With tax rates at near historical lows and governments around the world spending trillions of dollars to protect their weakened economies from the devastating effects of the COVID-19 pandemic, it seems inevitable that tax rates could rise in the future to pay for all of the current government spending.
After all, nothing comes for free.
As if we don’t already have enough to worry about. When it will be safe to leave the house without a mask? Will the kids go back to school in the fall? How much longer till we can go back to things being normal?
Now we need to add to the list of worries how an increase in tax rates could impact your retirement and the future you have been planning for a long time?
If you are saving for retirement in a traditional tax-deferred investment account like a 401(k), IRA or a deferred compensation plan, a higher Federal tax rate when you retire simply means that Uncle Sam gets more from your account and you will get less.
How much less depends on how much your tax rate is increased. And while this thought is unnerving and creates uncertainty, this scenario is a real possibility in our lifetime and one that is in your control if you take action now. If you wait until later, it will be too late.
For those working with a financial professional, it’s worth the time to review your financial plan and consider how you can generate more tax-free income to offset the potential for higher taxes in the future.
Many tools and strategies are available to help generate tax-free income to supplement a sound financial plan and diversified investment portfolio but one in particular has caught our eye because of its underlying silver lining.
When implemented properly not only does it provide the potential for tax-free income, but it does so with the additional benefits of:
• Tax-deferred growth
• Protection against market volatility
• Flexibility for tax-free access your cash before retirement without penalty
• Freedom from mandatory distributions like a 401(k) or traditional IRA
• No minimum age or income requirement; and
• No impact on social security benefits
The good news is, there are ways to prepare for a future of higher taxes (where you pay less taxes and keep more for yourself and your loved ones). At the very least, take action have a conversation get some peace of mind.
If you are not working with a financial professional or you wonder what it would be like to have a second opinion on your current financial plan, we are always here to help, email or give us a call now!