A real change over the next decade could be a massive reconsideration of tax deferred savings plans. Exemplifying this shift, the new 2010 Roth IRA conversion rules seem to be getting lots of press and stirring widespread investor interest. So what’s behind the buzz?
In our September 09’ blog, “Rethinking the 401(k) Pitch” , we underscored how the tax landscape had changed since IRA’s were introduced in the early 80’s. We recounted that federal income tax brackets reached as high as 70% when 401(k)’s and IRA’s were introduced and it made perfect sense to shield everything we could from the taxman and bank on taking the money out at lower tax rates in the future
A mainstay of employer Benefits Communications is to preach the virtues of Flexible Spending Accounts. But is there perhaps a better tax opportunity out there for your dependent care related expenses?
Tax is an important area of focus when it comes to attaining a productive benefits education. Before digging into the details of this particular tax opportunity, it’s important that you understand the difference between a tax deduction and a tax credit. Tax deductions are taken “off the top” and ultimately reduce your taxable income, and, of course your taxable income is what ultimately drives the amount of taxes owed. A tax credit on the other hand, is a dollar-for-dollar reduction subtracted from your tax liability. If you had a $50 tax credit, it’s sort of like the government saying that they are giving you credit for having already paid them $50 in tax.
The next few entries look at creating a positive financial future into the next decade by employing some common sense financial wellness principals.
First let’s consider using someone else’s money for to finance our stuff.
The financial wellness rule of thumb is that borrowing money to make a purchase only makes sense if the commodity to be purchased has a realistic chance of appreciating in value.
In other words, both the lender and the borrower should profit from the transaction. The lender benefits from the interest earned and the borrower’s asset has an opportunity to grow in value beyond the cost of interest paid. While the real estate market has taken a recent short term hit, over the long haul purchasing the right property in the right area has a reasonable potential to achieve this objective.