By Marnina Delahanty
In Part 1 of our 3-Part series, we explored the ballooning US budget deficit, and the origins of what's grown to a $23 TRILLION burdon on generations to come. In Part 2, we now look at the ramifications of the federal government’s debt on traditionally structured retirement. Part 3 will identify personal solutions leading to tax-free retirement.
Reality Hits Hard
The budget gap is growing at seismic proportions, and expanded 27% from fiscal year ending September, 2018 to that of 2019 according to the Wall Street Journal. How could America’s $23 TRILLION budget deficit possibly be paid down? Plain and simple, taxes will have to go up. So, beware, the coming tax tsunami. Believe it or not, these days income taxes are at historically low rates! The highest marginal income tax rate, now 37%, was 50% as recently as the ‘80s. It hovered at 91% through much of the ‘50s, and peaked at 94% at the height of US participation in World War II. It's a shocking yet fascinating pattern, and worth verifying for yourself. Check it out at the Urban Institute and Brookings Institution's Historical Highest Marginal Income Tax Rates Chart.
A Limited Solution
Much as pensions are quickly becoming a luxury of the past, the National Debt reality tells us we need to take charge of our own financial futures. With income taxes at decades-low rates, and the tax-hungry National Debt lurking in the wings, we need to look to the Roth IRA format, but without its many restrictions, as well as its risky nature. The Roth IRA is funded with post-tax contributions, and allows both principal and profit to accrue without further taxation. Even at point of distribution, (also known as withdrawal,) Roth IRA funds are tax-free. However, this feature is impeded by key restrictions, including low contribution maximums, income limits, and a high degree of risk. In 2019, those under 50 years old can contribute only $6,000 annually. Participants 50 or over max out at $7,000. Income restrictions further hem in flexibility. Add to that potential losses, and its risk level makes its outcome uncertain by nature. We’ll learn about Roth IRA alternatives in Part 3, the final installment in this 3-Part Series. It will be available Wednesday, 11/06/19. There, we'll explore insurance vehicles that can diversify your retirement portfolio, lower your risk, and create tax-free retirement income streams. Tune in tomorrow.