Could you please share your thoughts on the following strategy for high earners, particularly those in the 41% or 45% tax bracket?There are a few ways to optimise taxation within a financial plan for a high-net-worth individual. This planning can go into extreme detail, and no one-size-fits-all strategy exists. Each person’s circumstances are unique, and their needs and goals differ, so I would advise meeting with a wealth advisor and a tax specialist to optimise your portfolio.
Once retired, the portion of your retirement portfolio you didn’t take as a cash lump sum is used to purchase a life or living annuity. The income you earn from this investment is taxed on the income tax scale. But here, the benefit of Section 10C of the Income Tax Act becomes applicable. Whatever portion of your disallowed contribution “pool” is still available can be offset against this income. Essentially, for years, you can earn a tax-free income by utilising your disallowed contributions.