Hyden, Miron & Foster, PLLC Law Blog

Thursday, September 30, 2021

What Retirees May Want to Know About Potential Changes to the Capital Gains Taxes

Did you know that President Biden made an announcement recently regarding individual tax proposals? Among these proposals was a provision which would mean an increase to 39.6% for the long-term capital gains tax rate. It is a big change and one worth considering as you evaluate your finances and financial future. For retirees and those looking to retire in the near future, changes in taxation can have substantial impacts on their financial prospects.

What Retirees and the Soon to Be Retired May Want to Know About Potential Changes to the Capital Gains Taxes

Taxes can have a big impact on the amount of funds you have for your retirement years. Because of this, planning for current taxes as well as potential changes in relevant taxes can be critical to effective planning for retirement. With President Biden’s recent proposal to increase the rate of capital gains taxation, it may be important for those who are soon to be retired to reconsider their savings and investment strategies.

While the future of the capital gains tax rate may be uncertain, the current rate is known. In the face of an otherwise uncertain increase in the future for the capital gains tax rate, many are likely to be on the lookout for ways to lock in the current rate as opposed to waiting to incur the damage done by a potential increase down the road. For some, this may mean selling off securities now as opposed to later on.

An alternative idea may be to convert traditional IRAs to Roth IRAs or even start contributing more to a Roth IRA as opposed to a traditional IRA. You see, money held in a Roth IRA grows tax-free as opposed to tax deferred. When distributions from a Roth IRA, they are not taxable. This means that, should you convert your traditional IRA to a Roth IRA now, you are essentially locking in the current tax rate.

As potential tax changes loom in the distance, it may be a good idea for those soon-to-be-retired individuals to consider their investment vehicles and retirement account selections. An increase in the capital gains tax may see a rise in those utilizing Roth IRAs, 401(k)s, and life insurance policies. With a Roth IRA, after tax money is contributed to the account which results in avoiding tax liability on capital gains growth or income generated from the investment. With a 401(k), you take the tax deduction now and pay ordinary income tax upon withdrawing funds from the account. Just like with the Roth IRA, you do not pay capital gains tax on capital gains or investment income.

Tax Attorneys

Are you concerned about the potential impact taxation may have on your retirement plans? It is definitely a big factor you should consider as it can have a substantial impact on the amount of money you have to live off of during your retirement years. Talk to the knowledgeable team at Hyden, Miron & Foster about your options. Contact us today.

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