“An aggressive political battle over the shape of American’s retirement plans has begun in Washington, DC“–Paul Ebeling
Should this administration have its way, the following is the impact it may have on your retirement plans:
- Mr. Biden has proposed eliminating the step-up in basis for inherited capital assets meaning heirs face much higher taxes on their wealth in the future.
- Capital gains tax rates may be raised for those making over $1-M, and the federal estate tax exemption could be reduced from the current mark of $11.5-M. A possibility is an exemption roll back to its Y 2017 mark of $5.49-M.
- There are plans to create tax credits for small businesses and non-profits that widen access to 401(k) plans for those workers saving for retirement. This includes a proposal to mandate auto-enrollment, which is not a bad idea because studies show this enhances savings. But, a more controversial plan is in the works to equalize the tax benefits of individual 401(k) contributions. This means substituting the current system of an individual taking an immediate tax deduction based on an annual contribution. These savings grow tax free until the money is withdrawn or paid out in retirement. Under Mr. Biden proposal, everyone would receive a universal tax credit of $260 regardless of contribution. Sponsors of this proposal feel that higher income workers have an unfair advantage and a Universal tax credit will incentivize lower wage earners. This thesis is inconclusive, but small-business owners may have less incentive to sponsor a retirement plan for their business if it becomes more complicated and expensive because tax incentives are eliminated.
- Several tax changes are in the works to help senior citizens and caregivers. Seniors who qualify can obtain tax benefits for paying their long-term care insurance with retirement savings. In addition, low-wage workers over 65 anni are being considered for access to an earned income credit which does not exist for those over 65 now.. Expect a drive to add a new $5,000 tax credit for family caregivers (informal) providing unpaid long-term care to elderly relatives.
- Social Security adjustments are back. Many of these policy proposals were 1st pushed in the Democratic primary. New beneficiaries who spent at least 30 yrs working could receive a new annual minimum Social Security payment of $15,950. In order to pay for these added benefits, expect arguments on increasing the payroll tax cap above $400,000.
- While income above $142,800 is not currently subject to payroll tax, this administration will target wages above $400,000 a yr for the 12.4% levy which will augur more increases in the yrs ahead. This new income mark of $400,000 will not be indexed for inflation.
- Democrats support financial transaction taxes on every aspect of security (stock) activity. And they fails to note that retirement plans are major buyers and seller of stocks and bonds, so 401(k) and IRA participants will face higher expenses if subject to this tax.
- Mr. Biden has floated a remedy to help workers in their 60’s from losing jobs and healthcare. He may now come along and propose lowering the Medicare eligibility age from 65 to 60. This adjustment would be meant to help older employees who lost their jobs during The China Virus chaos..
The lawmakers debate on these retirement-related issues is already heating up in DC. So, it is very important to get and well-informed because these issues are not going away.
Have a healthy weekend, Keep the Faith!