Conventional wisdom of financial planning tells us that we need to have six months of an emergency fund ready to access in the event of devastation in our financial lives. However, with the ever-changing financial world we face today, such as skyrocketing inflation, there is more than just an emergency fund that we should be focusing on within our financial plans.

To prepare for the future liquidity you may need, it is best to maximize your ability to access money in the most tax-efficient manner. Being aware of the current financial state of our economy and pairing that knowledge with effective tax strategies can help you earn, grow, and transfer what you spend a lifetime accumulating.

Your 401(k) vs. Inflation

While investing in a retirement account is a solid step within a financial plan, it cannot and should not be the only step. Retirement plans such as 401(k) and Roth IRA accounts are subject to market fluctuations since they are both investments. They are also subject to the inflation rate, as these accounts are not inflation-proof.

For example, if you have an investment gain of 3% during a timeframe within your 401(k), and inflation for the same period was up 2.5%, then your only gain in your retirement account was 0.5%. This will not advance your financial plan as aggressively as other investment options could.

Being aware of how your 401(k) is reliant on the current economic situation can help ensure you adjust appropriately to how much and where you invest for your financial future.

Secure Act of 2019

The Secure Act of 2019 adjusted the rules associated with retirement accounts, benefitting financial planners to use the new rules to their advantage. A few of the items adjusted include:

  • Pushed the minimum distribution age back to 72
  • No age limits for IRA contributions
  • New parents can withdraw $5,000 per child without penalty
  • Inherited retirement accounts are required to withdraw assets within 10 years
  • Offered tax credits for small business retirement plans
  • Allows the use of 529 accounts for student loan repayments
  • Part-time employees may qualify for 401(k) contributions

The adjustments of the Secure Act of 2019 can play a big impact on your financial security. It both opens the door for more years of retirement contributions while adding in other layers of flexibility for financial planners. Your financial advisor will have more advantages to work with alongside the Secure Act of 2019.

The History of Soaking the Rich

If you are not sure what “soak the rich” in economics means, you may not understand how it could impact your financial plan. When an economy “soaks the rich” it is looking to have more money paid by the wealthy through higher taxes and fees. This is especially popular when it comes to government budget gaps or deficits that may need to be addressed, often at the expense of the wealthy since they will have a higher tax burden.

Being aware of this situation in politics and government can be an essential part of growing and securing your financial plan. If you work closely with a professional tax strategist, your financial plan should be strategic in helping you pay the minimum amount of taxes possible. By implementing a strategic tax plan early on in your financial planning, you can expect to have a lot of tax savings, despite anyone attempting to “soak the rich.”

Insurance is Protection

While many financial planners jump to portfolio diversification and estate planning (which are also essential parts of financial planning), it is equally important to consider the numerous types of insurance available. Insurance is another protective measure that could shield both your assets and family members if something were to happen to you. 

An accident, illness, or other sudden incidents could leave you out of control of your financial future. Having life insurance protects what you have spent your whole life accumulating and is an essential part of looking after your family once you are gone. From traditional to universal and variable life insurance, there are a myriad of choices for each kind of life insurance. Your tax strategist can help you make sense of it and make recommendations based on your circumstances and financial situation.

In addition to protecting your assets, you can tap into the value that has accumulated in your life insurance policy before your death. The type of life insurance you carry (permanent or term life) can dictate your ability to withdraw, but your financial advisor should be able to assist with making the best decision for your legacy plan.

If you are ready to ensure your financial plan accounts for future liquidity needs and maximizes your tax efficiency, contact TSP Family Office. We will partner with you to implement effective tax-saving methods that help your financial plan reach its full potential.