Financial Fellow

Written by J.P. Wicklein

     Uncle Sam is hurting for money.  Currently the U.S. is facing a staggering $1.6 trillion budget deficit.  Add on to that the incredibly expensive, and increasingly insolvent, Social Security and Medicare programs and the picture is even worse.  To close the deficit, and continue to fund future obligations, the federal government will almost certainly raise income taxes. 

Income tax rates change

     Since the federal government implemented an income tax in 1913 they’ve consistently changed the rates.  The chart below shows the evolution of income tax rates for the highest and lowest tax brackets.

     In addition to raising income tax rates, the government can take more money out of your paycheck by redefining the tax brackets or removing popular exemptions – like the homeowner’s mortgage interest deduction.  No matter how they do it the fact remains the same – the federal government needs more money and they have the power to get it.

What this means for your retirement savings

     With rates likely on the rise you may want to pay taxes on more of your retirement savings now by contributing to a Roth IRA or Roth 401k (as opposed to a traditional 401k or a traditional IRA).  With a Roth your contributions are made with after tax dollars, however, your contributions and gains come out tax free. 

Photo by:  infrogmation