Pandemic or Not, Uncle Sam Wants to Be Paid

Despite the craziness that 2020 has brought us so far, Uncle Sam hasn't forgotten about the money it's owed...

The Department of the Treasury and the IRS just recently announced that the tax filing and payment deadline of July 15 will not be postponed. And believe it or not, July 15 is fast approaching...

If you are someone who took advantage of the deadline getting moved back from April, you should think about filing your taxes as soon as possible.

Because even with the coronavirus, an economic shutdown, and protests all throughout the country... you're going to end up paying what you owe to the government. There's no way around it.

But if you do need a little more time to prepare and file your federal tax returns, there are options. If necessary, you can apply for an extension to file until October 15. There are also payment plans and other options available if you've been financially impacted by the pandemic and need the help.

Here's what IRS Commissioner Chuck Rettig had to say...

The IRS understands that those affected by the coronavirus may not be able to pay their balances in full by July 15, but we have many payment options to help taxpayers. These easy-to-use payment options are available on, and most can be done automatically without reaching out to an IRS representative.

If you do need an extension through October 15, you can fill out Form 4868, which is available online here... But the IRS has also said that any taxes owed are still due on July 15. The extension is just for the filing of the tax return.

The IRS is urging people who owe taxes to pay what they can by July 15 to avoid penalties and interest.

Let's face it, filing taxes are never fun. And they're a burden for most. But at the end of the day, you have to pay them...

However, taxes are one of the few things you have control over. So make sure that whatever check you end up cutting the government is for the least amount of legal obligation that you owe.

In today's issue, I want to review a few different tax-saving strategies and how they can benefit you. I'll start with one that most of us (I hope, at least) have...


A 401(k) allows you to sock away pretax money to save for your future. Employers often match contributions up to a certain level, which makes using this account a no-brainer. Here at Stansberry Research, the company offers a 3% match. That means employees earn an instant 50% on the first 6% they contribute. It's the best investment my team and I make every year.

For example, take someone earning $4,000 a month before taxes... She can contribute $240 on her own (6%) and receive $120 from her employer (3% match). As a result, she'll save $360 a month.

Even if her employer didn't match contributions, she'd still get the additional tax savings since her 401(k) contributions come out of her paycheck before taxes. So if she's in the 25% tax bracket, she effectively increases her net worth by another $60 (her $240 tax-deductible contribution times her 25% tax rate).

Yes, her gross pay is still reduced by $240, but because of that tax savings it's as if only $180 were taken out.

That means in one year, she makes $120 on just $180 of net cash for a quick 67% annual return... Plus, it grows tax-deferred as well. No other investment can make that kind of money so fast (with so little risk).

You will pay taxes when you withdraw money from your 401(k). And if you take money out before you're 59 and a half, you'll have to pay an additional 10% penalty (with some exceptions).

But having a 401(k) is one of the easiest ways to grow your net worth and create nearly instant wealth.


A traditional IRA is a type of retirement account that doesn't require an employer to set it up. In 2019, individuals under 50 can contribute $6,000 to an IRA. If you're older than 50, you can do a catch-up contribution of an extra $1,000 for a total of $7,000 (or $14,000 for married couples older than 50 using two IRAs).

When you put money in a traditional IRA, you get a tax deduction for the initial deposit and can defer tax on the money until you withdraw it – typically sometime between ages 59 and a half and 70 and a half.

Deferring taxes saves more than you think...

If we take two people, each with $10,000, and one invests in an IRA while the other invests in a trading account and pays taxes, the power of not paying taxes over time is huge. After 30 years, the tax-deferred account will be worth $996,964. The taxed account will be worth $791,347. That's more than $200,000 extra just by avoiding taxes.

Putting money into an IRA is also a way to earn a big tax credit.

The Saver's Credit matches a portion of what you put into your IRA up to $2,000 (or $4,000 if married) and the credit amount is based on your household earnings. For example, in 2019, a married couple aged 52 and earning between $41,501 and $64,000 is entitled to a tax credit equal to 10% of their IRA contribution. If they put $4,000 away, they get a tax credit of $400.

Tax credits are especially valuable because they "protect" top-line income when filing your taxes. In this example, if the couple is in the 20% tax bracket, it's as if the tax credit lowers their taxable income by $2,000.

The tax credit gets bigger for lower income levels. If you make less than $19,250 (or $38,500 for couples), your credit is 50% of your contribution.

Roth IRA

A Roth IRA is sort of a flipped version of the traditional IRA. While you don't get a tax break on your income when you contribute, you don't have to pay taxes when you make withdrawals from your future nest egg.

Unlike a traditional IRA, Roth IRAs have no age restrictions. But they do come with income restrictions... Individuals making more than $137,000 aren't eligible to contribute to a Roth IRA in 2019. And a married couple filing jointly can't contribute if their household income is more than $203,000 in 2019.

A traditional IRA most benefits people who expect to be in a lower tax bracket when they have retired than when they are working.

A Roth IRA best works for people in the opposite situation. If you expect that your taxes will be higher as a retiree than as a working person, a Roth IRA is perfect for you.

529 Plan

A 529 plan is a great way to pay for college. Money that you put into the account is not tax-deductible. But like IRAs, the earnings are exempt from federal taxes, they compound tax-free, and withdrawals made for qualifying college costs (like tuition, fees, and room and board) are also tax-free.

Anyone can contribute to a 529 plan. If you want your children or grandchildren (or nieces, nephews, other family members... or even yourself) to attend college, this is one of the best ways of ensuring that they'll do so.

529 plans have no income limits, age limits, or annual contribution limits. There are lifetime contribution limits, but they're in the six-figure range.

And you can use the plan for different types of education... Your beneficiary could attend a trade or vocational school or participate in a career-training program. And you can also name yourself as the beneficiary and take cooking classes at Le Cordon Bleu or any other interesting school...

It can even be a backdoor estate plan...

Because you can switch beneficiaries among qualifying family members at any time, you can start the plan by naming yourself or your child as the beneficiary... then switch generations to your grandchild.

For example, a Maryland resident contributing to a Maryland 529 plan can deduct up to $2,500 per beneficiary. That equals a $190 tax savings per $2,500 contribution, based on a 7.6% state and local income tax rate.

But you're not limited to your state's 529 plans, which means you have a ton of options to choose from.

One place I'd recommend you look at is Morningstar's Gold-rated plans. These plans rank the highest in terms of safety and cost. shows you Morningstar's 529 plan rankings along with its own. You can also look at plan options state by state. A lot of plans have conservative options and some are even backed by the Federal Deposit Insurance Corporation (FDIC), which offer greater protection for your principle.

No matter your age, it's important to understand the best ways to plan for and improve your retirement. And that's what I do every month in my Retirement Millionaire newsletter.

From advice on how to instantly increase the power of your retirement savings by 200% to a generational retirement guide that tells you what you should be doing with your life decade-by-decade, Retirement Millionaire has everything you need to live a wealthier – and healthier – life.

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What We're Reading...

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health & Wealth Bulletin Research Team
July 1, 2020