Obviously there are a wide range of retirement accounts which individuals may use to plan for their financial needs later in life as common investment strategies implemented through 401(k)s, Roth IRAs, or annuities are some of the more widely used methods that can be beneficial for investors who want to firmly secure their financial life after they retire. While some of these investment accounts and retirement plans have caps on the amount that may be contributed, for those who are unable to meet this contribution cap, new changes in Social Security tax cuts could leave workers with additional funds that may be used for retirement planning.
Thanks to recent tax cuts passed in Congress, workers that normally paid 6.2% of their wages to Social Security will only be paying 4.2% in 2011. Obviously, this could equate to workers seeing an increase in their paycheck for 2011 since they are not meeting as high of a Social Security tax as they previously had been, so this could result in additional funds for some employees to contribute into their retirement account, which may also lead to higher earnings that can be withdrawn later in life.
While there are some workers who may not see a substantial change related to these tax cuts and even those who may get back more than they previously had thanks to this tax cut in Social Security, contributing more to a retirement account may not make substantial differences, but putting extra money toward a retirement account can lead to a bigger safety net years down the road.
However, there are some advisers who stress diversification when it comes to retirement planning, and as a result, workers who may benefit from Social Security tax cuts may opt to open a different retirement account rather than contribute to their current savings plan. While, again, retirement plans can greatly differ and some retirement accounts will be better suited more for certain investors than others, finding ways to spread out retirement savings can be more helpful in later years as, for instance, tax-free earnings from a Roth IRA may offset taxes paid on withdrawals from a 401k plan.
Again, not just any retirement account will be the right choice for every investor, so proper research must be conducted, but there are also some investors who may simply not benefit from this Social Security tax cut due to their income level. Yet, those who do see an increase in their paycheck may, according to some advisers, be in a position to put a little extra away in 2011 as the percentage workers pay on their Social Security remains lower than in years past.