Taxation of Government Plans
Another view: What you would have paid in taxes today
is put into the plan to be paid later.
$10,000 Contribution In
Government Plan
$ 2,800 Their Money (Tax Dollars)
$ 7,200 Your Money
$10,000 Total |
...$10,000 Withdrawal Out
.- $ 2,800 Their Money (Tax due)
= $ 7,200 Your Money |
Money CANNOT be removed at any time or in any way without the payment of the appropriate tax. In addition, there are substantial penalties if the money is withdrawn outside government mandated rules. Therefore, there is no tax savings and no increase in current spendable cash now or during the accumulation period. The money that would have been paid in tax today is put into the plan to be unavoidably paid later whenever the money is withdrawn. There is ZERO current benefit. However, there is the current and ongoing risk of being subjected to penalties if money is needed.
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