If you think higher taxes are coming you have a few options.
1) Pay taxes now by converting things to a Roth to avoid paying taxes later. IE convert an IRA to a ROTH IRA
2) Move to states with no personal income tax (NV, TX, FL, TN, …). It’s an easy way to avoid any state taxes increase. Plus if you do a Roth conversion you save 6-10% by not paying the state taxes during conversions.
3) Invest in options that avoid state taxes. Certain things like munipal bonds, iBonds, and other US treasuries often don’t have state taxes. So it’s another way to minimize paying taxes
Income tax rates will never go up for that huge proportion of the citizenry that doesn’t pay taxes now – I expect they will get even more money back from the government. But I expect income tax rates to increase for higher-income taxpayers in future years, and that presents a tricky problem for people looking at seriously high IRA and SEP withdrawals and conversions. I also expect the estate tax exemption to revert to a lower amount when its current term expires. No one can predict the future, but I think the most likely case is that the political parties will engage in their typical brinksmanship and somehow come up with an alternative for higher-income tax rates that will lift them a bit, but not as high as some activists want it to be, and an estate tax exemption that is higher than those activists want, perhaps a lot higher, but not as high as it is now. (Of course, we will all pay all sorts of higher fees and one-time charges, and also higher taxes indirectly as corporate taxes flow through.) Wage and other inflation, along with higher interest rates, is bumping more and more taxpayers into higher brackets, so the perception that we have only “haves” and “have nots” is getting murkier and less and less true. It is those people in the middle who will provide the leverage one way or another.
In Fidelity’s financial planning tool, I add a 10% local tax that doesn’t actually exist. I use this to account for future federal and state tax increases.
No, tax rates will not inevitably increase if fiscally responsible governments are elected, and available resources are spent on public goods. A tall order.
It seems like rates change these days every time a new president takes office. So I try to take a long-term view. Sure, rates might go up in the next few years, but they could also come down again in five or ten years. Investors’ only and best protection, I think, is to have assets in each of the three major tax categories — taxable, tax-deferred and Roth. That at least
If you think higher taxes are coming you have a few options.
1) Pay taxes now by converting things to a Roth to avoid paying taxes later. IE convert an IRA to a ROTH IRA
2) Move to states with no personal income tax (NV, TX, FL, TN, …). It’s an easy way to avoid any state taxes increase. Plus if you do a Roth conversion you save 6-10% by not paying the state taxes during conversions.
3) Invest in options that avoid state taxes. Certain things like munipal bonds, iBonds, and other US treasuries often don’t have state taxes. So it’s another way to minimize paying taxes
Income tax rates will never go up for that huge proportion of the citizenry that doesn’t pay taxes now – I expect they will get even more money back from the government. But I expect income tax rates to increase for higher-income taxpayers in future years, and that presents a tricky problem for people looking at seriously high IRA and SEP withdrawals and conversions. I also expect the estate tax exemption to revert to a lower amount when its current term expires. No one can predict the future, but I think the most likely case is that the political parties will engage in their typical brinksmanship and somehow come up with an alternative for higher-income tax rates that will lift them a bit, but not as high as some activists want it to be, and an estate tax exemption that is higher than those activists want, perhaps a lot higher, but not as high as it is now. (Of course, we will all pay all sorts of higher fees and one-time charges, and also higher taxes indirectly as corporate taxes flow through.) Wage and other inflation, along with higher interest rates, is bumping more and more taxpayers into higher brackets, so the perception that we have only “haves” and “have nots” is getting murkier and less and less true. It is those people in the middle who will provide the leverage one way or another.
In Fidelity’s financial planning tool, I add a 10% local tax that doesn’t actually exist. I use this to account for future federal and state tax increases.
No, tax rates will not inevitably increase if fiscally responsible governments are elected, and available resources are spent on public goods. A tall order.
It seems like rates change these days every time a new president takes office. So I try to take a long-term view. Sure, rates might go up in the next few years, but they could also come down again in five or ten years. Investors’ only and best protection, I think, is to have assets in each of the three major tax categories — taxable, tax-deferred and Roth. That at least