By R. Todd Holden | Wealth Advisor
Northwest Financial Advisors

Can you imagine a trillion dollars? I cannot. Trust me, I’ve tried.

Imagining a billion dollars is easy. It’s a million dollars a thousand times over. When the Power Ball reaches a billion dollars every now and then, I think about it. An apartment in New York City, a flat in Prague (beautiful place), a beach house, nice boat, a private foundation and some really large investment accounts — this is all within the realm of imagination to me.

I cannot fathom a trillion dollars. Think of it in seconds. A million seconds equals 11.5 days. A billion seconds equals 31.7 years. A trillion seconds equals 31,688 years. A trillion seconds ago was before the last ice age began.

Our federal government owes approximately $38.5 trillion dollars.

When clients ask about what keeps me up at night, it is not the current news. It was not the long-forgotten Greek banking crisis of 2013, nor is it the potential AI bubble today — or anything else that is making the news. It is the $38 trillion — and growing — federal debt. What is it going to do to our society, and how are we (or our children) going to pay it off?

The only thing we know are the rules in place today. Here are a few strategies to consider that you may want to discuss with your advisor.

We know that by historical standards, income tax rates are relatively low, so it probably makes sense to consider Roth 401(k) contributions and Roth IRA conversions. Depending on one’s tax bracket, paying the taxes upfront may make sense.

We know that the life insurance industry has an incredibly strong lobby that has been effective historically in making certain that death benefits pass to the next generation income tax-free. Life insurance may be an effective tax-avoidance tool. (Yes, I hate life insurance too, but it is a wonderful and legal tax mitigation strategy).

We know that many clients have large amounts of money in tax-deferred accounts (e.g., TSP, 401(k), Traditional IRA), and if they wait until their 70s to begin withdrawals, they may find themselves in higher tax brackets. Perhaps, they should begin withdrawals before they’re required to do so.

We know that some investments are more tax-efficient than others, so it makes sense to consider the tax-efficiency of investments when investing new money.

In short, taxes need to be an increasing focal point for our investment decisions — and we have 38 trillion reasons why.

The information in this article is for general purposes only and not intended as specific, individualized advice. For personalized financial advice, we suggest consulting with a qualified financial advisor. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

If converting a Traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted Traditional IRA contributions and on all earnings. A conversion may place you in a higher tax bracket than you are in now. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. Because Roth IRA conversions may not be appropriate for all investors and individual situations vary we suggest that you discuss tax issues with a qualified tax advisor. Neither LPL Financial, nor its registered representatives, provide tax or legal advice.