Best Financial Advisors in Elk Grove Village, IL

Does the way you 𝙨𝙖𝙫𝙚 for retirement affect the way you 𝙨𝙥𝙚𝙣𝙙 in retirement?nnA recent experiment suggests that’s a real possibility.nnWe’ve already seen a handful of studies that show how those who choose to defer taxes (pay them later rather than upfront in a Roth account) under-adjust what they’ll owe in the future and overestimate their level of wealth in retirement.nnBut the new study – an experiment in which adults 40 and older were tasked with spending a hypothetical retiree’s money – demonstrated that even when people are facing a current tax bill, they’re likely not to reduce their discretionary spending.nnThat doesn’t seem to make sense from a strictly logical perspective, and earlier research found that the tax trigger would cause people to think twice about making a big purchase when tax bills are also due.nnHowever, humans can often find ways to justify their behaviors, and that’s what the participants in the latest study did. They figured that the expected benefits of those purchases – like luxury travel, entertainment, or big-ticket items such as boats – outweighed the harm of spending more than they might be able to afford.nnThe study concluded that those who choose to save in a tax-deferred account like a traditional IRA or 401(k) would go through their savings faster than those who choose to pay taxes upfront and park their money in a Roth account. nnIf people can’t correctly estimate how taxes will affect them during retirement – and if they essentially ignore the tax reality when they finally begin to spend money in their accounts – they’ll be in danger of running out of money.nnWhat’s the solution?nnIn addition to creating a retirement savings plan, it’s probably a good idea to make a retirement spending plan. nnRemember that if you are deferring taxes, not only will you be taxed on the money once you withdraw it, but that “income” is also going to factor into how much you can be taxed on Social Security and what you’ll be charged for Medicare premiums.nnAnd don’t forget that the money held in tax-deferred accounts determines what you’ll pay in required minimum distributions (RMDs). If your money is in Roth accounts, RMDs do not apply. Consider whether it makes sense to begin contributing to Roth accounts rather than traditional IRAs or 401(k)s.nnIf you’re not able to contribute to a Roth IRA because you exceed the income threshold, note that there’s no income cap for contributions to a 𝗥𝗼𝘁𝗵 𝟰𝟬𝟭(𝗸). Another move you can make is to ask your employer to match on the Roth portion of your 401(k).nnYour decisions regarding 401(k) contribution amounts and investment options can have a huge impact on your spending power once you retire.nnWe just published a report - 𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝗬𝗼𝘂𝗿 𝟰𝟬𝟭(𝗸) - that explains how to make your 401(k) or similar employer plan work harder for you. To request your copy, simply go to the 𝗔𝗹𝗽𝗵𝗮 𝗪𝗲𝗮𝗹𝘁𝗵 𝗥𝗲𝗽𝗼𝗿𝘁𝘀 page (top menu) on our website, scroll down to see the list of reports, and click on the 𝗗𝗼𝘄𝗻𝗹𝗼𝗮𝗱 𝗡𝗼𝘄 button.nn #401k #RothIRA #roth401k #retirement #retirementplanning #taxes #taxplanning...