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The Power of Zero, Revised and Updated: How to Get to the 0% Tax Bracket and Transform Your Retirement
An updated edition of the self-published book that sold more than 100,000 copies, with a new chapter on the 2017 tax bill.
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?
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?
145 pages, Kindle Edition
First published January 22, 2014
654 people are currently reading
1938 people want to read
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Displaying 1 - 30 of 204 reviews
August 17, 2019
While I think tax planning for retirement is often overlooked, I was not a fan of this book for a few reasons:
1. McKnight's math is imprecise and may give readers the wrong impression. While he goes into marginal tax brackets later in the book, he largely writes as if your top tax bracket is indeed what you pay in taxes. However, most people pay significantly less. For instance, in his Social Security example in the tax-deferred chapter, the hypothetical couple with $95,000 in taxable income would have an average tax rate of 15%, not 22% according to tax rate calculators.
He also talked extensively about how the current tax brackets will expire in 2026, but fails to mention that the standard deduction will also drop in half at that time. He even talks in later chapters about how a couple could safely take out RMDs of $37,000 and have it be tax free thanks to an inflation-adjusted standard deduction. But assuming the tax law sunsets as scheduled, we will never see a $37,000 standard deduction.
2. He completely ignores certain planning strategies -- such as Health Savings Accounts to pay for health care expenses or relocating to a state with no income tax -- that can help people minimize taxes in retirement.
3. McKnight never mentions Roth 401(k) accounts.
4. He promotes LIRPs heavily without providing much detail. Vague descriptions tend to always raise a red flag, and I left wondering what it is about these plans that is being left unsaid. Exactly how much higher are fees/insurance premiums at the start vs. other retirement vehicles? Does the cash value disappear into the pockets of the insurance company at death as is the case with most permanent life insurance plans? And so on.
While I like the concept behind the book, it felt vague and hyperbolic and so it was only ok for me.
1. McKnight's math is imprecise and may give readers the wrong impression. While he goes into marginal tax brackets later in the book, he largely writes as if your top tax bracket is indeed what you pay in taxes. However, most people pay significantly less. For instance, in his Social Security example in the tax-deferred chapter, the hypothetical couple with $95,000 in taxable income would have an average tax rate of 15%, not 22% according to tax rate calculators.
He also talked extensively about how the current tax brackets will expire in 2026, but fails to mention that the standard deduction will also drop in half at that time. He even talks in later chapters about how a couple could safely take out RMDs of $37,000 and have it be tax free thanks to an inflation-adjusted standard deduction. But assuming the tax law sunsets as scheduled, we will never see a $37,000 standard deduction.
2. He completely ignores certain planning strategies -- such as Health Savings Accounts to pay for health care expenses or relocating to a state with no income tax -- that can help people minimize taxes in retirement.
3. McKnight never mentions Roth 401(k) accounts.
4. He promotes LIRPs heavily without providing much detail. Vague descriptions tend to always raise a red flag, and I left wondering what it is about these plans that is being left unsaid. Exactly how much higher are fees/insurance premiums at the start vs. other retirement vehicles? Does the cash value disappear into the pockets of the insurance company at death as is the case with most permanent life insurance plans? And so on.
While I like the concept behind the book, it felt vague and hyperbolic and so it was only ok for me.
March 20, 2019
A quick and easy read that'll cause one to reconsider a few aspects of personal finance and retirement planning.
Thesis: Tax rates will rise in the future as the US government will struggle to pay for underfunded/unfunded liabilities such as social security, medicare, and medicaid. As they get squeezed for money, they'll inevitably turn to taxpayers for additional sources of revenue. Current tax rates are at historical lows and can only rise in the future. Therefore, paying taxes now to end up in the 0% tax bracket upon retirement is beneficial.
Pros: David introduces many interesting concepts, such as paying all taxes now to avoid them later on. And, also that tax rates will inevitably increase. Traditional and Roth IRAs/401(k)s won't be that different in the end, AND Roth IRAs are taxed at current, known tax rates whereas Traditional IRAs/401(k)s have an uncertain tax rate in the future. Keeping post-retirement income to below standard deduction (which rises with inflation) in order to maintain 0% tax rate.
Cons: David introduces some funky math. In the beginning, he uses outrageous examples of marginal tax rates at work to induce an emotional response in the reader that their life savings are going to be taxed at a higher rate than it might be (40% of $600k... in what world is that going to happen). Additionally, some of his marginal tax rate math seemed a little funky as well (use https://www.ameriprise.com/research-m... for your marginal tax rate needs). His tax examples surrounding capital gains and dividends are also dubious. He doesn't explain too much the different tax structures between short and long term capital gains, and that dividends have a different tax rate than regular salary income. Finally, he pitches Life Insurance Retirement Plan (LIRP) pretty hard. Seeing as how he is a "financial adviser/planner" I'm not surprised. He proposes it as a panacea to use (after using his 401(k) and IRA strategies), but doesn't really address many criticisms of using life insurance policies as investment/retirement vehicles other than the fees are comparable to 401(k) accounts and the government probably won't change legislation around LIRPs.
In the end, he doesn't deny that everyone has to pay taxes... Whether now or later. He proposes that paying taxes NOW as opposed to LATER when the tax train wreck has arrived is better. While I can agree with some points, other points are harder to swallow. He makes many assumptions that may or may not come to fruition down the road. However, they are curious to entertain.
