What You Need To Know About Tax Reform

In my opinion, the most important thing to understand about the new tax bill is the underlying message it is intended to send to all of you. That message is this: Be careful. With this bill, the government is implicitly saying to all middle-class Americans, "You do not have enough money saved for your retirement, and we know that. Therefore, beginning in the year 2002, we are going to allow you to save more money in tax-advantaged retirement programs, such as IRAs and 401(k)s. But we may be letting you do this only for a limited number of years-that is, until this bill begins to cost the government too much money in lost tax revenues and we repeal it." As you may have read or heard, built into this tax bill is an automatic repeal date: the year 2011. 

My message to you is this: You had better take advantage of the new savings limits and other privileges right now, while you can. If you are like a majority of Americans, the government is right about you: You do not have nearly enough money saved. According federal statistics, 53 percent of Americans have savings of less than $1,000. Please take a moment to imagine retiring on that. 

The new tax benefits may not last forever, or even for very long. They can be repealed at any time, even before the year 2011. If you are eligible for any of them, please do not let one year go by (beginning in 2002) without contributing the new maximum of $3,000 to a Roth or a traditional IRA (up from $2,000 this year). In October or November of this year, when your company lets you change the annual tax-deferred amount you contribute to your 401(k) plan, do not fail to choose the new, higher yearly contribution limit of $11,000, up from $10,500 (that is, if your company allows you to contribute the maximum amount permitted by law; check with your benefits department). If you are over the age of 50, as many of you are, please note that you have additional privileges, which you had best take advantage of while they last. These include even higher limits on the tax-deferred contributions you can make to a 401(k), an IRA, a or a SIMPLE.

People First. Then Money. Then Things.
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