From Retirement Now Newsletter April 29th 2021

Since we’ve had an administration change in Washington a lot of people are rightfully concerned about changes in tax legislation. I came across a good article that goes over some proposals that different senators are presenting for new tax changes.

No one really knows for sure how successful at getting passed any of these proposed bills will be. But it’s good to look over them to remind us of just what some of our legislators can scheme up. It might be the encouragement you need to take some action steps today.

First, there’s Bernie’s proposal to make you “feel the Bern” on increased federal estate tax rates. His proposal “includes federal estate tax rate increases to 45% for estates over $3.5 million with further increased rates up to 65% for estates over $1 billion. The basic exclusion amount will be a $3.5 million estate tax exemption and a $1 million lifetime exemption for gifts.”

Note: it’s a proposed increase in the tax rate, as well as a lowering of the threshold so more people are subject to pay it.

“The language is complex and detailed, and exceptions are included.” Translation: An estate planning attorney will probably be required.

Next, there is Elizabeth Warren’s wealth tax proposal… “includes an annual 2% tax on wealth over $50 million with a 3% tax on wealth that exceeds $1 billion.”

This one terrifies me, not because I have over $50 million just sitting around. But because tax legislation seems to have a history of starting out only applied to the rich, but somehow being expanded to the middle class.

Remember, when the Income Tax of 1913 was ratified, only approximately 3% of the population was subject to it.

Then there’s an entry from a guy I had never heard of, Sen. Chris Van Hollen. His proposal is to make changes to the step-up cost basis for heirs.

And lastly, there a proposal that is completely opposite of the first three. Sen. John Thune proposes ending federal estate taxes entirely.

Anyway, who knows which (if any) of these proposed pieces of legislation will get passed. But it does show just what is possible in the future. Lately, we’ve had lower than normal taxes since the passage of the Tax Cuts and Jobs Act in 2017. As these above proposals show, things can go back to the way they were before, and maybe even worse.

Conclusion: One of the biggest tax threats many retirees face is related to their retirement accounts. Many people have the bulk of their savings in 401k’s, which are subject to taxation when you begin withdrawing from them. By contributing into them you save on taxes today, but you pay the taxes on your withdrawals in the future. If future tax rates are higher, then that’s bad for retirees who need every bit of after-tax income they can get in retirement.

If you are concerned about what possible future tax changes could do to your retirement and would like to know about ways to help protect yourself from that, click here, to schedule a time for us to chat.


Chris Hammond

P.S. We specialize in helping retirees (and those retiring in the next 5-10 years) determine how much they need to save, how to not run out of money, and help them lower their taxes throughout their retirement years.

Click here to schedule a call and start planning for your retirement now.