The Power of wholesale popular Zero, Revised and Updated: How to Get to the 0% Tax Bracket and Transform Your Retirement sale

The Power of wholesale popular Zero, Revised and Updated: How to Get to the 0% Tax Bracket and Transform Your Retirement sale

The Power of wholesale popular Zero, Revised and Updated: How to Get to the 0% Tax Bracket and Transform Your Retirement sale

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Product Description

OVER 250,000 COPIES IN PRINT, WITH A NEW CHAPTER ON THE 2018 TAX CUTS.

There''s a massive freight train bearing down on the average American investor, and it''s coming in the form of higher taxes.


The United States Government has made trillions of dollars in unfunded promises for programs like Social Security and Medicare—and the only way to deliver on these promises is to raise taxes. Some experts have even suggested that tax rates will need to double, just to keep our country solvent. Unfortunately, if you''re like most Americans, you''ve saved the majority of your retirement assets in tax-deferred vehicles like 401(k)s and IRAs. If tax rates go up, how much of your hard-earned money will you really get to keep?

In The Power of Zero, McKnight provides a concise, step-by-step roadmap on how to get to the 0% tax bracket by the time you retire, effectively eliminating tax rate risk from your retirement picture. Now, in this expanded edition, McKnight has updated the book with a new chapter on the 2017 Tax Cuts and Jobs Act, showing readers how to navigate the new tax law in its first year of being in effect, and how they can extend the life of their retirement savings by taking advantage of it now.

The day of reckoning is fast approaching. Are you ready to do what it takes to experience the power of zero?

About the Author

David McKnight graduated from Brigham Young University with Honors in 1997. Over the past 20 years David has helped put thousands of Americans on the road to the zero percent tax bracket. He has made frequent appearances on Bloomberg Radio, in Investors Business Daily and national publications like the New York Times and Reuters. His bestselling book The Power of Zero has sold over 250,000 copies. As the President of David McKnight & Company, he mentors hundreds of financial advisors from across the country who specialize in The Power of Zero retirement approach. He currently resides in Grafton, Wisconsin with his wife Felice and their seven children.

Excerpt. © Reprinted by permission. All rights reserved.

ONE

A Gathering Storm

“Delight in smooth-sounding platitudes, refusal to face unpleasant facts, desire for popularity and electoral success irrespective of the vital interests of the State . . .”

—Winston Churchill, The Gathering Storm

On January 11, 2011, a CPA named David M. Walker appeared on national radio and made a grim prognostication: Based on the current fiscal path, future tax rates will have to double or our country could go bankrupt. He then challenged the national listening audience to come up with a four-letter word that would explain why. The calls came pouring in. “Debt?” came one answer. “Wars?” came another. “Kids?” came the next. After a few more wayward guesses, David Walker finally revealed the answer. “It’s math.”

Who is David Walker, and what does math have to do with the future of our country? For an 11-year period starting in 1998, David Walker served as the Comptroller General of the United States and as the head of the Government Accountability Office. In short, he was the CPA of the USA, and the nation’s chief auditor. Having performed in that capacity during both the Clinton and Bush administrations, he knows more about our country’s fiscal state than perhaps anyone else on the planet. Since his resignation in 2008, Walker has been crisscrossing the country, raising the warning cry, and discussing sensible solutions with anyone who will listen.

To understand the urgency behind David Walker’s mission, you need look no further than the mathematical realities facing Social Security. The Social Security Act was passed into law in 1935 as the lynchpin of Roosevelt’s “New Deal” with America. When it was first implemented, the math behind it (based on expected birth rates and life expectancies) ensured its financial viability into perpetuity. There were an astounding 42 workers putting money into Social Security for every one person who took money out. Ironically, the official retirement age at that time was 65, well beyond the then average life expectancy of only 62. The program’s administrators didn’t even anticipate that the average American would live long enough to ever draw on Social Security. If you did make it to 65, you drew on Social Security for only a few years until you died! You see, Social Security was never intended to be a retirement program. It was merely insurance against living too long.

