|Copyright:||Copyright Business Wire 2011|
|Source:||Business Wire, Inc.|
Study finds Americans who are most worried about rising taxes are not pursuing tax-advantaged retirement-saving strategies
“Rising taxes can have a bigger impact on Americans with lower incomes, so they are understandably more concerned about that possibility,” said
Foster said there are several tax-saving opportunities for people who worry about rising taxes:
- Savers Credit – Provides up to
$1,000for individuals and $2,000for couples who meet specific income eligibility requirements and put aside money for retirement. To qualify for the Savers Credit for the 2011 tax year, taxpayers must have adjusted gross income that does not exceed: $56,500if married and filing jointly, $42,375if head of a household, or $28,250if single or married and filing separately.
- Roth 401(k) – Contributions are made after taxes but earnings accumulate tax-deferred and withdrawals are tax-free at retirement. Withdrawals can be taken at any time providing certain conditions are met.
- Traditional 401(k) – Contributions are made before taxes are paid, lowering a plan participant’s overall taxable income. Earnings accumulate tax-deferred and taxes are payable for both principal and earnings upon withdrawal.
- Matching contributions – Employees should check with their employer to determine whether or not their contributions to a 401(k) are eligible for matching contributions. For instance, some employers provide a 50 percent match on the first 100 percent of employee contributions up to 6 percent of their income.
- Roth IRA – Investors can contribute up to
$5,000in 2011 or $6,000if age 50 or older if incomes do not exceed $107,000. Like a Roth 401(k), contributions are made with after-tax money, earnings accumulate tax-deferred and withdrawals are tax-free at retirement, if certain conditions are met.
Rising taxes were cited as the biggest investment concern by 37 percent of respondents with annual incomes below
People with modest means were also considerably less likely to contribute to a 401(k) or similar retirement plan than higher-income Americans, and were similarly less likely to invest in equities or bonds typically found in IRAs, variable annuities or other retirement savings vehicles, the study found.
Foster says this group is missing out on opportunities to significantly enhance savings, “A person with a lower income who contributes to a 401(k) may qualify for both the Savers Credit and a matching contribution,” Foster said. “In this instance, a couple that earns
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Distributions made prior to age 59-1/2 may be subject to a 10 percent penalty unless an exception applies.
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Many tax planning strategies emphasize the deferral of current income taxes, on the basis that your federal income tax rate may be lower at retirement. Please keep in mind that federal income tax rates are unpredictable and may be higher when you take a distribution than at the time of deferral. Other factors, including state tax rates and your income, may also affect your overall tax rate upon distribution. Please consult with your tax advisor for individual tax planning strategy and advice. The
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