Thesis: Tax rates will rise in the future as the US government will struggle to pay for underfunded/unfunded liabilities such as social security, medicare, and medicaid. As they get squeezed for money, they'll inevitably turn to taxpayers for additional sources of revenue. Current tax rates are at historical lows and can only rise in the future. Therefore, paying taxes now to end up in the 0% tax bracket upon retirement is beneficial.
Pros: David introduces many interesting concepts, such as paying all taxes now to avoid them later on. And, also that tax rates will inevitably increase. Traditional and Roth IRAs/401(k)s won't be that different in the end, AND Roth IRAs are taxed at current, known tax rates whereas Traditional IRAs/401(k)s have an uncertain tax rate in the future. Keeping post-retirement income to below standard deduction (which rises with inflation) in order to maintain 0% tax rate.
Cons: David introduces some funky math. In the beginning, he uses outrageous examples of marginal tax rates at work to induce an emotional response in the reader that their life savings are going to be taxed at a higher rate than it might be (40% of $600k... in what world is that going to happen). Additionally, some of his marginal tax rate math seemed a little funky as well (use https://www.ameriprise.com/research-m... for your marginal tax rate needs). His tax examples surrounding capital gains and dividends are also dubious. He doesn't explain too much the different tax structures between short and long term capital gains, and that dividends have a different tax rate than regular salary income. Finally, he pitches Life Insurance Retirement Plan (LIRP) pretty hard. Seeing as how he is a "financial adviser/planner" I'm not surprised. He proposes it as a panacea to use (after using his 401(k) and IRA strategies), but doesn't really address many criticisms of using life insurance policies as investment/retirement vehicles other than the fees are comparable to 401(k) accounts and the government probably won't change legislation around LIRPs.
In the end, he doesn't deny that everyone has to pay taxes... Whether now or later. He proposes that paying taxes NOW as opposed to LATER when the tax train wreck has arrived is better. While I can agree with some points, other points are harder to swallow. He makes many assumptions that may or may not come to fruition down the road. However, they are curious to entertain.
August 21, 2019
This is one of those books that was created to try to sell you something. In this case, it’s trying to convince the reader that they have an issue with their savings plan, and that there is a way to pay zero taxes that only a few rich people currently know about. The solution involves using a variation on life insurance. You’ve been warned.
I actually thought the first part of the book, which lays out the forecast of much higher income tax rates in the US and the impact on different retirement savings vehicles, was interesting, if lacking in detail. The author conveniently ignores things like capital gains tax and dividend taxes that are currently at a lower rate than income taxes, and I suspect that will be the case even if his forecast of tax increases occur. And he ignores other tax planning schemes that those rich life insurance owners also avail themselves of, like trusts and corporations. I would agree that tax rates can, and likely will rise from where they are now. And some thought should go into investors tax planning due to that eventuality.
So the problem statement is a good story. But what of the offered solution? The author focuses on the scheme of buying specific life insurance policies that have “additional features” (and when you read additional features, you correctly think additional costs) that allow for additional investment, borrowing your invested money without repayment, and use as a long term care annuity. It’s described a lot like Saturday Night Live skit: it’s a floor wax and a dessert topping. As you read, you want to evaluate this product. But alas, the author really provides no details, instead begging off because there are hundreds of different policies with different costs and different benefits. You can’t even validate the claim that you can live off the proceeds of your savings without paying taxes, because there’s not enough detail, even in the chapter length “case study”. Your only recourse is to visit your local insurance broker. Not surprisingly, the author mentions that the book became a hot seller when insurance agents bought them to give to their prospects. Go figure.
When I read a book that is written as advertising material, I tread lightly. I look to see if there is any value beyond getting informed on some new product. Here, the value I received with in the initial problem description forecasting increasing taxes. I already understand this issue, but it was interesting to read someone else’s take on it. My second takeaway was the reminder that this kind of life insurance product exists. If the need arises while I’m managing my investments, I’ll know my insurance guy will have something to sell me. He always does.
I actually thought the first part of the book, which lays out the forecast of much higher income tax rates in the US and the impact on different retirement savings vehicles, was interesting, if lacking in detail. The author conveniently ignores things like capital gains tax and dividend taxes that are currently at a lower rate than income taxes, and I suspect that will be the case even if his forecast of tax increases occur. And he ignores other tax planning schemes that those rich life insurance owners also avail themselves of, like trusts and corporations. I would agree that tax rates can, and likely will rise from where they are now. And some thought should go into investors tax planning due to that eventuality.
So the problem statement is a good story. But what of the offered solution? The author focuses on the scheme of buying specific life insurance policies that have “additional features” (and when you read additional features, you correctly think additional costs) that allow for additional investment, borrowing your invested money without repayment, and use as a long term care annuity. It’s described a lot like Saturday Night Live skit: it’s a floor wax and a dessert topping. As you read, you want to evaluate this product. But alas, the author really provides no details, instead begging off because there are hundreds of different policies with different costs and different benefits. You can’t even validate the claim that you can live off the proceeds of your savings without paying taxes, because there’s not enough detail, even in the chapter length “case study”. Your only recourse is to visit your local insurance broker. Not surprisingly, the author mentions that the book became a hot seller when insurance agents bought them to give to their prospects. Go figure.
