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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
How to Take Financial Control, Avoid Unnecessary Taxes, and Combat the Latest Threats to Your Retirement Savings
The New Retirement Savings Time Bomb (2021) is a practical handbook to achieving your retirement goals. This level-headed guide provides an easy-to-follow plan for cultivating a nest egg even during turbulent times.
Crack open a history book and you’ll find that the American story is packed with exciting events and monumental moments. From the Revolutionary War to the moon landing, the United States has had plenty of highlights. But alongside these hits, there’s a less-celebrated but equally important story – the history of US tax law.
In the beginning, America had no income tax. Then, in 1913, the Sixteenth Amendment introduced a modest 7 percent tax. Since then, the rate has gone up and down. It reached a peak of 90 percent throughout the 60s, and today it hovers around 37 percent.
You see, US tax law is always changing. Understanding the nuances of this system is crucial for preparing for retirement.
The key message here is: Small changes in tax law can greatly impact your retirement plan.
So why is understanding tax law so important for planning your retirement? Well, for one, changes in the tax code can greatly affect how much of your money you get to keep and how much ends up in the US Treasury. Most people don’t pay careful attention to how changing tax laws impact their savings, and as a result, may end up paying more to Uncle Sam than they really have to.
Consider this: In past generations, people didn’t rely on personal retirement accounts. Most people funded their retirement through a mix of Social Security payments and company pensions. Then, in 1974, the government introduced Individual Retirement Accounts, or IRAs. This legislation let people save for retirement by placing money in special tax-deferring accounts. The money you saved in an IRA wasn’t taxed, at least not right away.
Of course, tax law is always changing. And while people carefully scrimped and saved to fund their IRAs, the government didn’t keep up its side of the bargain. On December 20, 2019, Congress passed the SECURE Act. Among other things, this law changed how the money in IRAs is taxed. Suddenly, people who were expecting to pay one tax rate were now expected to pay a completely different one, especially if they were planning on leaving their IRA to their heirs.
That means that while diligently putting savings into an IRA has been a standard retirement practice for decades, the rules have now slightly changed. While you can continue saving as normal, you may end up paying more in taxes than you realize. You can avoid this pitfall, though; we’ll delve into how in the next blink.
Lets take the first step . . . to success in keeping your retirement nest egg out of the maw of the IRS Cookie Monster.
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Try Blinkist to get the key ideas from 5,500+ bestselling nonfiction titles and podcasts. Listen or read in just 15 minutes.
Start your free trialBlink 3 of 8 - The 5 AM Club
by Robin Sharma