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Will taxes be higher in the future? You might listen to that question and say, “That’s pretty foolish,” because we have, as you know, a 32 trillion debt right now. My, that’s a lot of zeros. The purpose of taxes supposedly is to pay off that debt or to counteract that debt. You hear a lot of talk about, “Let’s balance the budget,” which would mean we don’t continue to go into debt, but recently we passed a bill that will allow us to go another $4.5 trillion in debt, and some people say $6 trillion in debt over the next 18 months. I go back to the original question, will taxes be higher in the future? Most likely, because somewhere along the line, somebody’s going to have to either do one of two things. We’re going to have to stop and pay off that debt, or we’re going to have to devalue the currency to the point where the dollars will just be there and they’ll help pay off the debt or sort of take the air out of the debt or take the seriousness out of the debt. A lot of things, and I don’t want to get into the complicated stuff because I want to know what are you going to do? What do you need to do about it?
Yes, we know taxes will be higher, and I can actually give you a date as to when taxes will be higher. On January 1 of 2026, tax rates will go back up. Now I say back up, the rates will return to the pre-2017 tax cut rates. If you’re in a 10% tax bracket and everybody is on the first few dollars that they make, 10% goes back to 12. The 12% tax bracket that we enjoy right now is going to go back to 15. The 22% tax bracket will go back to 25. The 24% tax bracket we have now will go back to 28 and vice versa as it goes all the way up.
We know that taxes are going to be higher in the future, and if there’s a bill passed and they try to counteract the debt of $32 plus trillion, chances are they’re going to be a lot higher than even what we had before 2017. The question is not, will they be higher in the future? The question is, do you want to pay them? If you don’t want to pay them, what can you do? Well, there’s some things you can do.
A big word you need to learn is Roth, R-O-T-H. Now, he was a senator, I believe from Connecticut that they passed a bill back in the late 90s and they put forth a new kind of IRA at that time. This was an IRA that instead of not paying the tax on the money before it went into the IRA, with a Roth IRA, you pay the tax on the money now and it goes into the Roth IRA, and you never pay the tax on it again. If you’re married, you leave it to a spouse, they never pay the tax on it again. If both of you pass away and you leave it to your heirs, they never pay tax on it again. The IRA is forever taxed as long as there’s money in the IRA. The Roth is never taxed. I like never when it comes to taxation, a lot better than I like forever.
One of the encouragements to you, if you’re still earning money, you’re still working, they’ve now moved Roth’s, R-O-T-H, into the 401k area where you can actually take your 401k and instead of not paying the tax on it now, you can put it into a Roth side of that 401k. Pay the tax on it now one time, and by the way, if you’ll remember just a couple of minutes ago, the rates are lower now than they’re going to be in 2 1/2 years so you pay the lower rate on the tax right now and you never pay the tax on it again. Your family, your heirs, nobody ever pays tax on it again once it goes into a Roth. Consider if you have the opportunity to invest in an IRA or a 401k, find out if you’re eligible and find out if they have available a Roth portion of that, a Roth 401k or a Roth IRA. That’s one way if you’re earning money now.
I have a lot of people come to me and they say, “Well, I wish that I was younger because I wish I could have taken advantage of that.” Well, wish all you want, you won’t be able to. You cannot contribute to a Roth 401K or a Roth IRA unless you have earned income, but you can convert money from your current IRAs and your current 401ks. You can convert that money by going ahead and paying the tax. Say, “Tom, why would I go ahead and pay the tax?” Well, it’s been four minutes, I understand instead of two minutes. Because the tax rates are lower now.
A lot of people are doing what we call tax harvesting and they’re harvesting their money in that you don’t just go do it all at one time, but you do a certain amount, keeping in mind the tax bracket you’re going to push yourself into because you’re going to have to pay income tax on all of that money that gets converted from an IRA to a Roth IRA or from a 401k that’s a Roth to a Roth IRA. You’re going to have to pay tax on that as you do that conversion. Saving money, like, okay, if you’re in the 22% tax bracket, it’s an automatic 3% savings. If you’re in the 24% tax bracket, it’s an automatic 4% savings. If you’re in the 12% tax bracket, it’s an automatic 3% savings from where the rates will be in 2026.
Now, your situation, as I say all the time on this YouTube, all the time on this podcast, your situation is different than anybody else’s. You can’t talk to Bob at the water cooler or Bubba the plumber when he’s working on your sink or your toilet. You need to talk to a financial advisor to make sure you’re doing this the correct way. What we can do at Mosley Wealth Management, we can actually put your assets that you have in an IRA or a 401K that’s not been taxed, and we can show you through a tax report that we do how much we can save you in taxes over the rest of your lifetime, assuming you live to 90 or your spouse if you’re married lives to 90.
Hey, if you need something like this, if you’re concerned about something like this, then you need to get in touch with us. You can get in touch with us at info@MosleyWealthmanagement.com. Or you can call us at (714) 421-4288. We’ll be glad to help you. Talk to your advisor. Tell them you want to do some tax harvesting. Tell them you want to convert some money over into a Roth. If they won’t help you, let us know. We’d be glad to help you in any way we can.
Remember, will taxes be higher in the future? Most likely. The real question is, do you want to pay higher taxes? If you don’t, you need to respond to where the rates are right now.