Understanding Tax Planning

Why is tax planning considered a smart idea?

• It helps in growing wealth and saving on taxes.

• It eliminates the need to pay taxes.

• It guarantees a higher income.

• It is a legal requirement.

What is the primary benefit of using tax-deferred accounts like a 401(k)?

• You pay taxes only upon withdrawal.

• You avoid taxes entirely.

• You receive a government bonus.

• You pay taxes upfront.

How do Roth accounts differ from tax-deferred accounts?

• Roth accounts grow tax-free and withdrawals are tax-free if rules are followed.

• Roth accounts are only for high-income earners.

• Roth accounts require annual tax payments.

• Roth accounts are funded with pre-tax dollars.

What is a key strategy in the 'Distribute' phase of tax planning?

• Avoiding all forms of investment.

• Creating a tax-efficient distribution plan.

• Paying taxes in advance.

• Investing in high-risk stocks.

How can gifting during your lifetime be beneficial in tax planning?

• It reduces your overall wealth.

• It is not beneficial at all.

• It ensures assets are used as intended and may minimize estate taxes.

• It increases your taxable income.