Choosing Happiness

Ty A. Bernicke CFP® | Posted: July 22, 2020

During the Coronavirus lockdown, I watched more TV than I care to admit. One of my guilty pleasures includes watching reality TV shows that follow the daily lives of people who live a primitive lifestyle. A few of my favorites include The Last Alaskans, Life Below Zero, and Mountain Men. The people in these reality TV shows have chosen to live without most of the modern conveniences of today's society. Despite their lack of modern conveniences, the people in these TV series seem happier than just about anyone I can think of. Perhaps their happiness is a validation that material things don't create happiness. Perhaps the old wisdom that suggests that happiness is a choice is actually true.

Believing that happiness is a choice may be more relevant today than it has been in a long time. As we move forward hopefully this message can resonate with you and your loved ones during these challenging times because there will always be things that you can choose to be unhappy about.  One item that many people have been unhappy with recently centers around how our country is going to pay for the recent bailouts. There is a belief that taxes may increase to help pay for these bailouts. This has some people wondering what can be done to protect themselves from the potential of future tax increases.

One general concept that can be beneficial for investors concerned with their tax rates increasing in the future includes choosing to pay taxes on certain types of assets sooner rather than later. One specific strategy that incorporates this concept is called a Roth IRA conversion. Essentially this technique converts IRA money to a Roth IRA. When IRA money is converted the whole amount is subject to taxation in the year of the conversion. Once the money enters the Roth IRA it can grow tax-free for the remainder of the owner's life. The potential benefit of this strategy includes paying taxes now, at presumably lower rates, while avoiding higher tax rates in the future.

An additional technique that can be used to shelter investments from future taxation is limited to those individuals who still have active income from a job or business.  These investors may want to place a greater emphasis on Roth IRA and/or Roth 401k contributions if eligible. As mentioned previously Roth IRAs and Roth 401ks can provide a tax sanctuary with lifetime tax protection when used properly. These assets can even qualify for tax-free distributions to surviving spouses and children. 

One final consideration that incorporates paying taxes sooner as opposed to later can be implemented with certain highly appreciated non-IRA investments that would be subject to capital gains taxes when sold.  If you have a specific asset or investment that you have avoided selling due to capital gains taxes this year may be a good time to revisit these items. The benefit of selling an appreciated asset this year may include paying lower capital gains taxes today to avoid potentially higher capital gains taxes later. Selling appreciated assets requires careful consideration before implementing as there are many variables that could offset the potential long-term tax benefits.

These are just a few of the actions investors can take to help prevent their assets from being susceptible to higher taxes in the future. We always encourage you to talk with us before implementing any solution as there are too many variables to share in a single newsletter. On a final thought, I hope you take some time this summer to immerse yourself in those things that truly make you happy!

About the author

Ty A. Bernicke CFP®

Ty Bernicke is the President of Bernicke Wealth Management and serves as a Senior Wealth Manager. Ty currently works with a limited number of clients that require wealth and/or investment management services. His research on investment management, retirement planning, and tax minimization strategies have been published or recognized by The Wall Street Journal, Forbes, The New York Times, Futures Magazine, and many other well-known national and international publications. Ty Bernicke and Bernicke Wealth Management give back to the community and environment through numerous charitable endeavors. Ty spends his free time with his wife, two daughters, and one son. He also likes to fish, golf, and exercise.

Certifications, Licenses, and Registrations

  • Registered Principal with LPL Financial, Member FINRA/SIPC
  • CERTIFIED FINANCIAL PLANNER™ professional
  • Accident, Life, Health, Property, Casualty, and Variable Life/Variable Annuity Insurance Licenses

Education and Training

  • Series 7, 66, 63, 24
  • Bachelors Degree - Finance; University of Wisconsin-Eau Claire
  • College for Financial Planning graduate

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