Using Tax Brackets to a Save a Fortune in Taxes and Multiply Your Wealth

Understanding tax brackets could be worth $1 million or more if you’re a high income earner.

This article will show you how to dramatically reduce your taxes over your lifetime.

With tax brackets, your income is taxed at different rates based on the brackets published by the IRS.

Each “block” of money is taxed at a certain rate.

See 2022 rates below:

Example for married couples:

The 1st $20,550 is taxed at 10%. Then everything from $20,551 to $83,550 is taxed at 12%.

Everything from $83,551 to $178,150 is taxed at 22% and so on.

How do you use this to save money on taxes?

Say your taxable income (after all deductions) is $83,550.

Any income you receive above that is taxed at 22%. (Up to the next bracket.)

So if you had a $50,000 tax free income stream you would save 22% x 50k = $11,000 per year.

$11,000 yearly tax savings x 25 years in retirement = $275,000

The bigger your income, the bigger the savings.

Here’s before and after on $240,000 in income:

Now implement a Tax Protection System with $100,000 per year in tax free income:

Tax savings of $23,237 per year.

How many years will you spend in retirement?

$23,237 x 25 years in retirement = $580,925 in tax savings.

What can that money grow to if you keep it invested vs. sending it to the IRS?

$1 million? $2 million or more?

What would this mean to your lifestyle in retirement? Your legacy?

Huge wealth mover. The bigger your income, the bigger the savings.

Setting up a tax bracket strategy does not happen overnight.

The problem is everyone focuses on reducing taxes now while ignoring future taxes.

Both are important.

But… reducing taxes now is harder.

There’s only so much you can do.

Eliminating taxes in the future is easier.

It just takes time and planning.

Understand money growths three ways:

1. Taxable: Taxed as you go. W2 income, real estate income, capital gains, etc.
2. Tax Deferred: Taxed later as income. 401k, IRA, SEP Defined Benefit Plan, etc
3. Tax Free: After tax dollars, no tax on growth and withdrawals. The Tax Free Matching Program, ROTH Strategies.

Think of these as buckets. Have money in each bucket.

Use your taxable and tax deferred money to fill up the lower brackets, then use tax free money to avoid going into the higher brackets.

It’s that simple.

Most people have little to none in the tax free bucket.

Example of the strategy in action:

You have income being taxed at the 35% level.

You max out your 401k and this defers the tax you owe and gives you a 35% deduction on your contribution.

At retirement, you use the 401k funds as income to fill up your 10%, 12% and 22% bracket.

You got a deduction at 35% and withdrew the money at a lower rate. Nice!

Then you add 100k in tax free income — what would normally be in the 24% bracket.

Saving 24k per year in taxes and hitting your income goal while maximizing your tax savings.

Rinse and repeat.

The two main strategies for tax free income are the Tax Free Matching Program and ROTH:

1. The Tax Free Matching Program - Works like a no limit ROTH on Steroids.

Contributions are matched 3 to 1 (example $500k contribution, $1.5 million match.)

Creates tax free income streams 60%-100% larger vs. traditional saving strategies.

The perfect mix of safety, financial leverage, growth potential and tax efficiency.

See this thread:

https://twitter.com/DenverNowicz/status/1484205739107180544

2. ROTH, ROTH Conversions, ROTH 401k, Backdoor ROTH.

Great strategies but the income limits and conversion taxes can make it tough to create large tax free income streams.

If you are still working, it’s tough to pay 37% on a conversion. ️

If you have other losses to offset the taxes it can make sense.

Backdoor ROTHs should also be looked at while they are still here.

ROTH 401ks can be great as well.

If you are starting a company, you can put shares in a ROTH 401k. Works out great if the company gets huge!

The downside of ROTH strategies is they generally do not use financial leverage so it’s harder to create large income streams unless you have some assets that will really grow.

Work with a good tax team on this one. Message me if you need a good tax team.

I share ideas like this each week in my weekly newsletter. Subscribe link on my profile. Thanks for reading!