In the United States, what channels and experience and skills are available for income planning for retirement and pensions?

Paying taxes is a citizen's obligation. While encouraging paying taxes, we also recommend that readers understand some basic rules, make legal plans, and prepare for their family finances and retirement preparations.

From a certain point of view, there is really no need for us to pay more money to the government from our own pockets.To do this, we need to take the first step to actively understand retirement income: "What are the channels to save money for retirement?What are the efficiencies of different channels?What are the differences between retirement product types?'

1. Understand 3 different channel types

In daily life, we have bank savings accounts, stock securities accounts, retirement accounts, life insurance accounts, medical accounts, student grant accounts, etc. There are many types of investment products or assets, and we have not listed them all.But for the tax bureau, all these accounts are only divided into 3 types of channels:

• Channels for tax deferment    Investment will generate income, and the income received is taxed every year.This type of channel allows us to postpone (delay) the payment of taxes on the proceeds.The advantage of this is that income and principal can be compounded more quickly.Some products called "retirement accounts" are such channels that allow us to defer tax payment until retirement at the age of 65 (according to current regulations).
• Tax-free channels    This type of channel is used by us to store money that has already been paid for taxes.The money that you continue to deposit in these channels is also the money that has been taxed.The advantage of this channel type product is that the principal and income in the product account are increased in accordance with the method of compound interest, and when they are taken out at retirement, there is no tax.
• Channels that need to pay taxes   Such channel products include the most common securities (stock) trading accounts.If we sell and make money, then we have to pay taxes.Even if there is no transaction, if there are dividends and interest accrual, then taxes must be paid.

forCash value life insurance accountOr for annuity accounts, take money from the account,There are three different situations, it may be tax deferred, it may be tax exempt, and there may also be a tax situation that needs to be paid.This is obviously different from other types of accounts. With the help of professionals, we can have a detailed understanding of personal circumstances to avoid wrong planning.

2. Understand the efficiency of different asset allocation

Different investment targets have different tax implications.The market divides investment products into "tax-efficient" products and "tax-inefficient" products, which are differentiated according to different tax rates. "Asset allocation" is a discipline that has been proven by the market to help us minimize the impact of taxation and at the same time increase the potential for returns without increasing risks.

If our annual tax rate is very high, then improving the efficiency of asset allocation can help us save a lot of money:

• Products usually placed in the tax channel:  Due to the need to pay taxes, look for "tax-efficient" investment products, such as index funds, ETFs, stocks, and tax-free municipal bonds.
• Products usually placed in the duty-free channel: Choose "tax inefficient" investment products-fixed income, real estate investment trusts, active management or high-frequency trading strategies, etc., and put these products in tax-deferred or tax-free accounts to protect the investment income from Pay taxes during the snowballing phase.
• How to allocate other assets: Retirement account is a good place to store assets, but the disadvantage is that it has various restrictions. We can also consider life insurance accounts, or low-cost investment annuity accounts to store assets, and at the same time get tax deferred or tax exempt opportunities .

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3. Understand the differences between products and accounts used for retirement

There are as many as 14 types of retirement accounts given by the government. The detailed introduction can be found on the official website of IRS.¹Check it out on.In addition to deposit limits and withdrawal restrictions, there are also obvious differences between retirement accounts.Commercial financial companies or insurance companies provide corresponding services in the market based on the 14 types of retirement accounts provided by the government.In addition, commercial life insurance companies also provideLife Insurance Products和Annuity products, As a "retirement account" in addition to the 14 government-defined "retirement accounts"Supplementary retirement income products. "

Each of these retirement products has different tax advantages. Based on publicly available materials, we have analyzed and compared the following major products:

• 401 (k) s It is a retirement product provided by the company that has delayed tax payment.In 2020, as individuals, we can deposit up to $19,500. If we are 50 years old, we can deposit an extra $6,500.When taking money from the account, tax is paid in accordance with the personal income tax.
• Roth 401(k)s It is a tax-free retirement product provided by the company.The restrictions for this type of product are exactly the same as those described above.The difference is that the money we deposit is money that has already paid taxes. Therefore, after holding this account for 5 years and reaching the age of 59.5, we can withdraw money from it without penalty or tax.
• IRAs, or "Individual Retirement Accounts", are products that are opened by individuals and pay taxes in accordance with personal income tax at the time of withdrawal. In 2020, we will deposit up to $6,000 into this account. If you are over 50, you can deposit an additional $1,000.
• Roth IRAs It is a tax-free retirement product opened by an individual.The relationship between these products and IRAs is very similar to the relationship between Roth 401(k)s and 401(k)s.The money deposited into Roth IRAs must be tax-paid. Withdrawal after retirement, there is no need to pay tax.But the disadvantage is that if your income is very high, then the IRS does not allow you to open this type of retirement account personally.
• Use cash value life insurance to carry out the retirement strategy product of "Supplementary Retirement Income".This type of strategic service is provided by professionalLife insurance brokerOr provided by financial institutions.This strategy relies on life insurance products with cash value growth channels, and is constructed with the goal of withdrawing at retirement.It can be opened by an individual, or by a company or organization.When withdrawing money, using agreed methods such as borrowing and lending, there is no tax payment.
• Annuity accounts provide retirement products with fixed lifetime income.The main purpose of this type of product is to provide us with a lifetime income stream.One of its biggest features is that it can receive funds in all of the above account products and inherit their respective tax advantages.

"After retirement, because I don’t work much, the tax to be paid will be reduced and the tax rate will become lower, so the tax will be postponed until after retirement."This statement can be seen everywhere on social media and marketing channels.