Huh, what? A book review on this website, about personal finance?
Yep, this is a first, and a bit of an experiment. I know I am venturing outside my area of expertise, but this review is at least consistent with the general objective of this website, the sharing of useful information.
The Power of Zero: How to Get to the 0% Tax Bracket and Transform Your Retirement, by David McKnight, was recommended to me last month by a visiting friend who recently started a business. It’s available in paperback, ebook, and audiobook from Amazon.com. If you don’t get it for free through KindleUnlimited or an Audible subscription, it will still probably pay for itself many times over by reducing your tax liability in retirement.
My hope in reading The Power of Zero was to learn about tax-advantaged retirement vehicles besides the popular ROTH IRA and 401(k), both of which Amanda and I already have and contribute to. My friend had specifically mentioned LIRP’s, which was a new one. What else might this book teach me?
McKnight’s advice is fairly simple: put as much of your retirement savings as possible into tax-free accounts (e.g. ROTH IRA), and use very deliberately accounts that are tax-deferred (e.g. 401(k)) and taxable (CD’s). His underlying assumption is that tax rates will rise in the future, which makes it financially advantageous to pay tax liabilities now, not later. Even if you don’t buy into an oncoming fiscal train wreck, which he predicts in his free sample chapter, you should at least agree that future tax rates are at risk, whereas today’s rates are certain.
The Power of Zero is a quick read. It’s not long; the math examples are uncomplicated; and the writing style is layman-friendly. I suspect that through his investment seminars, which he has since franchised, McKnight developed an effective communication style with his target audience, similar to the benefit I experienced by guiding trips.
To reach the 0% tax bracket in retirement, unfortunately there are few methods available. ROTH IRA’s are the best game in town. Thanks, dad, for creating accounts for me and my sisters in 1998, the first year you could. Another option — and new to me — are LIRP’s, or Life Insurance Retirement Plans, which receive a similar tax treatment to ROTH’s but which offer more flexibility. For example, LIRP’s have no income or contribution limits, and funds can be used to defray long-term care costs.
In addition to LIRP’s, I thought The Power of Zero was useful in offering contribution strategies for taxable and tax-deferred accounts. For example: How much should I keep in my taxable brokerage account? How much — or to what total — should I contribute each year to my self-employment 401(k)? If Amanda’s employer does not match her 401(k) contribution, should she still contribute or should we look at other options?
It may seem premature for a thirty-four year-old to be thinking about his golden years. Hardly. By saving now, and investing wisely in tax-advantaged accounts, we can have far greater influence over our finances in retirement than if we wait. I only regret not reading The Power of Zero earlier.
Disclosure: I purchased The Power of Zero with personal funds. This post contains affiliate links.