Submitted by: McKenzie Kruse-Pillsbury, Investment Advisor Representative with LifeTyme Financial LLC
Did you know that taxes are on sale today? We live in one of the most tax-advantaged eras of our country’s history. Let’s take a quick look into the past. The highest tax bracket in our history was 94% in the 1940s. How about something more recent, 70% in the 1970s! Today, we are sitting at 37% for an income over $609,000 for a single status filing. For the past 100 years, the average tax rate has been 56.76%. You may want to take advantage of these sales today. No coupon required!
The Crystal Ball Conundrum:
Predicting the future of taxes is akin to peering into a crystal ball clouded by uncertainty. Will governments seek to increase revenue to fund ambitious projects and social programs, leading to higher taxes? Or will a push for economic stimulation lead to tax cuts, fostering growth and investment? You must ask yourself, “Are taxes going up or down in the future, and how does each scenario affect my retirement?”
Investment Strategies in a Tax-Turbulent Landscape:
In contemplating the future of taxes, investors must be strategic in navigating potential changes. One avenue to explore is tax-advantaged investment accounts. Roth IRAs, for instance, offer post-tax deposits with tax-free withdrawals in retirement, providing a hedge against potential tax hikes. Since we know we are sitting below the average tax rate, and if you believe taxes are going up in the future, this could be a great strategy.
On the other hand, traditional IRAs and 401(k)s may offer immediate tax benefits but expose investors to future taxation upon withdrawal. In pre-tax, tax-deferred accounts, the government essentially lends you money, and they will inform you about the interest when the loan matures. It sounds like a great deal if we knew taxes would be lower than they are today, right?
Importance of Considering Tax Strategies in your Financial Plans
Navigating the tax landscape requires careful planning, and understanding the potential implications of different investment strategies is essential. It’s a good reminder for individuals to assess their financial goals, risk tolerance, and time horizons. Take advantage of available tax-advantaged options to optimize your financial well-being!
