Just How High Will Taxes Go?
Since 1913 (when the 16th amendment established Congress’s right to impose a federal income tax), the top federal income tax rate has been as low as just 7%, and as high as 94%! And, in forty-nine of the years since then, it has been at 70% or more. So, you have to ask yourself if – or better yet, when – income tax rates rise again in the future, will your spending needs in retirement still be met if you’re handing over a significant portion of the income you generate to Uncle Sam? If the answer is a resounding “No,” there is good news in that there are strategies and financial vehicles available for helping you to reduce, or possibly even to eliminate, income tax on your retirement income. This, in turn, can give you more money to spend on the goods and services you need to purchase – regardless of what your then-current income tax rate may be.Top Federal Income Tax Rates 1913 – 2021
Year | Rate | Year | Rate |
---|---|---|---|
2018-2021 | 37 | 1950 | 84.36 |
2013-2017 | 39.6 | 1948-1949 | 82.13 |
2003-2012 | 35 | 1946-1947 | 86.45 |
2002 | 38.6 | 1944-1945 | 94 |
2001 | 39.1 | 1942-1943 | 88 |
1993-2000 | 39.6 | 1941 | 81 |
1991-1992 | 31 | 1940 | 81.1 |
1988-1990 | 28 | 1936-1939 | 79 |
1987 | 38.5 | 1932-1935 | 63 |
1982-1986 | 50 | 1930-1931 | 25 |
1981 | 69.125 | 1929 | 24 |
1971-1980 | 70 | 1925-1928 | 25 |
1970 | 71.75 | 1924 | 46 |
1969 | 77 | 1923 | 43.5 |
1968 | 75.25 | 1922 | 58 |
1965-1967 | 70 | 1919-1921 | 73 |
1964 | 77 | 1918 | 77 |
1954-1963 | 91 | 1917 | 67 |
1952-1953 | 92 | 1916 | 15 |
1951 | 91 | 1913-1915 | 7 |
Source: Inside Gov (http://federal-tax-rates.insidegov.com/)
How to Prepare for Rising Tax Rates in the Future
Although nobody knows what the tax rates will be in the future, there are ways to prepare – and possibly even to pay 0% tax on income and withdrawals. One strategy is to use the Roth IRA. With a Roth IRA, you don’t get the benefit of making a pre-tax contribution. However, these savings could be minuscule in comparison to the tax-free withdrawal you can make down the road. If you’re looking for tax-free income in retirement, you could accomplish this by placing an annuity into a Roth IRA. That way, you can generate a guaranteed income stream for a set period of time – or even for the remainder of your lifetime – without having to pay tax on these distributions. There are a few stipulations to be mindful of, though. For instance, qualified Roth IRA distributions are tax-free if:- The funds were held in the account for five or more years since they were directly contributed and/or rolled over from another account
- You are at least age 59 ½ at the time of the withdrawal(s)
- You are disabled
- The account holder dies, and the funds are paid out to a beneficiary
- You are accessing the money as a first-time homebuyer (in this case, up to $10,000 may be accessed during your lifetime)