With steeper tax rates expected in coming decades, traditional advice deserves another look.
Some money management truths are self-evident: Always set aside enough cash for emergencies. Diversify your portfolio. And maximize your contributions to tax-advantaged accounts such as a 401 or IRA.
Experts warn that tax rates will need to increase at some point to plug the federal budget deficit and fund Medicare and Social Security. Pre-retirees who diligently max out on their 401 contributions every year will probably face higher ordinary income tax rates in the future. “For clients in their late 40s and 50s, we sometimes limit the amount they put into their 401,” said JR Gondeck, an adviser in Boca Raton, Fla. “Instead, we shift some of that money into a [stock] index fund within a taxable brokerage account. A lot of people are surprised when we do that. It’s counterintuitive.”
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