When I read a book that is written as advertising material, I tread lightly. I look to see if there is any value beyond getting informed on some new product. Here, the value I received with in the initial problem description forecasting increasing taxes. I already understand this issue, but it was interesting to read someone else’s take on it. My second takeaway was the reminder that this kind of life insurance product exists. If the need arises while I’m managing my investments, I’ll know my insurance guy will have something to sell me. He always does.
May 29, 2020
This book focuses on strategies used to shift taxable income and tax-deferred income into tax-free income. The logic being that with tax brackets at historically low levels today, and with the huge deficits our government is incurring and its need to someday 'pay the bill', now is the time to bite the bullet and recognize income / pay taxes instead of waiting (deferring) taxes until a later year when Uncle Sam will want a bigger pound of flesh.
The two strategies recommended were: 1) rolling your traditional IRA (or 401k) into a ROTH IRA in a method known as a "backdoor rollover", and 2) using insurance annuities. I'm not a fan of the latter for various reasons, but mainly because today's low interest rates makes the "guaranteed" aspect of the annuity less valuable. However, with respect to the ROTH, the information provided was helpful and I expect to talk to a retirement specialist about whether that makes sense for my situation.
The two strategies recommended were: 1) rolling your traditional IRA (or 401k) into a ROTH IRA in a method known as a "backdoor rollover", and 2) using insurance annuities. I'm not a fan of the latter for various reasons, but mainly because today's low interest rates makes the "guaranteed" aspect of the annuity less valuable. However, with respect to the ROTH, the information provided was helpful and I expect to talk to a retirement specialist about whether that makes sense for my situation.
May 6, 2019
Missing key elements
I was disappointed. The author did not address a better way to land in the 0% tax bracket and that is through capital gains and dividends. A lost opportunity. Instead he uses the expensive option of LRIPs. The author glosses over many points that don’t fit his argument that need to be addressed to convince the reader of the effectiveness for his solution. I would recommend the blog Go Curry Cracker over this book. It is too bad that a respected name like Ed Slott associated his name with this book.
I was disappointed. The author did not address a better way to land in the 0% tax bracket and that is through capital gains and dividends. A lost opportunity. Instead he uses the expensive option of LRIPs. The author glosses over many points that don’t fit his argument that need to be addressed to convince the reader of the effectiveness for his solution. I would recommend the blog Go Curry Cracker over this book. It is too bad that a respected name like Ed Slott associated his name with this book.
January 3, 2024
Good tool for trying to protect your retirement from Uncle Sam? Yes. Good tool for insurance companies or financial planners to sell you life insurance retirement plans? Also yes.
April 2, 2019
My State Farm agent sent me this book to read before our annual meeting to discuss my insurance portfolio, and that is the most adult sentence I have ever typed. Anyway, I read it because he asked me to and I did learn stuff about various kinds of retirement funds and the like. It definitely counts towards my 2019 reading goal because, dang it, I read it.
June 28, 2020
The primary new concept presented by the author is the Life Insurance Retirement Plan (LIRP). I was disappointed with how little information was actually shared about LIRP's. For example, it wasn't until the FAQ chapter at the end of the book that you learn distributions from LIRP's are only tax free if they are taken out as a loan that has to be repaid upon your death. I would like to learn as much as possible about the structure of LIRP's before investing, and I felt the author fell short in this regard.
October 1, 2021
I got this book from the library when another (highly recommended) book was not available. Very quick book to read, but not a lot of new information for me. And, as other reviews state, he's missing information on capital gains, dividends, etc and how to incorporate those into a plan.
Probably good for someone just starting to plan for retirement - I definitely did not take advantage of tax-free savings as early as I should have - but I don't think his method applies to me and a lot of other people who will not be able to live off the income limits he's using to stay in the 0% tax bracket. Or, at least, he didn't include examples of people who need $100K+ a year to live off of.
I did have 2 takeaways - 1) reconsider the tax rates that will expire in 2026, and 2) look into an LIRP (which I had never heard of, yet am still skeptical of).
Probably good for someone just starting to plan for retirement - I definitely did not take advantage of tax-free savings as early as I should have - but I don't think his method applies to me and a lot of other people who will not be able to live off the income limits he's using to stay in the 0% tax bracket. Or, at least, he didn't include examples of people who need $100K+ a year to live off of.
I did have 2 takeaways - 1) reconsider the tax rates that will expire in 2026, and 2) look into an LIRP (which I had never heard of, yet am still skeptical of).
January 6, 2020
Worthwhile info to consider when planning for retirement. Quick read, but still a little long-winded due to a bit of redundancy. Also worth mentioning: some aspects of the strategies presented in this book are based on speculation, but then again, what investment strategies are not?
July 10, 2021
The whole book is arguing that tax rates will go up and then describing what you should do with this information (pay taxes now if you can). It tries to be a little too persuasive and not quite informative enough for me, but I learned a lot.
November 13, 2019
I learned quite a bit to utilize in my stress free discussions about retirement.
November 28, 2020
This book provided helpful advice that can be used to reevaluate your retirement strategy. The concept of taxation isn’t often discussed since most financial advisors are evaluated on growth versus what you are actually able to withdraw. Good read.
