Taxes can be a whirlwind. We’re always grinding away to try and lower our tax liability, so we can keep and save more each year. The math problem just becomes trickier as we retire, and our income streams narrow. Retirement tax breaks can be incredibly beneficial, or they might not amount to much. It all boils down to your situation and your tax bracket. CNBC’s Kate Dore offers some insight on whether that tax break will help you in retirement or not.
Retirement Tax Breaks
Retirement tax breaks don’t benefit everyone equally, but instead regularly benefiting the top percentage of earners, usually the top 10 percent.
Social Security is only taxed if your combined income goes over a set limit — $34,000 for single filers and $44,000 for joint filers. A person making over $100,000 contributing the maximum amount to their 401(k), receives more of a tax benefit. This is because they can lower their taxable income at a higher rate.
There’s nothing wrong with this, but it does offer a disproportionate benefit to higher earners, leaving the middle class with more taxes and less savings.
The problem lies with how the tax code is structured, especially when it comes to Social Security and other retirement benefits. Social Security taxes need to change, with the tax code adjusting to better represent modern wages. You can help grow your retirement investment and lower your tax liability by contributing to a retirement account, either with or independently of your employer if necessary.
Understanding how retirement tax benefits can really help allows you to strategize better and achieve some financial stability. Follow the Council for Retirement Security to better protect Social Security, so you can enjoy your benefit regardless of your tax break.