The Power of Compound Interest

The Power of Compound Interest…
 Compound interest is basically interest that grows on interest of the accumulated principal in a savings account.
 
The “power” of this concept is that the money in the account is growing at an accelerated rate.  
 
Producing interest on interest is a great way to maximize savings in a retirement savings account.
 
Now, the real question is would you rather have the power of compounding working for you or against you?
 
In a Traditional IRA or 401(k) the taxes are deferred to whenever distributions/withdrawals begin.
 
One could view this option as compound interest working AGAINST YOU. Tax-deferred accounts are compounding a future tax debt since you are not taxed on the money until distributions begin… Most likely when the account value is LARGER.
 
This unpaid tax debt growing from the power of compound interest in your 401k or IRA could impact the real value of your account in the future significantly.
 
With that being said, today is a great opportunity to focus on your tax plan as interest rates increase, the government debt increases, and tax law provisions are scheduled to reset in 2026.