Is Tax Deferral Really a Benefit?

Like most of us, we do not like paying taxes, wherever our philosophical grounding in that emotion comes from.

When presented by our employer, accountant or financial advisor the promise of reducing that amount of taxes paid this year, we jump at it.

But what did we just do?  We have deferred paying a known amount of tax to a point of time in the future where we hope the amount of money we are saving will be larger.  Some compare this to the analogy of “seed” and “harvest”.  Which amount would you rather pay tax on?

The stocks, mutual funds and bonds most of us are corralled into as “savings”  in IRAs, 401(k), etc, have no promise of absolute return.  (Beware “average” returns.  That can mean you make nothing.  And of course it can also mean you lose too).

Back to the point.  Say your investment savings actually grow.  Then when you use this savings, at a time when most usually stop working, the calculation of the amount of tax takes place.  First, there is more money.  More Tax.  But what about the rate?  Most advisors will glibly tell you that your rate will be less.  How do they know?  This implies one of two outcomes:  1) tax rates go down.  2) you will be poorer.  For 1), since anyone with a clock know the US Government  just tipped $20 trillion in debt can you imagine any congress passing lower tax rates?  Our current (2016) top rate is not even close to the 100 year high of 51%.  For 2), is that the future you want?

Either way, in the best circumstances, you pay more total tax, you support the vampiric Federal reserve system, their banks, and their pals, the vultures of Wall Street, who get paid whether you win or lose.

Look at Personal Banking as the way out of this trap. You might just smile.