Taxes, 401(k) plans and individual retirement accounts, or IRAs, are complicated. But’s it’s important that you master the fundamentals of both your personal taxes and your retirement-savings options in order to be able to make informed decisions about your future.
Americans don’t spend enough time doing their taxes — on average, just 12 hours along with $230 to file the paperwork, according IRS estimates — to get the best bang for their buck.
“Your tax return is in no way that simple,” said Mark Steber, chief tax information officer at Jackson Hewitt Tax Service. “I don’t care who you are or what economic situation you’re in — high, medium, low, no income or unemployed.”
In fact, tax experts like Steber say all those IRS tax return forms and schedules are actually designed to help people save money.
“If you have knowledge about how it works, you can utilize the tax code to benefit you more in the long run,” explained Sheneya Wilson, founder of Fola Financial in New York. “However, most people don’t have that knowledge, and I think that is what creates this fear of the IRS and paying taxes, when essentially the tax code is not there to harm anyone.”
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Retirement plans also are a key component of your annual taxes. Until the 1980s, most Americans planned for retirement through pensions, or defined-benefit plans in which employers calculated employees’ retirement benefits based on their years of service and final salary. That changed when Congress passed a new tax code in the Revenue Act of 1978. The act included a new provision in the Internal Revenue Code, Section 401(k), which gave…
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