June 11, 2020
An exceptional read that makes you think about retirement planning in a whole different way. It is relatively easy to understand, however if you have a finance background it’s a much easier read and well worth the time.
May 29, 2023
Well…I’ve now changed my mind about my adjustments to my retirement plan, so I guess it’s a good book with actionable steps? I feel like it’s written more for 50-60 year olds though…hence the 4 stars
March 11, 2022
Good read with perspectives in different retirement accounts. I wish it would tell you some more DIY ways then pushing you always to a professional.
December 31, 2024
A must read for anyone that wants to retire one day!
October 3, 2018
Due to our country’s current, historically low, income tax rates, David McKnight, the author of “The Power of Zero” feels that now is the best time to use non-deductible savings instruments in our retirement plans. Taxes will never again be this low, according to McKnight. His opinion on this is based on our growing record debt and the underfunded Social Security problem. The current tax rates phase out in 8 years by which time the need to dramatically raise taxes will be indisputable. People saving for retirement today will have to pay taxes on required EMD withdrawals from their 401K’s and their IRA’s at much higher future tax rates while those with money in non-deferred savings instruments will pay the lowest taxes or, for a few prescient ones, no taxes.
It isn’t necessary to reduce a future retiree’s tax-deferred savings to zero under McKnight’s proposed plan. Most of us already have 401K and IRA retirement savings accounts. When we retire, we should be able to use the standard deduction in the year of ERM withdrawal to shield that money from taxes, assuming that the total value of those accounts isn’t too large to do so.
One enlightening passage addressed the taxability of Social Security income. Non-taxable sources of income are considered by the IRS when determining how much of a person’s social security income is taxable. Municipal bond income is one of the sources that get into that calculation. Even though muni income is not subject to federal income taxes, it may be subject to state and local income tax and, even if not taxed by the state of residence, it is used in the total income calculation used in determining social security taxation.
A formerly unknown retirement avoidance tool that was mentioned, unknown to me that is, is the LIRP, Life Insurance Retirement Plan. Congress allows a taxpayer to buy life insurance with large periodic payments. The bulk of the payments add directly to the cash value of the policy with a small portion going toward the cost of the insurance itself. The death benefit and cash surrender value go to our beneficiaries tax-free with the result that none of that money being subject to estate tax or to income tax. The benefit to the purchaser of the policy is that the cash values in these policies are liquid. The purchaser can borrow those funds back at any time for any purpose. The borrowings carry a modest interest rate to legitimize the transaction as a loan to the IRS but the loan is an investment of the insurer and its interest earnings are added to the policy’s cash surrender value. I regret that the author did not provide the names of insurance companies who sell these types of policies as I was unable to find any with a google search.
Retirement plans are as individualistic as any form of investment plan. I’ve tried doing it on my own; but, after reading “The Power of Zero”, I realize that I have left myself open to paying more taxes than I could have had I taken a different savings tact prior to retirement. Don’t make the same mistake.
We’re all hoping to enjoy a healthy fun filled retirement someday. IRS required minimum distributions are unavoidable so part of our retirement plan needs to include a strategy for minimizing the tax consequence they represent.
Read “The Power of Zero” and other retirement books as they all provide ideas and raise issues that need to be considered and addressed in a good retirement plan.
It isn’t necessary to reduce a future retiree’s tax-deferred savings to zero under McKnight’s proposed plan. Most of us already have 401K and IRA retirement savings accounts. When we retire, we should be able to use the standard deduction in the year of ERM withdrawal to shield that money from taxes, assuming that the total value of those accounts isn’t too large to do so.
One enlightening passage addressed the taxability of Social Security income. Non-taxable sources of income are considered by the IRS when determining how much of a person’s social security income is taxable. Municipal bond income is one of the sources that get into that calculation. Even though muni income is not subject to federal income taxes, it may be subject to state and local income tax and, even if not taxed by the state of residence, it is used in the total income calculation used in determining social security taxation.
A formerly unknown retirement avoidance tool that was mentioned, unknown to me that is, is the LIRP, Life Insurance Retirement Plan. Congress allows a taxpayer to buy life insurance with large periodic payments. The bulk of the payments add directly to the cash value of the policy with a small portion going toward the cost of the insurance itself. The death benefit and cash surrender value go to our beneficiaries tax-free with the result that none of that money being subject to estate tax or to income tax. The benefit to the purchaser of the policy is that the cash values in these policies are liquid. The purchaser can borrow those funds back at any time for any purpose. The borrowings carry a modest interest rate to legitimize the transaction as a loan to the IRS but the loan is an investment of the insurer and its interest earnings are added to the policy’s cash surrender value. I regret that the author did not provide the names of insurance companies who sell these types of policies as I was unable to find any with a google search.
Retirement plans are as individualistic as any form of investment plan. I’ve tried doing it on my own; but, after reading “The Power of Zero”, I realize that I have left myself open to paying more taxes than I could have had I taken a different savings tact prior to retirement. Don’t make the same mistake.
We’re all hoping to enjoy a healthy fun filled retirement someday. IRS required minimum distributions are unavoidable so part of our retirement plan needs to include a strategy for minimizing the tax consequence they represent.
Read “The Power of Zero” and other retirement books as they all provide ideas and raise issues that need to be considered and addressed in a good retirement plan.
