Categories
Posts

0% Income Tax for Mothers

There is a simple way to support families – especially mothers – and guarantee mothers a secure retirement: 0% income tax with 30% of the personal income of the mother paid into a personal pension fund.

In many countries, the income of mothers who work part-time is already in a preferred tax bracket. Meaning, the income from the part-time or a significantly lower paying job is taxed less. Nevertheless, the impact of taxation on a part-time income is still significant and noticeable.

To support mothers – today and later during retirement – we should scrap the income tax on the part-time earnings of mothers. This way, mothers earn gross for net, which make part-time work as attractive as working full-time.

But instead of paying out 100% of gross income, a part of the income is invested into a mandatory personal pension fund. This way, during 18-22 years of motherhood with part-time work, mothers are compounding a personal pension of which they can live during retirement. The fund should be tied personally to the mother, so the retirement is completely independently of her husband.

$258.271,60

Let’s say a mother works part-time and currently earns $1,750 gross pay. Instead of taxing this income, 30% of it is paid into a personal pension fund tied to the mother. This equals a monthly saving sum of $525. Assuming the mother has two children and works part-time for 20 years while raising them until 18 years old. During this time, her savings compound at an assumed interest rate of 1% to $138,719.73. At 7% ROI – a rule of thumb for pension funds – the mother has access to a pension fund of $258,271.60.

If we assume, the mother keeps working part-time for another 15 years after the kids have grown up, and keeps paying in $200 per month into the pension fund with an average ROI of 7% per annum, the mother retires with $772,887.49.

Supporting Single Mothers

Single mothers should be taken separately into account. The monthly contributions could be lowered to, i.e., 15% and the state throws in the remaining 50% or any amount necessary to reach a defined minimum saving amount of, i.e., $400 per month. Single mothers will notice the effect immediately in their bank account. Simultaneously, we eradicate old age poverty for single mothers.

Note: The same should obviously be applied if mothers prefer to work full-time and fathers part-time, and so forth.

Leave a Reply

Your email address will not be published.

I accept the Privacy Policy