A person’s retirement income can come from many different sources, including: certificates of deposit and savings, nonqualified annuities, investments, and qualified mutual funds or plans (401(k), IRA, 403(b), etc.)

Qualified plans offer a tax deduction and tax-deferred growth, and income is taxable when received. Non-qualified plans offer no tax deduction and perhaps tax-deferred growth, with tax benefits or tax-free income when received.

I would say with a National Debt now approaching $20 Trillion and rising; and uncontrolled government spending (I point you to the latest Budget Deal) that the logical, educated guess would be an increase in income tax rates coming our way in the future. Add to this Social Security and Medicare illnesses and you may see higher rates and/or expanded income levels to which these rates apply.

So if you’re taking a tax deduction now at a comparatively low income tax rate, with rates likely to go higher in the future…would you like your potential retirement income to be taxed now or later with the higher rates?

Our income tax rates in the world today are relatively low. When I entered the financial services industry, the top marginal income tax bracket was 70%. In the 1960s, the top marginal tax level was over 90%. It wasn’t until Ronald Reagan was elected that these rates went down… and they’ve been going up ever since.

Consider also the estate tax. When I started in business, the estate tax rate started at 55%, there was no unlimited marital deduction, and the unified credit equaled just $250,000 of taxable estate assets. Very different from today’s estate tax and unified credit.

Here is a test for you today:

Although income and estate tax rates have changed over the years and are quite favorable to the American public, what is the constant in this equation? The answer is simple: The Administration and Congress. Sure the faces have changed, but they still control the rules of the game. There’s nothing to say these honorable ladies and gentlemen couldn’t make an abrupt U-turn and return to heavier tax days.

We need to add one more factor to our scenario. What if interest rates trend up? Do you think this could increase the pressure on tax rates to cover interest on public debt? Sure it would, and the government would still need more than one infusion of new money.

Expenses and debts out of control. This may mean higher taxes. Perhaps protecting their retirement income would dictate that some should be in plans that provide tax-advantaged or nontaxable income.