But then, something happened that would change Social Security forever. Soldiers came home from World War II and started to do something at a rate at which they’d never done before. They started making babies! Great, you may be thinking. More babies equals more workers, which mean more contributions to the Social Security program. That would be true if these “Baby Boomers” had decided to have nearly as many children as their parents did, but they didn’t. They had 32 million fewer children. And this is where the math to which David Walker refers catches up with us.

Today, there are no longer 42 people contributing to Social Security for every one person who takes money out of the program. The ratio has fallen to 3 to 1.1 And in another 10 years, it’s going to be closer to 2 to 1. Compounding the problem, Americans can now draw Social Security as early as 62 and, due to advancements in science and medical technology, retirees are living longer than ever. The reality is, if you start drawing on Social Security at 62, you’ll keep drawing it, on average, until age 85. In fact, octogenarians are the fastest-growing segment of our population. 

The problem is, Social Security went from being insurance against living too long to an expensive retirement program that Americans rely upon for nearly a quarter of their lives! As of 2017, the Social Security program costs the government over $945 billion per year, or about 23% of the federal budget.2 And the consequences for the United States couldn’t be more devastating.

“A promise made is a debt unpaid.”

—Robert A. Service

The math behind the Social Security problem is emblematic of a much broader crisis facing our nation. Over the years, our elected officials have increasingly made promises, like Social Security benefits, without any thought for how they were going to pay for them. David Walker calls these promises “unfunded obligations.” The greatest of these unfunded obligations is the universal healthcare system for seniors implemented as part of Lyndon Johnson’s “Great Society” domestic programs of the 1960s. Medicare suffers from the same demographic challenges as Social Security. As of 2017, it costs the government over $590 billion per year, and these costs continue to spiral out of control. According to Walker, the fiscal strain of these two programs alone could bankrupt the United States of America.

A closer look at the numbers explains why David Walker has become so alarmed. To quantify the actual cost of these unfunded liabilities, the government employs its own unique (and creative) accounting method. Instead of telling us the actual cost of a program, they express the cost as the present value of a future obligation. For example, the government tells us that the cost of Social Security and Medicare is $42 trillion. What this really means is that we would have to have $42 trillion sitting in an account today, earning Treasury rates, to be able to afford these programs. But the government doesn’t actually have $42 trillion today, and if you look beyond 75 years, the real cost is much greater. All told, some experts put the actual cost over time at much closer to $120 trillion.

Present Value: To better understand this concept, let’s look at the following example. Suppose you believe that your car will need to be replaced in 10 years. You estimate that in 10 years a new car will cost you $20,000. So you ask yourself what amount of money would have to be invested today at a reasonable rate of growth (say, 5%) to be able to have $20,000 10 years from now. A quick calculation shows that $12,892 growing at 5% over that time period will give you $20,000 in 10 years’ time. In other words, the present value of the future cost of your car is only $12,892!

Let’s look at the math behind our country’s fiscal problems from a different angle. The United States currently spends roughly 76 cents of every tax dollar it brings in on four items: Social Security, Medicare, Medicaid, and interest on the National Debt.3 Absent any action on the part of Congress, however, the percentage of the government’s revenue required to pay for these four big-ticket items could balloon to 92 cents of every tax dollar by the year 2020.4 As these four expenses grow and compound, they begin to crowd out all other government expenditures.

