This includes the retirement planning and investment fronts.
Through his policy points, Biden has already mentioned several key pieces of legislation that could significantly impact the retirement planning community. This includes changes to Social Security, taxes on investments, and even retirement plans such as 401ks and 403bs.
While many of these changes will need to face Congress for approval, the chances of some points passing are real. For investors and their advisors, thinking ahead to what Biden may do is just smart planning.
Use the Mutual Fund Screener to find high-quality mutual funds and ETFs.
In addition, many of Biden’s retirement planning policies revolve around shifting the playbook from higher income/savers to those earning less income/having difficulties saving for retirement. Boosts to Social Security, new 401k rules, and savings plans were expected to be touted, as will new takes on both corporate taxes and investment taxes. This could impact dividend investors as well as high-net-worth individuals.
In the end, Biden’s focus could seem like a reset of many of the Trump Administration’s policies.
Be sure to check the Retirement Channel to know more about retirement planning concepts.
Biden’s plan reimagines this tax deduction as a flat refundable tax credit.
This means that anyone — regardless of the amount saved — would receive the same deduction percentage. While the Biden Campaign hasn’t officially put an amount on the credit, The Tax Policy Center predicts the amount would equal around 26% of an individual’s retirement contribution. This means a household earning about $80,000 per year would see the maximum deduction amount. Those above that income and saving more would see the value of their contributions reduced. For example, someone earning $600,000 would get the same tax break as someone making just $60,000. The idea is that those in higher brackets would still be ‘on the hook’ for more taxes.
Secondly, Biden is looking to make retirement savings mandatory and automatic. Right now, the number of workers without a 401k or pension plan is rising significantly and there is a major retirement crisis. Biden is looking to establish plans for these workers lost in the shuffle. While several of these plans had existed before — such as MyIRA — they have been closed. Biden would re-establish these plans and expand them to include more workers.
The Trump Administration had looked to address shortfalls in the program by cutting benefits. Biden is actually looking to do the opposite. The President-elect is looking to expand Social Security and is seeking to impose significant taxes to pay for those additional benefits.
Currently, Americans pay Social Security taxes on their first $137,700 in wages on their payroll. Above that range, higher income earners stop paying additional payroll taxes as benefits no longer accrue above those thresholds. Biden’s proposal would institute a 12.4% payroll tax for Social Security on incomes above a certain level, initially projected to be $250,000. Biden’s plan is aimed to generate enough money to fix the gaps in the program, expand Social Security to more individuals, and increase minimum payments to low-wage workers.
Biden is also looking to eliminate some provisions for government workers and the receiving of Social Security. Several states and federal employees are not subject to payroll taxation for the program, but in return receive reduced benefits when hitting retirement age.
For starters, Biden is looking to change the capital gains tax rate back to 39.6% for people who make more than $1 million. The Republican tax cuts set that rate down to 20% along with a 3.8% tax for net investment income. Biden has also proposed a transaction tax to eliminate short-term trading and many of the step-up basis rules for inherited stock. This could be a major game changer for high-net-worth individuals and inheritances.
Biden also wants to raise the corporate income tax rate to 28% from the current 21% implemented during the Tax Cut & Jobs Act. Biden has proposed a new minimum tax of 15% on reported profits. This is even if deductions and credits push taxable profits down to zero. This is the reason why a firm like Amazon can make money and pay nothing in federal taxes. These rules could be pretty substantial when it comes to dividend income and buyback potential as companies may have less money to return to shareholders.
Be sure to check out MutualFunds.com’s News section for next week’s trending news.