Government is running on borrowed money and they are going to have to get the money from somewhere to pay for the ever-bloating budget, trade deficitsandthe ever-increasing National Debt that is showing no signs of slowing.
Therefore, most of usbelieve that our taxes are going to go up in the not-too-distant future. Right about when most of the baby boomers are getting ready to retire.
But that is only part of the what the government is planning. Here are some of the other things that could come into play resulting inour increased tax burden.
1. Congress could increase the tax rates that apply to personal income and specific products like gasoline.
3. Congress could apply existing taxes more broadly.
5. CONGRESS COULD JUST LEVY ADDITIONAL NEW TAXES ON US.
2. Congress could scale back or eliminate the myriad tax breaks in the existing code.
4. The federal government could strengthen enforcement. In 2008–10 enforcement efforts and penalties recovered about $52 billion from Americans who underpaid their taxes.
TAXATION OF SOCIAL SECURITY BENEFITS
Many seniors are not aware of the fact that up 85 percent of their Social Security Benefits may become taxable depending on their Provisional Income Threshold. And so, they are surprised to learn that they might have to pay taxes on a large part of the Social Security income they receive.
TAXES ON IRAS AND 401(K)S
Now that people are retiring with large IRAs, 401ks, 403bs and Keogh plans etc. all these plans being what is known as the Qualified Plans. What this means is that every penny in these accounts is taxable as your ordinary income upon withdrawal. Reason being that the tax base on these accounts is zero. You have not paid any tax on the part of your income that you put away in these accounts.
Government requires you to take withdrawals from these accounts when you reach age 72. And if you fail to withdraw your Required Minimum Distributions then the government levies on you a 5o percent penalty equal to fifty percent of your RMD.
TAXES ON PENSION INCOME
You have to pay income tax on your pension and on withdrawals from any tax-deferred investments. You will owe federal income tax at your regular rate as you receive the money from periodic pension payments. But if you take a direct lump-sum payout from your pension instead, you must pay the total tax due when you file your return for the year you receive the money. In either case, your employer will withhold taxes as the payments are made, so at least some of what’s due will have been prepaid.
INHERITANCE TAX
Another important consideration is passing down your wealth to your loved one. Should you unexpectedly pass away, leaving your IRA or 401k for your beneficiaries, that are other than your spouse, then the new SECURE ACT passed by the congress requires your beneficiaries to take that money out in as little as 10 years.
It was not a big challenge to deal with this inheritance before passage of the SECURE ACT because back then, the beneficiaries could take out this inheritance money over their entire life span and this was known as the “Stretch IRA”. Unfortunately, this tax saving strategy is no longer available now.
This is why when you are approaching retirement, it is so important to have a discussion with your CPAs or Tax Attorneys about legal strategies that approved by the IRS of minimizing or eliminating these taxes.