February 24, 2024
US specific book. Please skip if non US based.
This book is full of half truths and selective biased representations that a person without a full and clear understanding of the US retirement landscape may be influenced into maximizing contribution to a life insurance retirement plan (LIRP). To do that they may choose to minimize taxable contribution and skip valuable legit tax advantaged contribution, as suggested by the author. This may be a costly mistake as the author did not present all the facts. I decided to write this review after a single parent friend really wanted to implement the LIRP. Hope this review will be helpful to you too. Disclaimer: I am not a tax professional. Just someone with a stable job, excess to invest, and working towards my own eventual retirement.
First, points in the book I agree with:
- US tax rate is likely going to go up.
- You should minimize taxes.
- Roth vehicles are good.
- Diversification of various tax buckets and vehicles are good. This means, if you have extra money and want to get a small LIRP please go ahead and then you can write a good review/ critique armed with facts. However, please do not drain your taxable and tax deferred to get into LIRP.
Points the author decided to skip over because you knowing these facts may negatively affect your desire to get a LIRP:
- As of 2024, as a single person under the age of 50/55 (if you are older the limits are higher due to catch up), even if you make above the roth contribution limit, you can still do:
(1) $7,000 back door Roth contribution if you don't have a traditional IRA so you don't have to pay pro-rated taxes. He closed the door on someone being able to do back door roth if they have substantial T-IRA.
(1a) The author failed to mention that a pre-tax Traditional IRA can be rolled over into a 401K. Once your pre-tax T IRA money changes label and becomes a 401K. You no longer have any T-IRA and as such will not be subject to any pro-rata taxes for roth conversion.
(2) $4,150 HSA. HSA should be considered a roth and contributions invested. In fact it's better because you get the tax deduction going in, and the dollars are tax free coming out.
(2a) The author failed to mention HSA at all in his book. How people hack with a HSA is that during their work years, you pay your medical expenses out of pocket. Then keep the receipts. You invest the HSA contributions. Upon retirement you can withdraw the amounts you previously paid out of pocket tax free so it's like a roth. This requires good organizational skills however because you have to keep your receipts for multiple decades.
(3) 401k. 401K may not only have tax deferred contributions. Please check with your employer. They may allow you to do a roth contribution. More and more employer also offer "after tax contribution" that you can convert into a roth overnight (and taxes would be minimal because you convert asap). Check to see your employer offers both options, and lobby for them if they don't currently have them.
The 2024 401K total contribution limit per the IRS is 69,000. Let's assume employer match is 10K.
So you will have roth space of 23,000 from 401K, plus after tax portion of 36K (69K-10K employer match - 23K 401K employer limit).
In the case of my friend, we confirmed that ~59K per year of Roth (23K roth 401K + 36K after tax space that can do roth conversion) space can be obtained just from the 401k vehicle alone.
This bring total 2024 roth space to 70,150 if you sum up (1), (2), (3) above. I consider it an astounding success if a family can fill up all this roth space, get the pre tax employer match, and do other debt payments/ investments/ savings/ fun stuff.
However, I understand not all people will have access to this much roth space, or they make a lot so 70K roth investments a year still leave them with a lot of extra money to be invested. So this brings me to the taxable advice portion of this book, which I consider the most nefarious.
(4) He said that a family should have 6 month income as emergency fund. This I agree. (actually I like 6-12 month expense but whatever).
He said that only 6 month income should be going to taxable. This I completely disagree.
His biggest failure is failing to distinguish that different types of income are taxed differently. And use fear mongering to get people to minimize their taxable balance. Employment income, interest and short term capital gain are taxed at the marginal tax rate. Whereas qualified dividend income and long term capital gains are taxed at preferential rate of 0%, 15%, 20%.
You must have heard stories that Warren Buffet paid less tax than his secretary. It's because Buffet has mostly dividend income and LT cap gains while his secretary paid taxes mostly on employment income.
By purposely failing to mention the tax rate difference based on difference sources of income, and discussed an elderly couple with only CDs in taxable and high tax rates, he got you all scared and anxious to minimize taxable.
Rather than to minimize taxable investments, a better proposal is to minimize interest income in taxable: A good rule of thumb is to keep only 6 month income/ 6-12 month expense in CD/ cash/ bonds in taxable. And have the rest of the millions of dollars of taxable you will amass in stocks, real estates, precious metals, crypto etc. Basically keep taxable mostly in assets that will throw off dividend income and capital gains. And please do not do short term trades.
If you need to have more cash/ bonds, you can save them in the tax deferred portion of your retirement account.
(5) There are a few more minor comments I still want to make but the review is already getting too long. I just want to cover a couple other points and then wrap up:
Risks of having the bulk of your net worth with an insurer: counter party risk
Also, even if you find someone with good risk rating, they can still sell their book of business to an offshore insurer. (this has happened in real life)
Even if the LIRP you pick is good, you are perhaps just trading paying taxes with paying LIRP fees.
The single parent is concerned about estate taxes and thought LIRP is a good vehicle to pass money to the kid and minimize tax during the lifetime because of gift tax concerns. I want to comment that in US the gift tax lifetime limit is 13.61M meaning you don't pay taxes on the first 13.61M. the 17K is the amount you can give away per person per year without it counting against the lifetime limit. You only have to file a form with the IRS. This amount should be good for most families.
