Changes are on the horizon for the tax code. What could be changing?
1) Long-term capital gains may soon be taxed as ordinary income. When that happens, the gains you experience in your non-retirement accounts will be taxed in the year the gain is realized at the same rate as your other income. There are strategies to have tax-deferred growth (besides regular non-qualified accounts) that might be appropriate for some people. Ask us about this if you have large sums sitting in bank accounts, CDs, or non-qualified investment accounts.
2) Because tax rates will likely rise over time, you may want to re-think postponing your tax bill. This is not a solution for everyone but may be appropriate for some. How can you know whether you should pay taxes now or defer until later (through means such as making tax-deductible IRA contributions, etc.)?
3) We’ve already seen changes to the inherited or beneficiary IRA. Children who inherited tax-qualified money used to have a long schedule of years to withdraw the funds, paying tax little by little. Recently the timeframe was changed to a 10 year period. Planning how and when to pay taxes on inherited IRAs can be very beneficial for you. Unfortunately, most people don’t have a lot of experience in this area and they don’t know what they don’t know! We encourage you to ask questions and learn what your options are.
Our country is in a time of transition as well—and it can feel more like a rollercoaster than a road construction project. When you begin to see signs on the road, you slow down and become more alert. We see some advantage to approaching the future with the same caution.
1) Our nation is facing extraordinary debt. At the time of writing this newsletter, the debt was over $27 trillion, which equates to $83,906 per citizen or $222,190 per taxpayer.1 Comparing that to a mortgage, we are essentially living in a lavish “2nd home” of debt. The bill collector will eventually come for this debt, in one form or another.
2) COVID-19 has placed demands on the economy and personal finance. The price tag for this (in lost work, additional debt, strain on savings and contingency funds, etc.) remains to be seen.
3) Changes to the tax code and higher regulations are anticipated. These factors typically serve to slow the economy.
We are not permitted to make sweeping general recommendations, nor do we want to do that. We are committed to treating folks as individuals and know that every situation is different. However, it is important to watch for trends and see how your situation might be impacted by economic changes.
For some who are approaching retirement, it might be worth considering a pull back into a more conservative position. For others who are younger or who plan to continue working for a number of years, it might be time to review your investment allocations and prepare for change. We can help you with your personal IRAs or non-qualified accounts and even with your 401k in most cases.
This should not be a time for fear. For the believer, we know that our entire future is held in the hands of a loving God. If you do not know and experience the hope that is found in Christ, seek Him and know true freedom from fear. “The thief comes only in order to steal and kill and destroy. I came that they may have and enjoy life, and have it in abundance (to the full, till it overflows).” John 10:10 Amplified Bible