Money Management for College Students

Paying taxes is inevitable. The key to being as efficient as possible about how much one pays in taxes requires careful consideration of the big picture. And while many people simply want to know if they can have a tax-free retirement, it really starts with being clear about how and when taxes get paid…and to defining what a “tax-free retirement” actually means. For example, if someone is striving to have income during retirement that is tax-free AT THAT TIME, then there are a plethora of investment and insurance products out there that could help defer taxes on earnings, and potentially, have tax-free withdrawal benefits for some types of accounts. But that doesn’t mean retirement is “tax-free”.

Let’s clarify what a few of the most common types of taxes are:

Income Tax – taxation on earned income can occur on many levels; local, state and federal. The amount a person would have to pay varies greatly on their situation. And, there are various types of tax credits that could affect the amount of taxes that would be paid on income. Any earned income that is deferred into a qualified retirement account generally means that taxes on that income won’t get paid at the time it is earned, but when that income is taken at a later date, during retirement, taxes are paid at that time. The idea that paying taxes on income later, when one might be in a lower income tax bracket, might prove more beneficial. But a) there is no guarantee what the tax rates will be in the future, and b) there may be several other factors with a person’s overall taxation that could affect what is perceived as a benefit. A tax professional is the best person to help folks evaluate what kinds of strategies are best for their overall situation. At the end of the day, SOME form of income tax will be paid, either when it is received upon earning, or when it is withdrawn from a qualified plan “down the road” in retirement.

What can be done to possibly reduce these taxes? Speak to a tax professional about what tax credits might apply, and also review with them if itemized deductions can play a role in reducing taxation.

Sales Tax – taxation occurs on state levels for various goods and services that get purchased. The percentage of taxation is usually based on the price of said goods and/or services. But that percentage charged can vary greatly from state to state, or even within different municipalities. There are a few states that don’t have any sales tax on most goods and services.

Excise Tax – taxation that is applied to specific types of goods; gas, cigarettes, beer, liquor, etc. These are typically nicknamed as “sin products”. Taxes received for these particular products are generally used to help raise money for bringing awareness to the potential dangers of these products.

What can be done to manage sales and excise tax? Not much. These types of taxes are very hard to “manage”. Changes in lifestyle; consumption of goods that fall within this category, will obviously affect the amount of sales taxes paid.

Property Tax – taxation that is applied to property owned. Taxes received tend to go towards local municipality needs. The amount of property taxes charged is usually based on a percentage of the value of the property.

What can be done to manage or alleviate property tax? Renting instead of owning might prove beneficial with alleviating property tax. However, there may be tax benefits also lost by being a renter instead of an owner. Again, a tax professional is best for helping to calculate what the tax benefits are for both scenarios.

It might not be possible to have a completely tax-free retirement, but by working with a financial professional and a tax professional, the ability to strategize investments and manage how taxation occurs could prove very beneficial. It’s not just about saving and investing…it’s about being as savvy as possible with the decisions along the way.

In the heart of a bustling town, Ernesto “Peanut” Folks stood as the owner of an auto body repair shop, where years of hard work and dedication had woven into the very fabric of his business. His vision for the future was crystal clear—passing the torch and the legacy of his shop to his son, Ernesto. This is the remarkable story of how life insurance, often overlooked, can emerge as a beacon of hope and resilience when we need it most.

Ernesto “Peanut” Folks was the proud owner of an auto body repair shop, and his plan was to one day pass along the business to his son, Ernesto. Life insurance was never on Peanut’s radar until an insurance professional spoke to him about how it could help him protect the business and its 10 employees.

Downturns in the business would sometimes make it hard for Peanut to make his premium payment. He considered dropping the policy but ultimately kept it in place.

When Peanut was diagnosed with advanced-stage lung cancer, his doctors gave him just six months to live. The treatments that followed kept him away from work, and medical bills mounted.

Given his terminal diagnosis, a provision in his life insurance policy called an accelerated death benefit allowed him to access a portion of the money from that policy while he was still alive. In the months before his death at age 49, Peanut was able to pay off his debts and turn the body shop over to Ernesto, fulfilling his dream.

Talk to an insurance professional about how life insurance can protect your business and your legacy.