If you were going to retire to a beautiful island, which one would you choose? Some think of Aruba. A beautiful country. Beautiful weather. Beautiful beaches.
But not so beautiful for taxes.
In a marginal tax system, the income tax rate is applied to the last dollar you earn. In a progressive (or graduated) income tax system, which we have here in the U.S., the marginal rate is the highest income tax percentage paid.
According to Global Finance, Aruba had the highest marginal income tax rate in the world! If you lived in Aruba, the marginal income tax rate would be 52 percent, according to the latest data available from 2020.
You could move to Guatemala to reduce your top marginal rate to 7 percent.
Since the United States has a progressive tax, the top earners not only pay the top marginal tax rate, they also pay the bulk of the income taxes.
In 1980, the top 10 percent of wage earners in the United States paid almost 50 percent of the total tax bill. One half of the income tax burden was shouldered by 1 out of 10 income earners.
That would be you!
Today the top 10 percent of wage earners pay about 70 percent of the tax bill.
According to data from the Tax Policy Center for the 2019 tax year, 47 percent of American households will pay no federal individual income tax.
No one knows for sure where tax rates are heading. If you’re like most, you feel pretty certain that you’ll continue footing most of the tax bill.
That is why it is important to understand how taxes work when it comes to your retirement capital.
Your retirement capital can be subject to more than income taxes. Your retirement capital can be taxed up to three times – income taxes, capital gains taxes, and estate taxes!
“You can make more money by saving taxes than you can by making more money,” is one of my favorite sayings.
There are over 72,530 pages of IRS tax code, filled with opportunities to save taxes.
Filling out a tax return at the end of the year is like looking in the rear-view mirror while driving.
Saving taxes requires PROACTIVE planning.
If you haven’t taken the time to see if your tax burden can be lowered, let’s do it now.
Talking with us is an easy way to see if you have missed any opportunities.