ARTICLE: Retirement Tips If the Capital Gains Tax Changes

Retirement Tips If the Capital Gains Tax Changes

An important part of responsible retirement planning is taking into consideration the impact taxation may have on your retirement resources. Without proper planning, taxes can eat up a big chunk of retirement savings you may have been counting on to support yourself through your golden years. Due to the potential impact taxes may have on your retirement funds, keeping up with potential tax changes can be important. Did you know that President Biden announced his individual tax proposals in May which included a 39.6% long-term capital gains tax rate? Let us discuss some retirement tips in light of the potential capital gains tax changes.

In light of the potential capital gains tax changes, some may want to consider selling appreciated securities now. This would lock in the current capital gains rate of 20%. Considering it could increase to 39.6%, the 20% hit may be more appealing. The proceeds from the sales could then be redistributed in ways that take the capital gains tax increase into account.

It may also be a good time to reflect on your retirement investment vehicles and how they are taxed. Considering the potential increase in the capital gains tax rate, retirement accounts such as Roth IRAs, 401(k)s, and life insurance policies may be better options. If you have a traditional IRA, it may be a good time to convert it to a Roth IRA. Converting now means that you lock in the current tax rate. You contribute after tax money to a Roth IRA and, as a result, do not pay tax on capital gains growth or on investment income. Funds held in a Roth IRA grow tax free, as opposed to tax deferred. When distributions are made from a Roth IRA, they are not taxed.

For assistance with putting plans in place that best protect your future, our office is here to help. Please reach out to us today to schedule an appointment.

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We at Roth Elder Law, PLLC, believe in providing services in a way that clients can easily understand and meaningfully participate in designing and maintaining their estate plan for their loved ones, as well as be assured that their plan will be administered according to their wishes.