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Will tax rates inevitably increase—and, if so, how should we prepare?

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John M
John M
10 days ago

The highest marginal personal income tax rates declined steeply from about 1960 to about 1990. Since then they have been relatively flat. People have been saying higher rates are inevitable for a decade or more, but for 60 years the effective tax rate has declined – any increases were marginal and impermanent. Seems to me that it’s difficult to conclude that a rate increase is “inevitable”. “Possible” is the word I would use.

I think preparation depends hugely on your personal situation. For most people, there’s little to be concerned about, income will never be high enough for the marginal rates to exceed 12% or thereabouts, and the acceleration of income (i.e. by moving from Traditional to Roth) is most likely harmful to future wealth. For folks with $2-5M, some actions like back-door IRAs or Roth contributions may be helpful.

Purple Rain
Purple Rain
13 days ago

Socking as much away as in the company Roth 401 (k) as possible. Or Roth IRA if that is what is available. Buying dividend-paying stocks of companies that can raise prices with inflation – consumer staples, utilities, pharma, etc.

Buying stocks of global companies with a wide moat. Owning real estate and Real Estate Investment Trust stocks.

johntlim
johntlim
17 days ago

Nothing in finance is inevitable, but if I had to bet, I would say tax rates will rise from here. How to prepare? By practicing tax diversification, that is, holding tax-deferred, tax-free, and taxable accounts.

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