Here are just some of the programs the government would have to pay for with the remaining 8 cents: Child Nutrition Programs, Homeland Security, Food Safety and Inspection Service, U.S. Forest Service, Drug Enforcement Administration, Public Housing Program, Animal and Plant Health Inspection Service, Bureau of Indian Affairs, Army, National Endowment for the Arts, Air Force, Rural Development, Coast Guard, Supplemental Nutrition Assistance Program (aka food stamps), National Park Service, Department of Family Services, U.S. Geological Survey, Environmental Protection Agency, Centers for Disease Control and Prevention, Immigration and Customs Enforcement, Secret Service, Supportive Housing for the Elderly Program, Federal Railroad Administration, Navy, Bureau of Land Management, Peace Corps, State Department, National Science Foundation, Congress, Fish and Wildlife Service, White House, Smithsonian Institution, Small Business Administration, Federal Highway Administration, disaster relief, federal courts, federal student loans, federal pensions, income assistance, IRS, NASA, FEMA, FAA, FCC, SEC, FBI . . . 

And the list goes on. Can you see why David Walker and a growing contingent of economists are so concerned?

But Surely Taxes Could Never Double!

The mathematical reality is that, absent any spending cuts, tax rates would have to double. Come on, let’s get serious, you must be saying to yourself. Could tax rates really double?

A study of the history of taxes in the United States lends a bit of perspective. Over the last 100 years, tax rates in our country have been nothing short of a roller-coaster ride. When the government first began dipping its toe in the waters of income taxation back in 1913, it seemed harmless enough. In fact, the very first federal income tax rate was only 1%. But soon the thrill of income taxation became so addicting that the government got hooked.

By the time 1943 rolled around, the highest marginal tax bracket in our country had skyrocketed to 94%. These exorbitant rates were levied on any portion of your income that exceeded $200,000.

But did anyone really make that type of money back then? Actually, there was one person with whom you may be familiar. He was an actor who later became a politician. His name was Ronald Reagan. If you look at Reagan’s filmography, you’ll find that he never made more than two full-length movies in a year. You see, he made about $100,000 per movie, and, for anything he made above and beyond $200,000, he only kept 6 cents on the dollar. Truth be told, he didn’t even get to keep that—it went off to the State of California for state tax. So, if you study the life of Reagan, you’ll find that he never worked more than six months out of the year. Mathematically, it just didn’t make sense. 

By the ’70s, things had improved, but not by much. Americans were still paying an astounding 70% on anything they made above and beyond $200,000.

Fast-forward to today. The top marginal rate at which the wealthiest Americans pay taxes is a mere 37%. How does 37% stack up against some of the tax rates in the past? You could make the case that taxes haven’t been this low in nearly 80 years! This is interesting because I routinely ask rooms full of people across the country, “How bad are taxes today?” And you know what they tell me? “As bad as they’ve ever been!” Truth is, taxes today are just about as good as they’ve ever been! The real question is, how long can these low rates last?

According to the Congressional Budget Office, if Social Security, Medicare, and Medicaid go unchanged, the government could be forced to adopt a three-bracket system in which some of your income gets taxed at 25%, some at 63%, and some at an astounding 88%!5

For you skeptics out there, let me take you back in time. From 1960 to 1963, the lowest marginal tax rate was 20%, the middle bracket was 69%, and the highest marginal tax rate was an astounding 91%!6 Folks, this is a path we’ve been down before. What’s that old adage? Those who don’t study history are destined to repeat it?

A few years ago I was watching the Road Runner with my kids. In this particular episode, Wile E. Coyote was up to his usual tactics in trying to subdue the Road Runner. He was building a bomb—made by Acme, of course—inside a shed also made by Acme. The Coyote was so intent upon completing the bomb that he didn’t realize that the Road Runner had pushed his shed onto a train track. What’s worse, he didn’t realize until the very last moment that a huge freight train was bearing down on him. 

Now, if you found yourself on a track with a huge train bearing down on you, what would you do? You’d jump off, right? Well, when the Coyote saw the huge freight train approaching, he didn’t jump out of the way. He simply pulled down the window shade, thinking that the act of doing so would make the problem go away. Did the problem go away? Of course not. There was a huge explosion and, let’s face it . . . does the Coyote ever die? No, but as the smoke cleared, we could see the Coyote limping away from the wreckage, very much the worse for wear. 

