Higher Taxes Tomorrow? Part 3
The following is the final reason in my three part series as to why I believe we will be paying more taxes down the road:
Eliminated Tax Breaks:
The IRS today gives tax breaks in the form of Deductions and Exemptions to name a few. As we get older and our kids (our exemptions) leave home, we lose these tax breaks. In addition, when we eventually pay off our mortgage, the Mortgage Interest Deduction also goes away. By eliminating these tax breaks and maintaining the current lifestyle, our Taxable Income will greater than in previous years. Herein lies the potential to pay more taxes than we did previously. Also, in all probability, we will no longer be contributing to Qualified Plans. These contributions use to help reduce the amount of income on which taxes were due. The flip side of this is that one might say that we no longer have to earn the extra income to set aside these funds for a Qualified Plan. The reality of the situation is, however, at age 70 ½, Required Minimum Distributions (RMD) must be taken from these plans (except Roth IRAs). This means that whether we want to take a distribution or not, we will have to or we will incur a 50% penalty. This, one way or another, has the potential to increase the taxes that will be due during Retirement.