Post-Tax versus Pre-Tax

What is PRE-TAX?
Well, many of you might know this by another name, TAX DEFERRED. An investment in which some or all taxes are paid at a future date, rather than in the year the investment produces income.
Tax-deferred investments in particular refer to retirement accounts which allow deferral of taxes on contributions, growth, or both; taxes are not paid until withdrawal of funds during retirement.

What is POST-TAX?
This is the exact opposite of deferring your taxes. you are going to pay the tax on the money you put in now rather than later, and your withdrawal will be tax free.


So, in today's economy, there is a great debate on what is best. For decades, the financial thinking has been to put your money away pre-tax. At the time, the thinking was very sound. In the 80's, income tax was around 45%. Before that it was even higher. The trends in the US have been for taxes to consistently go lower. So the financial thinking has been, we will put more money away now, pay less taxes on our income, and then pay even less taxes on our withdrawakls down the road. Right now it is at aroung 26%. By international standards 26% is rather low, in Japan and much of Europe, Taxes are upwards of 50%, and in some cases 80%. We can expect the taxes in the USA to reach these levels in the foreseeable future.

It is calculated that the USA collect approximately 30% of all it's income from income taxes. So What does that mean for us? Well, as of 5:50PM on July 8th, 2009 the USA has a deficit of $11,527,661,864,636.19. Yes folks, that is 11 TRILLION dollars, and increasing. Taxes will be the governments answer to this.

To us, it is very clear. TAXES ARE GOING UP. Times have changed, and it is time for our retirement planning to change also. Pay the taxes today, which we know will be lower, and take the money out tax free in the future.