What possible application could a Road Runner episode have to my financial life? you must surely be thinking. Well, as Americans who have grown accustomed to investing in tax-deferred accounts such as 401(k)s and IRAs, we find ourselves standing on the tracks with a very real train bearing down on us, and it’s coming in the form of higher taxes. Now, given this reality, we have a couple of options. We can pretend like the problem doesn’t exist and simply pull down the window shade. Or, we can implement some proven strategies that can help remove us from the train tracks.

The purpose of this book is to share with you the proven strategies that will help you get off the train tracks and insulate your money from the impact of higher taxes down the road. Which brings me to the title of this book: The Power of Zero. You see, the only real way to protect yourself from the impact of rising taxes is to adopt a strategy that puts you in the 0% tax bracket in retirement. Why is the 0% tax bracket so powerful? Because of that same four-letter word: math. If you’re in the 0% tax bracket and tax rates double, two times zero is still zero! By implementing these concepts before tax rates rise, you can effectively remove yourself from the train tracks and protect your hard-earned retirement savings from the gathering storm that’s looming on our country’s horizon.

 

TWO

The Taxable Bucket

Getting to the 0% tax bracket is not something that happens by accident. Enjoying a retirement free from taxation takes proactive and strategic planning, and it must begin today. The longer you wait to get off the train tracks, the less time you have to haul yourself to safety. And let’s face it, taxes are not likely to stay at historical lows forever.

Critical to your journey toward the 0% tax bracket is an understanding of the three basic types of investment accounts. For our purposes, we’re going to refer to these three accounts as buckets of money. The three buckets are taxable, tax-deferred, and tax-free. Contributing dollars to these accounts in a willy-nilly or haphazard way during your accumulation years can have enormous unintended consequences during your retirement years and can even prevent you from ever being in the 0% tax bracket. The goal during your working years should be to allocate the right amount of dollars to each bucket so that during retirement all your streams of income are tax-free. Defining the pros and cons of each bucket can help you understand the correct amounts to allocate to each one. This chapter will focus on the taxable bucket.

 

1 “Social Security Online—HISTORY,” Social Security Administration, http://www.ssa.gov/history/ratios.html.

2 Fiscal year 2017 budget of the U.S. Government, Office of Management and Budget.

3 “Policy Basics: Where Do Our Federal Tax Dollars Go?” Center on Budget and Policy Priorities, last modified October 4, 2017, www.cbpp.org/research/federal-budget/policy-basics-where-do-our-federal-tax-dollars‑go.

4 Jeanne Sahadi, “Running the government on 8¢,” CNNMoney, January 21, 2011, http://money.cnn.com/2011/01/21/news/economy/spending_taxes_debt/index.htm.

5 “Long Term Economic Effects of Some Alternative Budget Policies,” Congressional Budget Office, May 19, 2008, 8-9.

6 “Tax Foundation,” U.S. Federal Income Tax Rates, http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets.

