Read Online The Power of Zero Revised and Updated How to Get to the 0% Tax Bracket and Transform Your Retirement eBook David McKnight Ed Slott

Product details File Size 11072 KB Print Length 145 pages Publisher Currency; Revised, Updated edition (September 4, 2018) Publication Date September 4, 2018 Sold by  Digital Services LLC Language English ASIN B07C6TLPKK

The Power of Zero Revised and Updated How to Get to the 0% Tax Bracket and Transform Your Retirement eBook David McKnight Ed Slott Reviews

• There’s no way the average consumer can understand a LIRP. They are way too complex and convoluted so you can’t determine the true costs. That’s why insurance salesmen have to SELL it to you. His taxable bucket strategy doesn’t even discuss the HUGE tax advantages of long term capital gains. Probably because it competes with his LIRP he wants to sell you. I’ll give you the choice of following this “expert” or Warren Buffet. Warren says put your money in a passive S&P 500 index ETF and don’t take it out until you need it decades later for retirement. Even though we do this in a taxable account all gains are deferred just like a traditional IRA, but ONLY the gains are taxable when you take it out. Remember that taxable accounts also have no contribution limits, no RMDs, no 59 1/2 penalty, you can harvest tax losses, you can sell via tax lots. Since this “expert” gets to cherrypick his tax situations I will do the same. Invest your money in a taxable S&P 500 index ETF like Vanguard VOO which has an expense ratio of .04% which is almost 38 times less than the “experts” 1.5% fee for his LIRP. Over decades and using compounding this alone will result in HUGE savings. Do NOT use a mutual fund because they distribute capital gains at the end of each year. Only use an ETF in your taxable account. Dividends from this ETF will be taxable each year, but they are only 1.85% and are qualified so they are taxed at 0% or 15% depending on your tax bracket. Here’s one example of how you avoid all the long term capital gains in this taxable account resulting in 0% tax rate. You retire at 62 and you don’t have any earnings. You defer taking Social Security until 70 resulting in maximum benefits. You live off your taxable account resulting in long term capital gains. You sell via tax lots so you can determine exactly the amount of your long term capital gains. If you file married filing jointly you can sell $101,200 worth of long term capital gains resulting in 0% tax rate! Notice I did not say you sell $101,200 worth of the ETF. You sell as much of the ETF via tax lot that results in$101,200 worth of long term capital gains. As an example $200,000 of the ETF may result in $101,200 of long term capital gains so in reality you will be selling $200,000 and not $101,200 of your ETF. This example assumes the only taxable income you have comes from this taxable account. At age 65 your standard deduction goes up by $1300 so if you both turn 65 you can do $103,800 of long term capital gains. Even if you exceed these amounts you will pay only 15% tax on the excess. Since Social Security convolutes your tax situation I highly recommend you do this before taking it.
  If your ETF is worth $1,000,000 and it consists of $500,000 of long term capital gains you could do this for 5 years all at 0% tax rate! Should you sell $200,00 of your ETF even if you don’t need that much income for the year? YES! By doing so you will never pay taxes on those long term capital gains. Let’s say you don’t need any income for the year. You still sell $200,000 of the ETF so you can get 0% tax rate on $101,200 of long term capital gains and you immediately go out and buy $200,000 of the same ETF to continue deferring. This effectively raises your cost basis on this $200,000. Some will say what about the wash sale rule? That ONLY applies to losses not gains. If you doubt what I am saying then enter this tax information that I have presented into a 2018 tax software program and let it tell you the answer. I am sure you will trust it more than me.
• I thought this book was great...until I realized that it ignores the 10% and 15% tax rate brackets.
  
  A large portion of the book tells you that if you are going to have more income than your standard deduction/exemption in retirement you do not want to have any tax deferred money like a 401K. He explains that when it comes to the money you want to invest, if you are paying a 25% Federal tax rate now, you will likely be paying at least a 25% rate in the future and when you do the math both a 401K and a Roth IRA would come out the same. Thus he says you should generally choose a Roth type of investment because taxes are likely to be higher in the future and if they are even 1% higher you will come out better off.
  
  I pulled out the actual tax tables and materials from last year. I quickly realized that for many people the money you are currently investing in a 401K may in fact be taxed at the 25% federal rate like the book provides in most of its examples. However, I also quickly realized that for many people when they go to take distributions in future years they will never go above the 15% rate. Thus, if tax rates did not go up a person in this situation should be better off with the 401K. Even if they did go up, they could go up from 15% to 25% and just make it back to the rate currently being paid.
  
  In all fairness the author does say that whether or not you should invest in a Roth over a 401K comes down completely to whether or not you will be paying a higher tax rate in the future. The problem is that all the examples and illustrations are situations where you are paying as high or higher a tax rate in retirement. He never talks about the fact that a tax rate exists that is lower than the 25% but higher than 0%. But I believe a lot people in retirement will end up in one of these brackets when they were in a higher bracket while working.
  
  I do also have to add that in some cases it might be better accepting the higher 25% rate now with a Roth rather than paying 15% in the future on a 401K distribution if that allowed you to avoid paying any taxes on your social security. He explains in the book how you could do this if you do not have much regular or deferred income in retirement. I did not try to go through all those calculation to see when that would pay off because if you have any significant pension or other income it throws you out of that possibility.
  
  I originally started to give it one star because I felt it left out very critical information needed to understand. However, I changed it to two because it does give you a lot of information that is good...you just have to remember there is a 10% and 15% rate and figure out for yourself how those rates affect your situation.
  
  In all fairness,
• It is an interesting concept and has some merit but the book is almost exclusively designed to be used as a sales tool for financial advisors who want to sell life insurance as a retirement plan. The book completely glosses over the fee structures within LIRPs (Life insurance retirement plans) and tries to push the idea of life insurance all throughout the book. Also, the book does not spend hardly any time explaining the risks of a LIRP while at the same time suggests you should redirect almost all of your investments into these policies. While it does talk about other tax efficient income streams, it is clearly written to sell life insurance. Advisors buy these books in bulk and hand them out to soften up prospects to sell them these policies. I also did not appreciate the generic degrading way he characterized the typical financial planner suggesting that that any other type of planner focuses only on adding "1%" better return and nothing else. In summary, I felt that this book and the "plan" to get to the zero % tax bracket was seriously skewed to generate business for life insurance agents.
• I see this as an immediate opportunity to arrange my affairs over the next 7-8 years as taxes are guaranteed to go up as the current law sunsets at the end of 2025. This was wake up call for me, a boomer, who has the majority of retirement money in tax deferred 401(k) type plans. I fully expect Tax Rates to increase substantially to pay for the $20 Trillion of current debt and the debt of unfunded future Medicare liabilities.