Just how high could income taxes rise?

James K. Ault • October 18, 2022

Share this article

Nobody enjoys paying taxes. This is one of the biggest reasons why pre-tax contributions and tax-deferred growth make traditional retirement accounts so appealing – at least during your working years.

But at some point, that money will be taxable upon withdrawal. With that in mind, it is important for you to have a plan in place that accounts for the possible taxes you may have to pay – because nobody knows just how high income taxes could rise down the road!

A Look Back at Income Taxes in the Past

Prior to 1913, revenue generated by the U.S. federal government was done so primarily via taxes on goods, such as the imposing of tariffs on imported products and excise taxes on other items like whiskey. However, the 16th Amendment to the U.S. Constitution established the right of Congress to impose a  Federal income tax.

That year, the top Federal income tax rate was just a mere 7%. However, over time, this rate has vacillated, and it has been as high as 94%, with forty-nine of the past 109 years seeing a top rate of 70% or more.

The Top Federal Income Tax Rates From 1913 Through 2022

Source:  Inside Gov

 

How would rates that high impact your retirement lifestyle?

Currently (in 2022), the highest federal income tax rate is sitting at just 37% (based on your income and tax filing status) – which in comparison to other years is considered quite low. But after the year 2025 – or possibly even sooner – be prepared for rates to rise… and where they’ll stop, nobody really knows.

Income Tax Rates and Brackets (in 2022)

 

While some of the funds that you generate in retirement may be taxed as income, it is possible that others could be subject to a different type of tax – as well as a different rate. This refers to capital gains taxes.

Capital gains can be considered long- or short-term. Long-term capital gains are the profits on investments that have been held for more than one year, while short-term capital gains are incurred on investments held for one year or less.

Depending on the amount of income that you generate, as well as your tax filing status, long-term capital gains tax rates (in 2022) are 0%, 15%, or 20%, whereas short-term capital gains taxes correspond with your ordinary income tax rate.

Long-Term Capital Gains Tax Rates and Brackets (in 2022)

 

Strategies for Paying Less Income Tax in Retirement

Given the possible avenues for taxation of your income and withdrawals in retirement, there are some potential strategies that could ease the burden. Some of these may include the following:

  • Take advantage of the Roth IRA (where withdrawals come out tax-free).
  • Time your Social Security income so that the benefits are not taxable (up to 85% of Social Security benefits could be taxable, based on when you file and how much other income you generate).
  • Coordinate your taxable income or withdrawals from traditional IRAs and/or retirement plans with non-taxable funds from tax-free sources.
  • Consider using tax-free loans from cash value life insurance to supplement your other retirement income sources.

Do You Have the Right Retirement Income Plan in Place?

Reducing – or even eliminating – taxes on your retirement income and withdrawals may be possible, provided that you have a good solid strategy in place. However, not properly setting up your plan could end up costing you. That is why working with a retirement income specialist is highly recommended. Click here to schedule your free consultation!

< Older Post

 Newer Post >

Recent Posts

Man in blazer opening envelope at a desk, looking at papers, smiling. Bookshelf, laptop, and plant in the background.

Filling in The Gaps in Your Retirement Income

By James K. Ault • December 6, 2022
A retirement income gap represents a shortfall between the income you will need to pay your essential (and possibly some non-essential) expenses in retirement and the amount that you actually have coming in. While you may be able to sustain this pattern for some period of time, you will eventually run out of money. Then […] The post Filling in The Gaps in Your Retirement Income appeared first on James K. Ault – Sooner Retirement.
Couple reviewing paperwork together while using a laptop on a couch in a home.

Why Consider a Reverse Rollover?

By James K. Ault • November 29, 2022
If you have ever left an employer where you had a retirement savings account, you may have “rolled” those funds into a personal IRA. Doing so can allow you to take control over your money, as well as open up a much wider array of investment opportunities. But what about doing the opposite? Many investors […] The post Why Consider a Reverse Rollover? appeared first on James K. Ault – Sooner Retirement.
Older couple reviewing paperwork, laptop, coffee cup, concerned expressions.

What higher interest rates could mean for annuities

By James K. Ault • November 22, 2022
As interest rates have continued to rise, they are having a tremendous impact on home mortgages and fixed income investments. In the case of the former, rising rates can mean bigger house payments. In the latter, though, you could generate more growth and/or income. But what could higher interest rates mean for annuities? The answer […] The post What higher interest rates could mean for annuities appeared first on James K. Ault – Sooner Retirement.
An older Black man with a gray beard, writing on paper and using a calculator at a table.

How much income will you receive from an annuity?

By James K. Ault • November 15, 2022
There are many different types of annuities available in the marketplace today. These include immediate and deferred, as well as fixed, indexed, and variable. When the payments begin, and how the return is calculated, can depend on these variations. For instance, immediate annuities start to pay out income right away (or within 12 months of […] The post How much income will you receive from an annuity? appeared first on James K. Ault – Sooner Retirement.
Man and woman smiling at a laptop, indoors. Woman has her arm on his shoulder. Coffee and notebooks on table.

Keeping Your Retirement Income on Pace With Future Inflation

By James K. Ault • October 11, 2022
Keeping your retirement income on pace with future inflation can be a significant piece to your overall financial future. Without a strategy in place, you may find your purchasing power diminishing over time – and in some cases, it could be necessary to make tough decisions regarding what, and what not, to purchase. Forgoing a […] The post Keeping Your Retirement Income on Pace With Future Inflation appeared first on James K. Ault – Sooner Retirement.
Man with gray hair sits on couch, looking at laptop, holding notebook and pen. Coffee on table.

Addressing The 3 Most Pressing Retirement Concerns

By James K. Ault • October 4, 2022
Retirement planning can pose a number of challenges. But even if you have successfully reached retirement, there are new hurdles that you may face… three in particular that can have devastating consequences if they are not planned for. With that in mind, addressing the 3 most pressing retirement concerns should be a key component of […] The post Addressing The 3 Most Pressing Retirement Concerns appeared first on James K. Ault – Sooner Retirement.
Smiling older woman with gray hair reads papers at a desk in a home office.

3 key steps to converting savings into a lifetime retirement income stream

By James K. Ault • July 20, 2022
Until just a few decades ago, many retirees could count on retirement income from three primary sources. These included an employer-sponsored defined benefit pension plan, Social Security, and personal savings or investments. Today, however, many companies have done away with the traditional “pension” plan, replacing it with defined contribution plans such as the 401(k). But, while these […] The post 3 key steps to converting savings into a lifetime retirement income stream appeared first on James K. Ault – Sooner Retirement.
Senior couple in kitchen: man kissing woman's cheek, holding wine glasses, preparing food.

What to do with your 401(k) when you retire?

By James K. Ault • July 12, 2022
Knowing that you can count on a set amount of income to arrive throughout your retirement is a key factor in how – and how well – you will live. In many cases, the largest amount of savings that a retiree has is the funds inside of an employer-sponsored retirement program like a 401(k) – […] The post What to do with your 401(k) when you retire? appeared first on James K. Ault – Sooner Retirement.
Woman with curly gray hair, at a conference table, gazing out a window, hand to her chin, laptop open.

What to consider before a Roth IRA conversion

By James K. Ault • July 6, 2022
Roth IRA accounts can offer you a number of benefits – including tax-free income in retirement. This can put you at a significant advantage, given that tax rates are expected to rise in the future – and nobody knows how high they will go! Unfortunately, not everyone qualifies for a Roth IRA, though. So, it […] The post What to consider before a Roth IRA conversion appeared first on James K. Ault – Sooner Retirement.