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4.7 out of 54.7 out of 5
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Paul H
1.0 out of 5 starsVerified Purchase
Self-Promotion book to sell you a LIRP
Reviewed in the United States on December 2, 2018
There’s no way the average consumer can understand a LIRP. They are way too complex and convoluted so you can’t determine the true costs. That’s why insurance salesmen have to SELL it to you. His taxable bucket strategy doesn’t even discuss the HUGE tax advantages of long... See more
There’s no way the average consumer can understand a LIRP. They are way too complex and convoluted so you can’t determine the true costs. That’s why insurance salesmen have to SELL it to you. His taxable bucket strategy doesn’t even discuss the HUGE tax advantages of long term capital gains. Probably because it competes with his LIRP he wants to sell you. I’ll give you the choice of following this “expert” or Warren Buffet. Warren says put your money in a passive S&P 500 index ETF and don’t take it out until you need it decades later for retirement. Even though we do this in a taxable account all gains are deferred just like a traditional IRA, but ONLY the gains are taxable when you take it out. Remember that taxable accounts also have no contribution limits, no RMDs, no 59 1/2 penalty, you can harvest tax losses, you can sell via tax lots. Since this “expert” gets to cherrypick his tax situations I will do the same. Invest your money in a taxable S&P 500 index ETF like Vanguard VOO which has an expense ratio of .04% which is almost 38 times less than the “experts” 1.5% fee for his LIRP. Over decades and using compounding this alone will result in HUGE savings. Do NOT use a mutual fund because they distribute capital gains at the end of each year. Only use an ETF in your taxable account. Dividends from this ETF will be taxable each year, but they are only 1.85% and are qualified so they are taxed at 0% or 15% depending on your tax bracket. Here’s one example of how you avoid all the long term capital gains in this taxable account resulting in 0% tax rate. You retire at 62 and you don’t have any earnings. You defer taking Social Security until 70 resulting in maximum benefits. You live off your taxable account resulting in long term capital gains. You sell via tax lots so you can determine exactly the amount of your long term capital gains. If you file married filing jointly you can sell $101,200 worth of long term capital gains resulting in 0% tax rate! Notice I did not say you sell $101,200 worth of the ETF. You sell as much of the ETF via tax lot that results in$101,200 worth of long term capital gains. As an example $200,000 of the ETF may result in $101,200 of long term capital gains so in reality you will be selling $200,000 and not $101,200 of your ETF. This example assumes the only taxable income you have comes from this taxable account. At age 65 your standard deduction goes up by $1300 so if you both turn 65 you can do $103,800 of long term capital gains. Even if you exceed these amounts you will pay only 15% tax on the excess. Since Social Security convolutes your tax situation I highly recommend you do this before taking it.
If your ETF is worth $1,000,000 and it consists of $500,000 of long term capital gains you could do this for 5 years all at 0% tax rate! Should you sell $200,00 of your ETF even if you don’t need that much income for the year? YES! By doing so you will never pay taxes on those long term capital gains. Let’s say you don’t need any income for the year. You still sell $200,000 of the ETF so you can get 0% tax rate on $101,200 of long term capital gains and you immediately go out and buy $200,000 of the same ETF to continue deferring. This effectively raises your cost basis on this $200,000. Some will say what about the wash sale rule? That ONLY applies to losses not gains. If you doubt what I am saying then enter this tax information that I have presented into a 2018 tax software program and let it tell you the answer. I am sure you will trust it more than me.
528 people found this helpful
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Arthur R Prunier Jr
2.0 out of 5 starsVerified Purchase
Misleading Assertions Detract from this book
Reviewed in the United States on September 1, 2019
I have very mixed feelings about this book. Among the things I really like are (1) it''s emphasis upon the importance of tax planning as an important part of retirement planning, and (2) concrete examples of how tax planning is performed that demonstrate the complexities... See more
I have very mixed feelings about this book. Among the things I really like are (1) it''s emphasis upon the importance of tax planning as an important part of retirement planning, and (2) concrete examples of how tax planning is performed that demonstrate the complexities involved.

On the negative side, this book is premised upon a misleading assertion, one that any good undergraduate textbook on taxes and tax planning warns every student against. Simply put, the goal of tax planning isn''t to reduce or even eliminate taxes, rather it is to maximize the after-tax funds available for spending. From this perspective investment fees are just as bad as taxes, since both reduce what''s available for spending. Certainly reducing taxes is an important tool to the achieve the ultimate goal. But reducing taxes while at the same time letting investment fees leap up (i.e. fees associated with life insurance policies) isn''t usually the best route to maximize spending over the course of retirement.

