Costco Connection - August 2010

each individual’s highest mar- ginal tax rate (versus the current 15 percent). Even the new healthcare bill has provisions that allow for a new Medicare tax of 3. 8 percent on investment income starting in 2013. relief for any size office PHO TODISC

inside costco The great 401(k) tax hedge:

AS BUSINESS OWNERS manage through the tough economy, a new challenge is waiting just around the corner: the potential for higher taxes in 2011. To soften the impact of this anticipated hit, many businesses are proactively turning to 401(k) plans that can help them hold on to more of their income.

“Thanks to our relationship with ShareBuilder 401(k), Costco members who own a business have access to low-cost 401(k) plans designed to help any size office receive tax and saving benefits,” says Jim Goforth, insurance and investing services manager of Costco Services.

New taxes expected in 2011

A business owner, or anyone, for that matter, who falls into the 33 or 35 percent tax brackets may experience increased tax rates next year to 36 or 39. 6 percent respectively, explains Jim. Additionally, long-term capital-gains tax rates for high earners are also scheduled to shift from 15 to 20 percent, with dividends to be taxed as ordinary income at

How 401(k)s can provide relief

“401(k) plans offer employees and owners two great ways to protect more money from taxes,” says Stuart Robertson, general manager of ShareBuilder 401(k). “The first way is contributing pretax, which helps you save on taxes in the current year, and the second is after-tax savings in a Roth 401(k), which helps hedge against future tax increases.”

401(k)s help participants to lower their
current-year taxes through personal contribu-
tions of up to $16,500 pretax and $22,000 for
those older than 50 years of age. This money is
not taxed until it is withdrawn in retirement.
By adding an optional company match and/or
profit sharing, employees have the ability to
put and receive up to $49,000 a
year—or $54,500 if they are older than
“For those who expect to increase their
income over time or are concerned about
future tax increases, the Roth 401(k) option
can make a lot of sense,” says Jim. “By paying
taxes upfront on Roth 401(k) contributions,
these savings are never taxed again as long as
monies are not accessed until [the fund’s
owner] is at least 59½ years of age.”
For more information, go to Costco.com
and type in “401(k)” in the search box, or call
1-800-239-2152.—T. Foster Jones

50—into their accounts. Savings in this range can trigger the added benefit of lowering one’s tax bracket.

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