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Asset Shifting

I wanted to send a quick and simple email outlining why you might want to consider asset shifting. This email is for educational purposes only and it is designed to get you thinking about economic factors that can and will impact your life.

Asset shifting is the transfer of money from tax-deferred accounts and into tax-free accounts like a Roth IRA, Roth 401(k), or cash-value life insurance.


  • 95% of people save primarily in tax-deferred accounts.

  • The vast majority of people feel taxes have to increase in survey after survey.

  • The vast majority of people still don't change their investing habits.

Here are my 13 reasons:

  1. State taxes are Increasing – See New York City – 14.8% state tax now.

  2. Widow/Widower: tax rate increases (they are now filing single) with essentially the same income to tax.

  3. Medicare Part B and D premiums- tied to income levels.

  4. National Debt – do you see federal taxes going down, increasing, or staying the same?

  5. Social Security Benefits – Yes, they can get taxed. Provisional income impacts the tax level of your benefits - 50% or as high as 85%. Tax-free assets do not add to provisional income.

  6. People who get their Social Security taxed exhaust retirement funds 5-7 years earlier on average.

  7. The internal rate of return argument (tax-deferred versus tax-free) is not supported by the math.

  8. Lower taxes in retirement - tax rate arbitrage is often not a reality.

  9. Tax compounding inside a tax-deferred account.

  10. At age 72, required minimum distributions (RMD) from 401(k)’s and IRA’s are mandatory – tax strategy choices eliminated. RMDS’s also increased as you get older.

  11. Income can increase due to RMD’s.

  12. Uncertain future tax rates.

  13. Deferred taxes are like an expensive loan in which you don’t know the terms of the loan. Example:

    1. 2021 – you defer $19,000 x the 35% tax rate = $6,650 tax deferral.

    2. The $19,000 grows x 20 years into $76,000.

    3. The tax on the $76,000 = $15,200 or 228% more tax. A very expensive loan. That assumed a conservative 20% tax rate in retirement.

    4. The Congressional Budget Office (CBO) has floated 25%, 63%, and 82% future tax rates.

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