You can do roth conversions more aggressively after you retire but before RMD date. This was never provided as an alternative but instead, in chapter 7 the example provided, he said the couple will have no deductions upon retirement but failed to mention that they also will not have employment income. 72(t) is not an ideal step to take most of the time because you cannot dial in as precise as doing roth conversions. Also in that example, the couple is still working which means the 401k provider may actually not allow that. People typically do roth conversions last few days of the year. You will know most of your income by then so can convert as much as possible to top up your desired tax bracket.
Nobody knows what the future holds. I think it's a logical fallacy to say taxes may go up but LIRP will probably be ok with the grandfather provision. I think it's far more honest to say that taxes may go up and all assets and tax schemes including LIRP may be affected in the future.
Finally, the US tax code is way more complex. But in general it's progressive, you would not pay zero taxes WITHOUT COSTS unless you are dirt poor and/ or willing to withdraw and live on a tiny income. And if you are reading this book you are not. The author have not discussed IIRMA, affordable care act subsidy... It is fear mongering to present biased half truths (I hate #4 the most). Please do more research on US tax structure in general before you decide to follow the author's advice 100%.
Finally, since each person's situation is different, the best way to model things out is to create different taxes scenarios based on your numbers using your favorite tax software. And not blindly dismantle your taxable investments and tax deferred investments to hand over to a LIRP salesperson without doing adequate research.
This book is full of half truths and selective biased representations that a person without a full and clear understanding of the US retirement landscape may be influenced into maximizing contribution to a life insurance retirement plan (LIRP). To do that they may choose to minimize taxable contribution and skip valuable legit tax advantaged contribution, as suggested by the author. This may be a costly mistake as the author did not present all the facts. I decided to write this review after a single parent friend really wanted to implement the LIRP. Hope this review will be helpful to you too. Disclaimer: I am not a tax professional. Just someone with a stable job, excess to invest, and working towards my own eventual retirement.
First, points in the book I agree with:
- US tax rate is likely going to go up.
- You should minimize taxes.
- Roth vehicles are good.
- Diversification of various tax buckets and vehicles are good. This means, if you have extra money and want to get a small LIRP please go ahead and then you can write a good review/ critique armed with facts. However, please do not drain your taxable and tax deferred to get into LIRP.
Points the author decided to skip over because you knowing these facts may negatively affect your desire to get a LIRP:
- As of 2024, as a single person under the age of 50/55 (if you are older the limits are higher due to catch up), even if you make above the roth contribution limit, you can still do:
(1) $7,000 back door Roth contribution if you don't have a traditional IRA so you don't have to pay pro-rated taxes. He closed the door on someone being able to do back door roth if they have substantial T-IRA.
(1a) The author failed to mention that a pre-tax Traditional IRA can be rolled over into a 401K. Once your pre-tax T IRA money changes label and becomes a 401K. You no longer have any T-IRA and as such will not be subject to any pro-rata taxes for roth conversion.
(2) $4,150 HSA. HSA should be considered a roth and contributions invested. In fact it's better because you get the tax deduction going in, and the dollars are tax free coming out.
(2a) The author failed to mention HSA at all in his book. How people hack with a HSA is that during their work years, you pay your medical expenses out of pocket. Then keep the receipts. You invest the HSA contributions. Upon retirement you can withdraw the amounts you previously paid out of pocket tax free so it's like a roth. This requires good organizational skills however because you have to keep your receipts for multiple decades.
(3) 401k. 401K may not only have tax deferred contributions. Please check with your employer. They may allow you to do a roth contribution. More and more employer also offer "after tax contribution" that you can convert into a roth overnight (and taxes would be minimal because you convert asap). Check to see your employer offers both options, and lobby for them if they don't currently have them.
The 2024 401K total contribution limit per the IRS is 69,000. Let's assume employer match is 10K.
So you will have roth space of 23,000 from 401K, plus after tax portion of 36K (69K-10K employer match - 23K 401K employer limit).
In the case of my friend, we confirmed that ~59K per year of Roth (23K roth 401K + 36K after tax space that can do roth conversion) space can be obtained just from the 401k vehicle alone.
This bring total 2024 roth space to 70,150 if you sum up (1), (2), (3) above. I consider it an astounding success if a family can fill up all this roth space, get the pre tax employer match, and do other debt payments/ investments/ savings/ fun stuff.
However, I understand not all people will have access to this much roth space, or they make a lot so 70K roth investments a year still leave them with a lot of extra money to be invested. So this brings me to the taxable advice portion of this book, which I consider the most nefarious.
(4) He said that a family should have 6 month income as emergency fund. This I agree. (actually I like 6-12 month expense but whatever).
He said that only 6 month income should be going to taxable. This I completely disagree.
His biggest failure is failing to distinguish that different types of income are taxed differently. And use fear mongering to get people to minimize their taxable balance. Employment income, interest and short term capital gain are taxed at the marginal tax rate. Whereas qualified dividend income and long term capital gains are taxed at preferential rate of 0%, 15%, 20%.
You must have heard stories that Warren Buffet paid less tax than his secretary. It's because Buffet has mostly dividend income and LT cap gains while his secretary paid taxes mostly on employment income.
