Higher Tax Rates On Retirement

higher taxes

Photo Credit: Flickr/Ken Teegardin

In recent months the news has been consumed with talk about taxes and retirement, and for good reason: the fiscal cliff tax deal made significant changes to tax deductions as well as to how we can save for retirement.

There were more changes aside from the tax deal, however; a new tax law — the American Tax Payer Relief Act of 2012 — means there is a new top income bracket and a new top rate for capital gains and dividend income for individuals, estates, and trusts. These changes to income and capitals gains have people rethinking their retirement plans and making changes to how they save, invest, and will drawn down on their finances.

The ATRA legislation brings with it not only the new tax bracket (39.6 percent for single tax payers making over $400K a year and married – but filing jointly – taxpayers making over $450K a year), but also the loss of certain itemized deductions and personal exemptions. The last major change is that anyone who earns wages or has self-employment income will find they are required to contribute more to Social Security via payroll taxes.

Robert Powell takes an extensive look at ATRA over at the MarketWatch website.