The uninformed reader of this book would certainly come away with the impression that life insurance is as good or better than a Roth IRA as a mechanism for maximizing spending funds over retirement. This is decidedly false. It''s not that hard to set up Roth IRAs with no annual fees and investments that amount to 0.10% or less on an annual basis. All-in fees for life insurance policies are 10-20 times larger. If you want a simple guide to minimizing Roth investment fees, search here on the Amazon website for "Investing made Simple" by Mike Piper.

I was also disappointed that through most of the book the author referred to LIRP''s as having tax-free distributions, making them comparable to Roth IRAs in this regard. It isn''t until the last chapter of the book that that actual tax-deferred nature of LIRP distributions is revealed, along with the "work around" of taking loans from the insurance company to avoid taxes. Of course as a financial educator I already knew this. So I can only describe as "extremely misleading" that this key fact isn''t honestly stated earlier in the "LIRP Chapter". And in spite of the authors strong suggestion that such loans will cost you nothing, don''t believe it. If the insurance company doesn''t charge an explicit annual interest fee for the loan, they will get that money from you via implicitly higher administration and mortality charges. There are NO truly free loans!

With all the discussion about Roth IRAs I found it suspicious that Roth Accounts weren''t mentioned. Most 401(k), 403(b) and public 457(b) plans now incorporate a Roth Account. This feature allows workers to aside quite large amounts of after-tax dollars for tax-free spending in retirement. For 2019 up to $19,000 could be set aside in a Roth Account, plus another $6,000 for those age 50 or older. And people can continue to set aside money in their own Roth IRAs on top of their workplace savings! Of course all this Roth Account / Roth IRA saving wouldn''t leave money for paying life insurance premiums, and I suspect that''s the reason this detail wasn''t mentioned!

Finally, the question of exactly how high taxes will rise in the future is a difficult one to answer. I agree with the author that, at least for upper income people, tax brackets will rise and deductions will shrink. Many politicians are even seriously considering a Wealth Tax, which could seriously rearrange many people''s tax planning strategies. But unlike the author, I don''t expect that the existing 10% or 12% tax brackets will rise above 15%. Normally even those tax brackets would lead to some Social Security taxation. But a portion of the SECURE act that has passed the U.S. House contains a provision for drastically increasing the income allowed before Social Security income starts to become taxable. Thus becoming too aggressive in paying higher taxes now in a rush to attain no income taxes in retirement may well lead to lower total spending in retirement than a more modest approach.

A very intriguing paragraph in the book occurs on page 11 where the author takes us back to the 1960 - 1963 time frame when the lowest marginal tax bracket was 20% and the highest was 91%. Those brackets sound scary, but the calculation of income tax isn''t always straightforward. For retirees at that time there was a "retirement income tax credit" in existence that was quite substantial. When the tax system for 1963 is converted into 2019 dollars, a 65 year old retired couple would need to have had over $150,000 of income to even begin to pay federal taxes. If only we had such low taxes today! And the reference to 94% tax bracket on income above $200,000 in 1943? In 2019 dollars, that becomes about $3 million.
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Patrick
1.0 out of 5 starsVerified Purchase
Disappointed
Reviewed in the United States on January 16, 2019
It is an interesting concept and has some merit but the book is almost exclusively designed to be used as a sales tool for financial advisors who want to sell life insurance as a retirement plan. The book completely glosses over the fee structures within LIRPs (Life... See more
It is an interesting concept and has some merit but the book is almost exclusively designed to be used as a sales tool for financial advisors who want to sell life insurance as a retirement plan. The book completely glosses over the fee structures within LIRPs (Life insurance retirement plans) and tries to push the idea of life insurance all throughout the book. Also, the book does not spend hardly any time explaining the risks of a LIRP while at the same time suggests you should redirect almost all of your investments into these policies. While it does talk about other tax efficient income streams, it is clearly written to sell life insurance. Advisors buy these books in bulk and hand them out to soften up prospects to sell them these policies. I also did not appreciate the generic degrading way he characterized the typical financial planner suggesting that that any other type of planner focuses only on adding "1%" better return and nothing else. In summary, I felt that this book and the "plan" to get to the zero % tax bracket was seriously skewed to generate business for life insurance agents.
118 people found this helpful
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FinancialDave
1.0 out of 5 starsVerified Purchase
More than disappointed!
Reviewed in the United States on April 16, 2019
I can’t, in all honesty, give this book more than one star. That one star is only for at least acknowledging that the author knows that if taxes are even 1% lower in retirement the Traditional IRA (tax-deferred bucket) wins. What the author does not seem to... See more
I can’t, in all honesty, give this book more than one star. That one star is only for at least acknowledging that the author knows that if taxes are even 1% lower in retirement the Traditional IRA (tax-deferred bucket) wins.

