Today’s article. 2009 Tax Season: Last Good Year for High-Earning Americans? is short and sweet, but very important. Now, I know many of you will read what it has to say and decide that it has nothing to do with you, but the fact of the matter is that if you plan on retiring with a nest egg, then it does, in fact, pertain to you.
The article revolves around 3 tax problems…the Bush administration tax cuts, the Estate tax and the investment income tax. The Bush administration tax cuts are about to expire. This isn’t a concern for many Americans, but to those it affects, it will mean a large chunk of money out of their monthly budget.
The Estate tax, however, will affect many more people, since it covers anyone who leaves behind an inheritance between $1 million and $10 million dollars. Don’t think it’s a big deal to tax estates? Well, If you’re planning on having a nest egg, saving your pennies now for retirement, then you should think it’s a big deal. Many of you will reach the minimum $1 million dollar cut off, and if you fall into that estate range, you should know that your estate will be taxed at a 55% tax rate! And for most of us, we will just barely break into the $1 million dollar range, which means that you proudly managed to save up all of that money, only to have $550,000 of your $1 million dollars taken by the government. Take my advice and start “gifting” (check into yearly limits on how much you can gift per person) some money while you’re alive if you fall in this category.
The last tax issue covered in the article is the investment income tax (also called a capital gains tax) that is slated to raise in 2013. I know this sounds like it only affects people “on Wall Street”, but I’ve got news for you; If you have stocks, bonds, precious metals or property, and sell them for a profit (with few exceptions), then you will be feeling the raise in this tax. Stocks and bonds outside of retirement accounts might not be something many people participate in, but lots of people buy and sell property, and if you do, you will feel the change!
I know it’s hard to look 20 or 30 years in the future and see how these things might affect you, but you have to go there. You have to know what you’re up against. These changes in the tax code will be painful on more of us than we are led to believe. Remember, saving $1000 a month will (on average, based on assumed 8% return) put $1 million dollars in your bank account in 28 years. That isn’t too far fetched. You could definitely do that. And given that fact, you should worry about how it will be taxed.
