The last decade has seen most retirement accounts either decline or generate low level returns. There are few working people who do not wish to have more money set aside for retirement. Social Security is not insolvent yet but is now paying out more than it is taking in. Pensions are a thing of the past for most companies. YOU are the most reliable source for income during your retirement.
The Motley Fool gives three reasons to make more contributions now.
Without government action, a whole bunch of bad things are about to happen to your taxes. Let’s take a look at the three basic categories of higher taxes that you may face:
1. Higher taxes on ordinary income are coming….
- The more you put in a deductible IRA or 401(k), the less taxable income you’ll have. With tax rates rising, the savings you’ll get from contributing to a retirement account will also increase.
2. Higher taxes on investment income are coming.
- [With high dividend paying stocks] you could end up paying more than two-and-a-half times as much in taxes as you do now in a regular account. In an IRA, by contrast, you’ll save more of your hard-earned money and let it work harder for you during your career.
3. Excess taxes for high-income taxpayers are coming.
- In addition to old tax law coming back to bite taxpayers, new increases are also on their way. Medicare withholding will rise by 0.9% once wages rise above certain limits — $200,000 for most singles and $250,000 for joint-filing taxpayers. Also, a 3.8% surtax on investment income will apply to high-income taxpayers, making it that much more important to get high-yielding dividend stocks under cover of a tax-favored retirement account.
Need help? A good RIA can provide you with advice.