Investment Advice for 40 somethings...

Updated: Apr 6

The biggest issue as you amass wealth is how to keep it.


Since I am a 40 something and I have practiced what I preach with the skills discussed in my investment advice for 20 somethings and 30 somethings, I found myself looking for more ways to shelter my amassed wealth. The biggest issue as you amass wealth is how to keep it. When I say, “keeping it” I mean how not to pay more in taxes.


In my 20’s, I knew I had to file taxes every year and that some money came out of my paycheck, but until you start earning more money does it really start to get your attention. Not because you are paying more in taxes, although you are, but because it starts settling in that you will have to continue to pay taxes at a higher amount for the rest of your life. As your investments continue to generate income you continue paying taxes, and it is my intent to not go backwards in the income generated off my investments. I am sure you have heard the saying, “Nothing is certain except death and paying taxes.”


“I knew that some money came out of my paycheck, but until you start earning more money does it really start to get your attention.”

In your 20’s I suggested contributing to a Roth IRA, but you may find yourself in your 40’s not being able to do so because of your Modified Adjusted Gross Income (MAGI). In 2021, if your MAGI is higher than $140,000 you cannot contribute to a Roth IRA. However, that does not mean the continued growth of the existing Roth IRA has to stop if you participate in investments that continue compound on those qualified funds. A Roth account option that even the savviest investor may not know about or consider is a Self-Directed Roth IRA. Self-Directed IRAs allow you to diversify your portfolio into alternative investments such as real estate, precious metals, and cryptocurrency to name a few. Click Here to learn more about taking control of your retirement strategy by downloading our most popular whitepaper at Preferred Trust Company, "Self-Directed IRA Misconceptions: Fact or Fake." It is important to remember to be wise with those investments, as the tax-free shelter is only useful if the investments are solid enough to withstanding the test of time.


If your MAGI is too high to participate in a ROTH IRA, not all is lost. I discovered a second tax shelter in my 40’s that many people do not talk about, a Roth 401(k), not to be confused with a Roth IRA. The Roth 401(k) was introduced in 2006 and was designed to combine features from the traditional 401(k) plan and the Roth IRA. The trick is to ask your employer if their 401(k) plan has a Roth 401(k) as part of the plan documents. If they do, ask how you can allocate your contribution to the Roth 401(k). This is exactly what I did and made the conversion over so that my contributions (not the company match) are going to a Roth 401(k). If the government is going to allow it then take advantage of the limited options for high income earners to minimize your taxes in the future. This is a long-term strategy that may not work for everyone, so please discuss this with your tax professional or CPA.


Roth IRAs and Roth 401(k) plans are not your only source of tax-free income in retirement. Universal Life (UL) policies were created to offer life insurance protection along with tax-free savings. In the past, life insurance policies that offered savings options did not accumulate much savings, but the newer UL policies offer numerous investment options through mutual funds and indexed funds. Caps on the results options ensure that the value of the account cannot go down but does limit earnings. UL premiums pay for the insurance as well as funding investments, so overall performance would not match investing the same amount in a Roth IRA with the added insurance protection and you can purchase insurance riders that add further value. These riders include adding coverage for long-term care needs or pay the premiums if the policyholder becomes disabled. While there is no income or contribution limits (like a Roth IRA or Roth 401(k) plan) on UL policies, age can make a huge impact on premium costs depending upon when you purchase the policy. Again, I am not a tax professional or CPA, but I have found the UL policy option to be a resource for my tax-free income strategy.


Tax-free investments can minimize your tax liability and let you keep more of the money you earn. Financial investing carriers both risk and reward, and it is important to determine the best investing strategy for your specific needs.

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