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Have you ever received what appears to be good news, but then start wondering if it really is after you have a chance to start processing it.
That’s how I felt recently when my company’s human resources department sent us all a note telling us that we would be paying less Social Security tax in 2011.
Who wouldn’t want to pay less in taxes?
Here’s the story. The Tax Relief Act of 2010 will reduce the withholding of Social Security taxes from employees’ share of the tax from 6.2 percent to 4.2 percent for the first $106,800 we earn in 2011. That could mean a reduction in taxes paid of about $2,136 next year.
We’ll all have a little extra spending money this year.
At first glance, it looks great. I know I can use a little extra money; and I’m sure others feel the same. And the economy can sure use the boost in spending that is likely to come with it.
But then I started wondering what this would do to the solvency of the Social Security program.
During my research, I found several stories that estimate Social Security will run out of money sometime between 2037 and 2041. All of us Baby Boomers will be retired and expecting to see that money check deposited after a lifetime of paying into the program.
But my research didn’t turn up any information on how this rate cut will affect the program. Some of the stories on the new rate say it will mean $120 billion less collected for Social Security this year.
While that’s good news for us, I wouldn’t think it’s good for the Social Security program.
I suppose we will have to wait to see how it will impact the program.
Knowing that we’ll have this money coming our way this year, what should be do?
We don’t have to fritter it away.
This will offer the chance for folks to stash come money away for retirements, their kids’ education or to have that emergency fund on hand. In the stories that I’ve found on the subject, these are among the suggestions that analysts have for this $10 or $20, for some up to $40, extra a week in that paycheck during 2011.
Some of the financial planners say we should have it automatically put into our 401(k) fund, while others suggest an automatic withdrawal that puts it aside for us.
Experts on these matters note that putting money into growth and income mutual funds that pay dividends outpace all other investments. Therefore, putting this money into an IRA is a great way to make it grow.
In talking with some of these experts on finances, they recommend filling out IRS form 8888 that will direct your money into an IRA without taking out taxes on the cash. This means that you can earn some interest on money that would otherwise have gone to the government for payroll taxes.
This will give us something to show for our money. And it might actually be better for our pocketbooks than sending the money to Social Security.
Keep an eye out for that extra cash in your check this week. I’m already getting my plans together now to put the money to good use. That will mean that this is excellent news, and a great way to start out the new year.
Jeff Moore is publisher of The News-Democrat and The Trimble Banner and resides in Carrollton, Ky.