What the author does not seem to realize is that the 1% is in aggregate, or effective marginal rate for all tax-deferred money spent, as compared to the marginal tax rate on the front end for conversions or earnings. Let me explain with an example I did recently for someone living in the high tax State of New York (actually NYC):
On their road to the “Power of Zero,” they converted essentially most of their pre-tax 401k to a $900,000 Roth account while paying 33% in taxes to do so. To do that we can easily calculate how much that had to earn to do so using the author’s own math; 900k/.67 = $1,343,284 which of course cost them $443,284, in taxes over about 9 years. So how much does the person need to spend of tax-deferred money to avoid paying an effective marginal tax even equal to 33%? Let’s assume the state tax is 6% so the Federal is 27%, effective marginal rate. Let’s further assume the Standard Deduction covers the 85% of SS that is taxable, so everything else is drawn from the tax-deferred bucket. If the married couple withdraws $200,000 per year from the tax-deferred account their “effective marginal tax rate” is only about 16%. At $400,000 withdrawn from the tax-deferred, you are just shy of 22% effective marginal tax rate. Still, a much lower tax rate than you paid on the conversion. So according to the author’s own text what should you be doing. Spending money from your tax-deferred bucket!
The lesson from the above is not that the extremely rich need to be careful, anyone converting or putting money in a Roth with a front end tax rate greater than 12% (for which the next bracket is 22%) should be concerned that they are really wasting money, especially if they are married and can see that it takes almost $400,000 of ordinary income which when added to a $30,000 SS would still cause you to pay less than a 22% effective marginal tax rate, based on current tax brackets. Maybe tax rates double, it is still $200,000 in today’s dollars!
48 people found this helpful
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MD
2.0 out of 5 starsVerified Purchase
Ignores the 10% and 15% tax rate brackets.
Reviewed in the United States on May 14, 2017
I thought this book was great...until I realized that it ignores the 10% and 15% tax rate brackets. A large portion of the book tells you that if you are going to have more income than your standard deduction/exemption in retirement you do not want to have any... See more
I thought this book was great...until I realized that it ignores the 10% and 15% tax rate brackets.

A large portion of the book tells you that if you are going to have more income than your standard deduction/exemption in retirement you do not want to have any tax deferred money like a 401K. He explains that when it comes to the money you want to invest, if you are paying a 25% Federal tax rate now, you will likely be paying at least a 25% rate in the future and when you do the math both a 401K and a Roth IRA would come out the same. Thus he says you should generally choose a Roth type of investment because taxes are likely to be higher in the future and if they are even 1% higher you will come out better off.

I pulled out the actual tax tables and materials from last year. I quickly realized that for many people the money you are currently investing in a 401K may in fact be taxed at the 25% federal rate like the book provides in most of its examples. However, I also quickly realized that for many people when they go to take distributions in future years they will never go above the 15% rate. Thus, if tax rates did not go up a person in this situation should be better off with the 401K. Even if they did go up, they could go up from 15% to 25% and just make it back to the rate currently being paid.

In all fairness the author does say that whether or not you should invest in a Roth over a 401K comes down completely to whether or not you will be paying a higher tax rate in the future. The problem is that all the examples and illustrations are situations where you are paying as high or higher a tax rate in retirement. He never talks about the fact that a tax rate exists that is lower than the 25% but higher than 0%. But I believe a lot people in retirement will end up in one of these brackets when they were in a higher bracket while working.