By purposely failing to mention the tax rate difference based on difference sources of income, and discussed an elderly couple with only CDs in taxable and high tax rates, he got you all scared and anxious to minimize taxable.
Rather than to minimize taxable investments, a better proposal is to minimize interest income in taxable: A good rule of thumb is to keep only 6 month income/ 6-12 month expense in CD/ cash/ bonds in taxable. And have the rest of the millions of dollars of taxable you will amass in stocks, real estates, precious metals, crypto etc. Basically keep taxable mostly in assets that will throw off dividend income and capital gains. And please do not do short term trades.
If you need to have more cash/ bonds, you can save them in the tax deferred portion of your retirement account.
(5) There are a few more minor comments I still want to make but the review is already getting too long. I just want to cover a couple other points and then wrap up:
Risks of having the bulk of your net worth with an insurer: counter party risk
Also, even if you find someone with good risk rating, they can still sell their book of business to an offshore insurer. (this has happened in real life)
Even if the LIRP you pick is good, you are perhaps just trading paying taxes with paying LIRP fees.
The single parent is concerned about estate taxes and thought LIRP is a good vehicle to pass money to the kid and minimize tax during the lifetime because of gift tax concerns. I want to comment that in US the gift tax lifetime limit is 13.61M meaning you don't pay taxes on the first 13.61M. the 17K is the amount you can give away per person per year without it counting against the lifetime limit. You only have to file a form with the IRS. This amount should be good for most families.
You can do roth conversions more aggressively after you retire but before RMD date. This was never provided as an alternative but instead, in chapter 7 the example provided, he said the couple will have no deductions upon retirement but failed to mention that they also will not have employment income. 72(t) is not an ideal step to take most of the time because you cannot dial in as precise as doing roth conversions. Also in that example, the couple is still working which means the 401k provider may actually not allow that. People typically do roth conversions last few days of the year. You will know most of your income by then so can convert as much as possible to top up your desired tax bracket.
Nobody knows what the future holds. I think it's a logical fallacy to say taxes may go up but LIRP will probably be ok with the grandfather provision. I think it's far more honest to say that taxes may go up and all assets and tax schemes including LIRP may be affected in the future.
Finally, the US tax code is way more complex. But in general it's progressive, you would not pay zero taxes WITHOUT COSTS unless you are dirt poor and/ or willing to withdraw and live on a tiny income. And if you are reading this book you are not. The author have not discussed IIRMA, affordable care act subsidy... It is fear mongering to present biased half truths (I hate #4 the most). Please do more research on US tax structure in general before you decide to follow the author's advice 100%.
Finally, since each person's situation is different, the best way to model things out is to create different taxes scenarios based on your numbers using your favorite tax software. And not blindly dismantle your taxable investments and tax deferred investments to hand over to a LIRP salesperson without doing adequate research.
January 18, 2024
This was recommended to me by a financial advisor who, you guessed it, is trying to sell me LIRP. My review can best be summarized by reading the other 2 and 3 star reviews for this book. They claim the math presented in this book is a little wonky (I didn't bother to do the calculations myself, but at the very least it's not terribly easy to follow) and that the author conveniently cherry-picks points to help their case.
At the very least, it addresses the topic of taxes in retirement and I agree with the author that this is something many people don't even think about. As for getting yourself into a 0% tax bracket in retirement, I'm still not sure how to do that after reading his book. It does a lot of talking without key details of how to achieve it, except for a few specific scenarios. I know it all depends on a person's specific situation, but my point is, I didn't walk away with any action items on how to improve my own finances (unless I were to get into LIRP, which this book didn't actually convince me to do).
EDIT: If you prefer a book about financials with a chapter on insurance, I recommend "The Bogleheads' Guide to Investing" in the most recent edition. It discusses life insurance without having an agenda or trying to convince you to buy into it. While it is one small chapter out of the entire book, I think it is more valuable simply because it truly is impartial.
At the very least, it addresses the topic of taxes in retirement and I agree with the author that this is something many people don't even think about. As for getting yourself into a 0% tax bracket in retirement, I'm still not sure how to do that after reading his book. It does a lot of talking without key details of how to achieve it, except for a few specific scenarios. I know it all depends on a person's specific situation, but my point is, I didn't walk away with any action items on how to improve my own finances (unless I were to get into LIRP, which this book didn't actually convince me to do).
EDIT: If you prefer a book about financials with a chapter on insurance, I recommend "The Bogleheads' Guide to Investing" in the most recent edition. It discusses life insurance without having an agenda or trying to convince you to buy into it. While it is one small chapter out of the entire book, I think it is more valuable simply because it truly is impartial.
Read
February 24, 2023I read this after the author's other book on tax-free income, so it was useful in helping clarify some of what was discussed in that book (which was written later and kind of assumes the reader has read this one). It has the merit of appearing after the recent tax changes, so it has some information and theories relating to how the US currently has low taxation that will probably rise (perhaps significantly) in just a few years. Basically the author argues that we should aim to get into a 0% tax bracket for retirement so that inflation and taxes don't destroy our retirement savings, and he proposes some ways of doing that. In this particular book, he is particularly into the idea of buying a Life Insurance Retirement Plan (LIRP). I found this sort of interesting as, being a single childless person, I had never seen any reason to have life insurance. Using life insurance to pay for long-term care sounds like it could be a good deal. On the other hand, there wasn't really enough info on these LIRPs and how available or expensive they are. I felt the main value of this book was to clarify some of what's in his book on tax-free income.
