Columnists

Are You Prepared For Higher Taxes In 2011?… Plan To Protect Your Retirement Money

shelby-smithIssue 34.10

Bush Administration tax cuts implemented from 2001-2006 will sunset in 2011. Unless Congress acts, the New Year will bring higher personal tax brackets, steeper taxes on capital gains & dividends, re-instated estate taxes and other tax bites out of your retirement lifestyle.

Furthermore, several other new taxes will be added over the next few years and a dollar paid in taxes is one dollar less for your retirement. So, what is your plan to protect your retirement money? Here are some insights to ponder before 2011.

If you haven’t started Social Security, postponing might add dollars to your retirement. Good reasons for delaying SS include: (1) benefits grow 8% annually plus annual cost-of-living adjustments, (2) benefits are always tax-advantaged, (3) spousal benefits are greater, and (4) total lifetime benefits could be more. Using your retirement money like IRAs, 401(k) and other qualified retirement accounts in the right sequence with SS benefits could add thousands to your retirement income. If you’ve already begun receiving benefits, it’s not too late to stop them.

This can be done by suspending and re-starting at a later date or by repaying the benefits received, interest-free and starting again later, at higher benefits. What other investment pays 8% annually is inflation proof, has great benefits to a spouse, is tax-advantaged and backed by a government promise? There are none, unless you take risks and depend on luck.

Dividend income will be taxed as ordinary income in 2011, up from the current maximum rate of 15%. This means a tripling of taxes on dividend income, which could severely hurt many retirees. Also in 2011, the top long-term capital gain tax rate will increase to 20% from the current 15%.

Any way you slice the tax pie, you’ll most likely pay more after 2010. The key to your success is to sequence the use of your retirement money to pay fewer taxes. The tax breaks will not find you; you must find them.
Shelby J. Smith, Ph.D. earned his Ph.D. in Economics from Iowa State University of Science and Technology.To receive a free copy of Dr. Smith’s book “The Guide to Social Security – Higher Lifetime Benefits & Lower Lifetime Taxes” call 800-450-0337 or attend the Social Security Workshop advertised on the next page.

Comments are closed.