In the 1983 hit film, Trading Places, starring Dan Aykroyd and Eddie Murphy, Aykroyd’s character, Winthorpe, is haggling with a pawnshop owner over the value of the wristwatch he is desperately trying to pawn in order to get cash.
When the pawnshop owner offers $50 dollars, Winthorpe indignantly says:
“This is a Roche Vouceau. The thinnest water-resistant watch in the world. Singularly unique, sculptured in design, handcrafted in Switzerland, and water resistant to three atmospheres. It tells time simultaneously in Monte Carlo, Beverly Hills, London, Paris, Rome, and Gstaad. This is ‘THE’ sports watch of the ’80s. Six thousand, nine hundred and fifty-five dollars retail.”
The pawnshop owner says to him, “In Philadelphia, it’s worth FIFTY BUCKS!!”
Ask yourself, which is worth more: the gross value of your income, or the net value after taxes are taken out?
The true value of any asset is how much it’s worth when you need to use it.
What about real estate? Same thing: compare the “gross value” on the books, versus the net value after taxes.
Most people think about their IRA or 401(k) as its gross value. The problem is that there are costs to access your hard-earned money: TAXES. Plus, the money in your IRA or 401(k) has lost the capital gains tax privilege and will be taxed at a higher income tax rate!
A one-million-dollar IRA is not worth one million dollars. Taxes can claim over one third, reducing the amount you can use to live on to $650,000 or less!
Those taxes have to be paid not only by you and your spouse, but also by your children and grandchildren if you pass it to them.
It’s what we call the Hidden Estate Tax. We specialize in helping you with your retirement strategy, to take reduce the risks of these hidden taxes!
Start with our financial guide to retirement!