You can fear the potential for a tax increase that could be headed your way as the federal government deals with hundreds of billions of dollars in bailout-related debt, or you can do something about it.
A simple option would be to use a Roth 401(k) in your company retirement savings plan if you have a choice. About 29 percent of people who work for large and medium-size companies have that option, according to benefits firm Hewitt Associates.
If you aren’t among them, you can turn to a Roth inidual retirement account, which you open on your own at a brokerage firm or mutual fund company outside the workplace.
The attraction is this: If you save money in a Roth 401(k), a Roth 403(b) or Roth IRA, and follow the rules, you will be able to keep Uncle Sam from taking any of those retirement savings for as long as you save the money and spend the money.
As you go through retirement, you will not pay taxes on the money you withdraw. So if tax rates head up, you won’t have to worry.
That can be a huge advantage for a retiree. Because seniors often live on fixed incomes, a tax shock can upset their lifestyle. A regular 401(k) or IRA, however, does not insulate from taxes in retirement. When you use a typical 401(k) or traditional IRA for spending money in retirement, you pay taxes.
So given the uncertainty of the future tax environment, insulating …
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