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Let’s Talk Taxes

We might as well talk about taxes because that’s all anybody is going to talk about from now until the end of the year. January 1, 2013 marks the date when several tax changes are scheduled to take place if no action is taken by Congress, namely[1]:


·         2% payroll tax cut expires

·         33% and 35% tax rates increase to 36% and 39.6%

·         The alternative minimum tax threshold will drop to $45,000 (for taxpayers filing jointly)

·         Long-term capital gains tax rate will return to 20%

·         A 3.8% Medicare tax will also be applied to net investment income or the amount by which your adjusted gross income AGI exceeds $200,000 ($250,000 for married taxpayers)–whichever is less

·         The onset of another 0.9% Medicare surtax on wages and self-employment income over $200,000 ($250,000 for married taxpayers)

·         Dividends will start being taxed at ordinary income rates (scheduled top rate of 39.6%)

·         Limits will return on personal exemptions and itemized deductions for high-income taxpayers


[CLICK HERE to watch the video, “Everything you need to know about the fiscal cliff,” at, October 31, 2012.]


While taxes on income, capital gains, and dividends will be discussed and debated ad nauseam by the new Congress, there’s one tax advantage that’s not likely to get the boot: Tax-deferred compounding on retirement-oriented financial products like the traditional IRA, 401(k) and 403(b) plans, and annuities. That’s because these types of products have advantages that are beneficial for a retirement savings strategy.


[CLICK HERE to read about “Types of Retirement Accounts,” at, August 15, 2012.]


[CLICK HERE to read “Your Boss is Worried About Your Retirement,” at US News & World Report, October 30, 2012.]


[CLICK HERE to read “Asset Location, as Well as Allocation, Matters for Retirees,” at, September 26, 2012.]


Just consider for a moment. Within the next 10 years, 16% of the population–54 million Americans–will be 65 or older.[2] Think about that the next time you’re at the grocery store and see an older gentleman trying to navigate his cart around the freestanding produce stalls. In 10 years, that’s going to look like a bunch of old people playing bumper cars.


And when you consider all the near-retirees that report they’re woefully unprepared to provide their own retirement income, I believe it is unlikely Congress will take away the benefit of compounding without having to pay annual taxes provided through tax-deferred accounts.[3] So regardless of what happens with tax reform in the future, tax-deferred compounding looks pretty safe.


With tax-deferred financial vehicles such as a traditional IRA, 401(k) plan, annuity or cash value of an insurance product, you don’t have to worry about the repercussions of capital gains and dividend taxes, and in many cases the interest credited will not push you into a higher tax bracket. Taxes aren’t taken on these products until you withdraw the money. Withdrawals are taxed as ordinary income and if taken prior to 59 ½ there is an additional federal tax. And since this type of product is designed to assist with long term retirement needs, most people are in a lower tax bracket when they tap it for income.


The universe of tax-advantaged financial vehicles has broadened significantly to include annuities as well as life insurance products. If you’d like some ideas on retirement savings strategies, please contact us.


By contacting us, you will be offered information on a variety of insurance products which may be available for purchase.


[CLICK HERE to read about “Tax Deferred and Tax Free Accounts,” at, 2012.]


[CLICK HERE to read “Investors Increasingly Consider Annuities ‘Vital’ to Retirement Plan,” at Financial Planning, September 10, 2012.]


This material is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Be sure to speak with a qualified tax or legal professional before making any decisions about your personal situation.


The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.   

[1] “Fiscal Cliff: How Much Would Taxes Rise in 2013?” Tax Policy Center, October 1, 2012.

[2] 2010 Census Report, U.S. Department of Commerce, 2011.

[3] 2012 Retirement Confidence Survey, EBRI, March 13, 2012.