generally use some combination of the same vehicles that my mother and I use.
Here are 3 of my personal best planning moves (I just love these significant tax advantages!).
1. ROTH 401k – About ten years ago I started making contributions to a ROTH 401(k) rather than using tax-deductible, traditional 401k contributions from my paycheck, meaning:
- I pay the income tax now (not tax-deductible) and will not have to pay tax in retirement when I take the money out.
- I won’t be forced to pull money out at age 70 1/2, and my wife or kids will inherit what I don’t spend income tax-free.
2. High Deductible Health Insurance – Moving to a high deductible health insurance plan means:
- I save tens of thousands of dollars in premiums (probably $6,000 per year).
- I'm allowed to fund a Health Savings Account with tax-deductible contributions. This saves me current income tax on the $6,400 I contribute annually.
- I get to invest the money in that account; I should end up with over a six figure account to tap into for medical expenses now or later in life.
- The growth on the investment is tax-deferred and money used for approved medical expenses can be withdrawn tax-free.
3. Permanent Life Insurance – I bought a significant amount of permanent (not term) life insurance when I was in my late 20′s (before I met my wife) as I discovered it can be used in the future. It has four uses:
- It provides my wife and kids a lump sum death benefit to replace my income should I die young.
- The policy has a “cash value” that I tapped into and used to help fund an addition to our home.
- The income tax-free death benefit will be the main asset we transfer to our kids allowing us to spend the interest AND principal from our investment accounts during retirement.
- If I need long-term care in my old age, I can borrow what I need from the death benefit (tax-free) to pay for my care. The remaining amount will be passed onto my heirs, income tax-free.
The best financial and life decision I made was to marry a woman that was more frugal than me! My wife, Soni, runs a tight financial house. While running her own hair stylist business, she manages to take care of our three kids and house related expenses by paying mostly cash for expenses and even saves money every month toward our family goals.
It is VERY difficult to be financially successful if you marry someone that is not frugal or a good saver.
What were some of your best financial decisions?
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