Congress has been getting better at hiding tax increases on the middle class the past decade or so. The Secure Act, and to a lesser extent Secure Act 2.0, are prime examples of how Congress saddled the middle class with higher taxes under the guise of providing better opportunities in retirement planning.
Some tax strategies are so common most people know about them. Why is it then almost nobody is using the strategy?
A large part of my tax practice is consulting. There isn’t much room for more tax preparation clients. However, I love helping people reduce their taxes, so I spend considerable time outside tax season working with good people designing strategies tailored to their personal needs.
The past several months I have repeated the tax break in question countless times. It is missed nearly 100% of the time. Of my regular tax clients, the ones using this strategy did so at my encouragement.
It started earlier this year when I published this post on traditional retirement accounts and how they have an implied interest rate on the tax savings. Before that I published this post because I was seeing consulting clients who had rather large retirement accounts at a young age.
It is to be expected in a community of savers and investors to have large retirement accounts at an early age. My lament was about how big those accounts were going to get and the loss of control over tax issues in the future as a result.
Because a lot (most) of your gains are deferred anyway with an index fund and the tax rate is lower when you do sell (compared to traditional retirement accounts) and there are no RMDs or early withdrawal penalties, non-qualified accounts should play a central role in the portfolio of most investors.