Will Income Taxes Be Higher or Lower When You’re Ready to Retire?
Both federal and state (where applicable) income taxes have varied quite a bit for over a century, with the low being at just 7% in the early 1900s, and the high point at more than 90% in multiple years.Top Federal Income Tax Rates 1913 – 2020
Year Rate Year Rate
2018-2020 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/)
Higher taxes can equate to less – and in some cases, far less – income available to spend on the items and services that you need in retirement. With that in mind, having an income plan that also reduces or eliminates income taxation is essential.How to Reduce – or Eliminate – Tax on Your Incoming Cash Flow in Retirement
With income tax rates so uncertain – but likely to go up in the future – taking strategic steps now can provide you with much more spendable income down the road. One way to do this is to take advantage of the Roth IRA. These accounts are funded with after-tax dollars. But they can more than make up for this with their tax-free growth, as well as tax-free withdrawals. Roth accounts can be funded in a variety of ways, including:- Direct cash deposit each year into an individual Roth IRA account (up to an annual maximum, and provided that you qualify based on the income limits)
- Conversion/rollover from a traditional IRA and/or employer-sponsored retirement plan to a Roth IRA
- Participation in an employer-sponsored Roth 401(k) plan
- Solo Roth 401(k) account for qualifying business owners