You might have various thoughts in your mind regarding the future you want to spend, like the picture of your retirement, spending more time with family, travelling more and so on. All these plans depend upon the financial planning, which starts with you, as it is very important to have an organized plan to achieve your future goals. As Benjamin Franklin says, “If you fail to plan, you are planning to fail”, so it is always better to know where you are going and what you have to do every day to get it.
Benefits of Tax Free Financial Planning:
A financial tax-free plan will provide you a roadmap for your future goals. It is a simple and transparent savings solution for your savings needs. The Tax Free Plan puts you in control of your savings and encourages you to save while giving you the peace of mind that you can access your money at any time. Furthermore, an effective tax planning can help you understand how to pay the right tax at the right time and it also provides benefits like,
- You don’t pay tax on capital gains, dividends, interest or on withdrawals.
- You can choose from a range of investment funds to meet your unique investment needs.
- You choose how you want to invest with lumps sums, regular investments or a combination of both.
- You do not have to commit to a specific investment term. You can choose how long you want to make payments into your plan, and how long you want to keep your money invested.
How to do Tax-free Financial Planning
During their working years, most individuals are focused on funding tax-deferred savings plans and they fail to adequately prepare for the possibility that future taxes will rise. Therefore, one should always keep in mind that the goal is not to pay least tax possible but it is to minimize the after tax return. With the help of the following points, you can consider your financial planning,
- Financial Management: You should always have a fare knowledge of the value of your assets and sources of income you have because the amount of tax will always depend upon how much money is made and where it is placed. So, it is better to manage them even before the tax planning, so that they could not be added as your capital gains later on.
- Insurance for Income: If you’re unable to work due to injury or illness, your groceries, power bills, fuel and your rent or mortgage still need to be paid and for this, it is better to be secured and have insurance for your income such as life insurance policies. This on the other way, will help you reduce your taxes for the rest of your income as it doesn’t appear on your income tax return.
- Tax Deferred Growth: Another option for minimizing your tax is, opting for a permanent life insurance policy as the gain in the tax value is not taxed until it is withdrawn. This means that the funds are essentially able to obtain gains on top of gains, year after year, allowing the money to grow substantially over time. When the policyholder does make a withdrawal, the gains are taxed as ordinary income.
- Loans over Policy: The cash value in a permanent life insurance policy may also be used as security for a policy loan. As long as you repay the loan, you’re not wiping out the coverage provided by the policy, because you’re only working with the cash value. There are no taxes due on life insurance policy loans and no surrender charges because the policyholder is not technically withdrawing any money. However, there will be interest charged on the loan and the interest is not tax deductible.
Besides these, you can always have options to hire a consultant for your tax free planning. They can help you in reducing your taxable income, leaving you with more money in your pocket by the end of the year.
Therefore, an understanding of these features combined with smart planning can help make sure you come up with the best solution to fit your tax free planning and savings needs.