I do also have to add that in some cases it might be better accepting the higher 25% rate now with a Roth rather than paying 15% in the future on a 401K distribution if that allowed you to avoid paying any taxes on your social security. He explains in the book how you could do this if you do not have much regular or deferred income in retirement. I did not try to go through all those calculation to see when that would pay off because if you have any significant pension or other income it throws you out of that possibility.

I originally started to give it one star because I felt it left out very critical information needed to understand. However, I changed it to two because it does give you a lot of information that is good...you just have to remember there is a 10% and 15% rate and figure out for yourself how those rates affect your situation.

In all fairness,
141 people found this helpful
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AKR
5.0 out of 5 starsVerified Purchase
I have greater control & confidence of my retirement with the concepts of this book.
Reviewed in the United States on September 7, 2018
I see this as an immediate opportunity to arrange my affairs over the next 7-8 years as taxes are guaranteed to go up as the current law sunsets at the end of 2025. This was wake up call for me, a boomer, who has the majority of retirement money in tax deferred 401(k)... See more
I see this as an immediate opportunity to arrange my affairs over the next 7-8 years as taxes are guaranteed to go up as the current law sunsets at the end of 2025. This was wake up call for me, a boomer, who has the majority of retirement money in tax deferred 401(k) type plans. I fully expect Tax Rates to increase substantially to pay for the $20 Trillion of current debt and the debt of unfunded future Medicare liabilities.
34 people found this helpful
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Douglas M.
5.0 out of 5 starsVerified Purchase
How can you take advantage of the lower tax rates for the next 8 years?
Reviewed in the United States on September 20, 2018
Full disclosure-I’m a financial advisor and I often share the book with my clients as David explains it better than I do. David has done a wonderful job in building the case about the Power of Zero. He’s connected all the dots that others couldn’t see to tell a... See more
Full disclosure-I’m a financial advisor and I often share the book with my clients as David explains it better than I do.
David has done a wonderful job in building the case about the Power of Zero. He’s connected all the dots that others couldn’t see to tell a compelling story about taxes and retirement planning. Fortunately, the government has reduced cost of implementing the strategy, and you have eight years at the best to prepare your portfolio for future tax increases. I frequently asked people - Do you think taxes will be higher in the future. 75 -80 percent say yes. However, when I look at the amount of money they have in 401(k)s or IRAs, it’s clear that they don’t understand the implication of higher taxes on their retirement assets and therefore it’s impact on their retirement income. David explains a few different strategies you can use to prepare yourself and your family for higher taxes. Some reviewers complain that he may be biased towards LIRP over Roth IRA. However, you can decide what is better for you and your retirement. Some complain that they may never get to the zero percent tax bracket, but they are missing the message that if you can pay lower taxes today verses higher taxes tomorrow that is a winning strategy for you and your heirs.
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Vincent J. Miller
1.0 out of 5 starsVerified Purchase
Alternative to traditional investing
Reviewed in the United States on May 26, 2019
I liked the concepts that were provided. However, there is one simple reason this book does not earn 5 stars. That is, the author discusses the pros and cons of tax-deferred 401(k)s, traditional IRAs and Roth IRAs, but left out Roth 401(k)s. I can only surmise that he... See more
I liked the concepts that were provided. However, there is one simple reason this book does not earn 5 stars. That is, the author discusses the pros and cons of tax-deferred 401(k)s, traditional IRAs and Roth IRAs, but left out Roth 401(k)s. I can only surmise that he either does not know they exist or he simply avoided them to make the life insurance option that he is "selling" more attractive. If the latter is true, he is a salesman, not a financial planner. I truly wish that he included a discussion of Roth 401(k)s so that it would be more transparent and complete book!
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