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Are retirement plans obsolete? Don’t believe the myth

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in Small Business Tax,Small Business Tax Deduction Strategies

The 2003 tax law spawned dozens of great tax strategies, plus a couple of duds.

One lame concept gaining traction these days: Reduced individual income tax rates make your tax-deferred retirement plan an inferior retirement savings vehicle. Instead, the story goes, you should stash your retirement money in a taxable account at your friendly brokerage firm.

Our take: That's nonsense. But before we make our case, let's first understand the reasoning behind that misguided notion.

Theory: Use taxable account for retirement

First, due to lower tax rates, your federal income tax deductions for retirement account contributions are worth less than before. Second, dividends and long-term capital gains earned inside a tax-deferred retirement account won't qualify for the new 15 percent maximum rate. Instead, they're taxed at your higher ordinary income rate (up to 35 percent) when you begin draining the account. Als...(register to read more)

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