Today, the top federal income tax rate is 37% under the Tax Cuts & Jobs Act of 2017. And, over the next three decades, the top federal income tax rate never dropped below 70%. How high could federal income tax rates go? Well, in 1944, the top federal income tax rate was 94% on taxable income (which is what deferred comp is) over $200,000. And when federal tax rates go up in 2026, as is current federal law under the Tax Cuts & Jobs Act of 2017 (TCJA), you could be shocked at the federal tax bracket that you find yourself in. Without a well-thought-out retirement tax-reduction plan, you may very well end up paying a considerable amount of federal income taxes in retirement. They tend to use the rearview mirror, but not the windshield. They don’t specialize in minimizing income taxes 10 or 20 years from now. But accountants aren’t financial planners. Or in looking at this year’s tax liability. Your accountant probably agreed because it kept your taxable income down each year.īut what the guys at the firehouse, the union, the deferred comp rep and even your accountant probably aren’t asking themselves is, “What happens when you’re retired?” You Need a Plan to Manage Taxes Through RetirementĪccountants are great at accounting. Odds are the guys at the firehouse, the union and your deferred comp rep all have said that the smartest thing to do was to jam as much money as possible into your deferred comp. Because most fire departments are on the one-on/two-off schedule, you may have a side job, so maybe you were able to stuff away much of your fire department pay into your deferred comp plan.
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