Even the mere mention of the word IRS can be enough to evoke feelings of anxiety or at the very least, a slight feeling of apprehension to even the most stout hearted person around. If you are nearing retirement age however, or even just at a stage in your life where you are making plans for your eventual retirement, you may be surprised to know that there are quite a few ways by which the IRS can make things considerably easier for you. Now this may be a little bit hard to believe and I can almost see the whole lot of you shaking your heads in disbelief, but bear with me for a minute and read on; what you read many surprise you.

 

The 401k plan is traditionally the one area in which many people who are currently employed target the greater bulk of their retirement investment efforts. This is quite understandable given the many benefits that such a plan has to offer the prospective retiree. The way that you can make this plan work for you in terms of tax concerns is upon signing up for this plan, you agree to deduct a portion of your salary and deposit it into your 401k retirement account.

 

Now the beauty of this plan is, these contributions are made before any tax deductions are imposed upon your salary. You will in effect defer any tax payments on this amount until your retirement when it comes time to withdraw the full amount along with any earnings that you have made in the interim. By then of course, you will probably be making considerably less income and therefore be relegated to a lower income tax bracket, the end result being that you will ultimately end up paying less taxes than you would have otherwise. It is absolutely brilliant in its simplicity and this is one of the primary reasons that many people opt to go for this retirement plan in preference to all others.

 

The difference in tax rates can be quite considerable too; many people who can expect to pay up to 35% rates on their current taxes will probably only be paying somewhere in the neighborhood of 25% upon retirement.

 

Additionally, the lesser income that you bring in will also have an effect upon your adjusted gross income or AGI and this too can have an effect on other aspects of your tax return.

 

There now, you see? The IRS isn’t so bad after all is it?