President Joe Biden has already made some significant economic decisions including the signage of a sizable COVID-19 relief bill. As the current administration continues to execute these proposals, you need to understand the possible effects on your retirement plan.
[AUDIO] Biden Tax Proposals That Could Botch Retirement Plans
Rising tax rates
Currently, the top tax rate is 37%. President Biden has proposed adjusting the rate back to 39.6%, which was the top tax rate prior to the 2018 Tax Cuts and Jobs Act. Besides rising tax rates, look for bracket creep. Bracket creep occurs when inflation pushes taxpayers into higher income tax brackets or reduces the value of credits, deductions, and exemptions. Bracket creep results in an increase in income taxes without an increase in real income.
Adjusting the estate tax exemption
Over the past several years, the estate tax exemption has varied. Currently, you can have $11.7 million in an estate before facing any estate taxation. Biden’s tax plan proposes reducing the exemption to $3.5 million, which means the number of people paying estate taxes will increase significantly. Gifting earlier on in retirement or using life insurance as an estate planning tool could be good planning options for some.
Eliminating the ‘step-up in basis at death’ provision
Currently, those who inherit portfolios pay very little in capital gains tax. They pay tax only on the difference between the date of death value and the value on the day they sell the assets, thanks to the “step-up in basis at death” provision. Biden has proposed eliminating this provision. This possible change would be highly impactful to farmers as they transfer assets to the next generation.
If you have questions or concerns regarding taxes and your retirement plan, give me a call at 320.222.4236 or email me directly at [email protected]