Ask Terry Questions Tax sheltered option

Tax sheltered option

By Terry Savage on July 19, 2015 | Financial Planning / Retirement

Hi.. As I’m getting closer to retirement, I’m looking for tax sheltered options,. Which do you prefer more, an annuitiy or term life insurance. I’m looking for an option that allows me to save money and be able to use it, if needed, as I get older…ps, I’m in my early 50’s, have a pension, deferred comp, and a Roth IRA ….thx… I’m just not sure about my best option

Terry Says:  I think you have things a bit confused.  First, if you are nearing retirement, any life insurance policy is going to be expensive, and you may not qualify, and you are wasting your money if you don’t have a beneficiary who needs the money. But TERM life doesn’t build up any cash value, so it doesn’t solve the problem you describe.  An annuity will allow your money to grow tax-deferred — but incurs fees and expenses, so while an annuity might seem like a better deal because it offers higher rates, it has its own set of problems.

In fact, there’s no law against saving AFTER-tax dollars.  That is, paying taxes on your extra income and setting it aside to grow either in low-cost mutual funds (think Vanguard, Fidelity, T. Rowe Price) or even just as a safety cushion in a low-yielding CD.  The advantage of investments made in these mutual funds on an after-tax basis is that you can hold them for more than a year and then get capital gains tax treatment (a much lower tax rate) when you sell.

This balance is important, as you have no idea what tax bracket you might be in — or what tax rates might be — when you retire.  I think you could benefit from a session with a fee-only financial planner to give you some perspective on where you stand, and where you’re gong.  Check in at and make an appointment with a highly respected planner in your city.



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