Tax Rates Low..for Now?

A random thought entered my mind…well not so random. The IRS recently published the marginal income tax rates for 2020.( Yes, I posted them..go here: http://taxfoundation.org/2020-tax-brackets/) Which is good news….for now. With all the other macroeconomic issues, (e.g. growing US deficit, the exponentially expanding US Government Debt, and extremely low interest rates), Financial experts are advising their clients to plow more money into tax deferred retirement vehicles: Most know these cast of characters, 401(k), IRA, and etc. While there is nothing wrong with this advice, per se, but consider the fact that with all those aforementioned macroeconomic issues, is it safe to assume that marginal income tax rates will be higher in the future? Even they are the same, the future retiree will have fewer deductions to offset the tax liability once they begin to draw down the funds from their retirement plans.

If rates are higher, then the accumulated funds will be taxed at a higher rate, as the funds are withdrawn at retirement. Does this mean one should not contribute to their current tax deferred plan? No, not really. It really depends on the person. However, it would be prudent to have some sort of program that provides an income that is tax free or very close to being tax free income. I’m betting tax rates will increase at retirement age, and many people will live longer. If my bet is correct, having a tax free income stream, at retirement, should be a top priority. A thought to consider.

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