February 3, 2022
This is an excellent book. Most people are instructed they need to max fund their 401k. They spend decades putting money away into their 401k and by the time they retire, many will have upwards of a million dollars or more in a tax deferred account.
The problem with this advice is it sets people up to sabotage their Social Security and retirement years through taxation. It does not need to happen this way. People should only fund their deferred account with the company match as long as the RMD does not exceed their standard deduction or other deductions because if it does, taxation will destroy their retirement as Uncle Sugar starts taking a huge cut.
Insurance companies offer permanent insurance and for those who can, Roth IRA's provide tax free income in retirement. This is where your effort and focus needs to be unless you want to pay more taxes than you should. This is book should be required reading to graduate high school so we can keep what we earn and starve the federal beast.
The problem with this advice is it sets people up to sabotage their Social Security and retirement years through taxation. It does not need to happen this way. People should only fund their deferred account with the company match as long as the RMD does not exceed their standard deduction or other deductions because if it does, taxation will destroy their retirement as Uncle Sugar starts taking a huge cut.
Insurance companies offer permanent insurance and for those who can, Roth IRA's provide tax free income in retirement. This is where your effort and focus needs to be unless you want to pay more taxes than you should. This is book should be required reading to graduate high school so we can keep what we earn and starve the federal beast.
February 17, 2023
This book is short and easy to read. The idea is pretty straight forward, pay your income tax now, because it is cheaper than paying it when you retire, and invest in tax-free tools, like Roth IRA and Life Insurance Retirement Plan. It gives a hypothetical example on how to restructure your money to follow this plan.
Some of the low review for this book come from people who got this book from a life insurance agent. I assume that might have created a bias against the book. I, too, had the same feeling when my friend, who was also an agent, gave it to me two years ago. I only started reading when she stopped selling insurance and did find some good advice from the book.
The bottom line is this is not a tax book. This is a finance book. That's why it may not cover certain things that people mention in the reviews. However, that does not make it a bad book.
Some of the low review for this book come from people who got this book from a life insurance agent. I assume that might have created a bias against the book. I, too, had the same feeling when my friend, who was also an agent, gave it to me two years ago. I only started reading when she stopped selling insurance and did find some good advice from the book.
The bottom line is this is not a tax book. This is a finance book. That's why it may not cover certain things that people mention in the reviews. However, that does not make it a bad book.
June 12, 2022
If you didn't know the basics...it's got some good info at a high level. Don't be fooled by the use of numbers...they're just used to explain the concept. Preciseness is skipped. It's basically a book for someone who wants to sell something to give to a prospect. It isn't bad for that purpose, and the tax savings technique is a valid one, but don't assume it will explain anything in detail to help you determine what is best for you. It's MEANT to be used for you to go back to person that gave it to you.
January 25, 2021
An insurance sales pitch in book form.
This is a thinly veiled attend to hawk cash value life insurance. It assumes you want to run up the scoreboard on your wealth only to the point where you might pay a penny in taxes. As many wise people acknowledge- don’t let the tax take wag the investment dog.
Completely missing is any discussion of the dead weight loss and opportunity cost of insurance commissions and fees.
This is a thinly veiled attend to hawk cash value life insurance. It assumes you want to run up the scoreboard on your wealth only to the point where you might pay a penny in taxes. As many wise people acknowledge- don’t let the tax take wag the investment dog.
Completely missing is any discussion of the dead weight loss and opportunity cost of insurance commissions and fees.
February 12, 2022
This book is interesting and has some good points. However, overall it comes across as a snake oil pitch to buy LIRPs for a misguided obsession with avoiding taxes on social security. "Remember, one of the main goals of Tax-Free Road Map should be to make your Social Security tax-free"
The author fails to mention Roth 401ks, differences in income and capital gains taxes, and details associated with expensive and potentially risky LIRP products.
The author fails to mention Roth 401ks, differences in income and capital gains taxes, and details associated with expensive and potentially risky LIRP products.
November 4, 2017
Not a huge fan of this book. He omits a lot of information to make his points. He mentions Roth IRAs are great because they are limiting how much you can put away, but leaves out that traditional IRAs have the same limit. It was interesting to learn about LIRP strategies, but then he never goes into too many details. If you're looking to avoid taxes in retirement then this is a great book.
September 24, 2021
Review
Really great and simple book for people to read. It does repeat more than a few times and it would be a bit difficult to read if you don't understand financial jargon. However, it's a great strategy that's easier to implement for the middle class, a bit harder for the affluent family.
Really great and simple book for people to read. It does repeat more than a few times and it would be a bit difficult to read if you don't understand financial jargon. However, it's a great strategy that's easier to implement for the middle class, a bit harder for the affluent family.
April 9, 2019
Interesting premise, and I generally agree with the author's deliberate approach to optimizing tax exposure. But the shilling for LIRPs is jarring and detracts from what could be an otherwise good read. Read bogleheads if you want an opinion on LIRPs from people that aren't trying to sell them to you.
December 7, 2014
Great book for those looking to retire with little to no tax. Easily understood and read in about an hour. Highly recommend this book to those who want to be prepared financially for retirement.
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