A person’s understanding of the IRS Tax Code, History, Legislative Risk, and Tax Shifting Strategies will have a massive determination on how much of their retirement nest egg they get to keep.

The highest tax bracket in our country’s history was 94%. That was back in 1944 on income over $200,000. That was A LOT of money back then. The lowest income bracket that year was 25% if you made over $2,000.

In 1988 that changed substantially. The top income bracket that year was on income over only $30,000! That was the highest bracket. That was RICH…at least to the government.

If we adjust these numbers for inflation, $200,000 in 1944 would be equivalent to someone getting taxed today on income of $2.9 million.  That excludes most people who will read this article.  But how about the guy that made $2,000?  That would put someone earning $29,000 in the 25% tax bracket.  Someone who earned $145,000 would be all the way up in the 41% bracket (the highest bracket today is 37% if you make over $600,000!)

When people ask questions regarding tax strategies such as contributing to a Roth IRA, doing a Roth conversion, or taking advantage of some of the tax advantages inside of Life Insurance, the ONLY question you must answer is what will the tax brackets be in the year you retire? How much of your money will the government want to keep? If you think taxes will be HIGHER in the future than they are today, you should evaluate the Tax Free tools available to you.  If on the other hand you think they will be LOWER, you should evaluate all the Tax Deferred tools that exist.

If you aren’t well versed on tax shelters and how to shift money into tax free retirement vehicles then you will unfortunately be at the mercy of the government and whatever they decide to do.  Legislative Risk is the risk that government will change the rules, and they can do this each and every year.  The longer you live, the more this risk will affect your nest egg.