Forbes has published an article, “New Tax Rule #1: Say Good-Bye to Tax Deferral”, which discusses changing circumstances that make tax deferral less attractive. The article begins as follows:
It’s hard to abandon longstanding rules of thumb. But sometimes circumstances change, and it’s necessary to change our thinking if we want to maximize after-tax wealth.
Perhaps the oldest rule in the tax-planning book is to defer taxes whenever possible. “Don’t pay a tax until you have to” is one of the first planning strategies many tax planners learned.
Tax deferral is the foundation of most retirement plans. Current tax breaks and tax deferral of income are significant incentives for people to put money into traditional 401(k) plans and IRAs. Tax deferral also is why many people don’t take distributions from these accounts until they’re required.
But circumstances have changed, and they are likely to change even more in the next few years. Those changing circumstances make tax deferral less attractive and even unattractive.
Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal