As the United States makes the transition from the Trump presidency into President-elect Biden’s administration, it is important that investors in or near retirement take a close look at the President-elect’s policy proposals as they relate to retirement saving. Adjustments to the U.S. tax code and programs like Social Security and Medicare can influence the way you save and how much income you will need when you retire. The licensed retirement phase experts at Crash Proof Retirement ® have reviewed Biden’s proposals for his first term and identified a few items that may be of particular interest to retirees and those saving for retirement.
“Leveling the Playing Field” for Retirement Accounts
Under current rules, retirement accounts like traditional IRAs and 401(k) plans are tax deferred, meaning retirement savers will not have to pay income tax on any amount contributed to a qualifying plan until they make a withdrawal. Because tax rates get progressively higher as income increases, high earners receive more of a benefit from their retirement accounts than lower-income earners. President-elect Biden has proposed eliminating this tax deduction and replacing it with a flat tax credit for every dollar contributed to a retirement account, with analysts estimating that a 26% tax credit could help level the playing field. For lower-income earners, this would generate a significant increase in their tax benefits by contributing to a retirement account; high-income earners would receive less of a benefit than they do currently with tax deductions and may choose to find other ways of decreasing their tax liability.
Higher Marginal Income Tax Rates for High Earners
Under the Tax Cuts and Jobs Act of 2017, individual tax rates for incomes over $400,000 dollars were cut from 39.6% to 37%. Joe Biden has proposed restoring them to their pre-2017 levels to raise more revenue that would be used to fund programs like Social Security and Medicare. He has also proposed imposing a 12.4% Social Security payroll tax on income earned above $400,000. Under current law, income up to $137,700 is subject to the same payroll tax (that amount is slated to increase to $142,800 in 2021) and income above that amount is not subject to payroll tax at all. The additional tax on income above $400,000 is believed by the incoming Biden administration to shore up the solvency of the weakening Social Security program.
Increased Social Security Benefits for Some Retirees
According to the Center on Budget and Policy Priorities, nearly half of all retired Americans receive 50% of their monthly income from their Social Security (SS) benefits. Biden has proposed measures aimed at increasing the amount of money they receive from SS, especially for older retirees and those who have difficulty saving for retirement because of lower lifetime wages. Under Biden’s plan, retirees between the ages of 78 and 82 would receive a gradual increase in their monthly benefit amounts. It would also increase the minimum benefit amount for retirees who worked for at least 30 years to 125% of poverty level. Widows and widowers would also see increased monthly benefits – around 20% more than they would presently.
Expanding the Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is intended to help low-income workers achieve a living wage. Under current law, this tax credit is not available to workers over the age of 65. The Biden plan would expand the EITC to include childless workers over the age of 65, providing some extra assistance for those who wish to continue working longer so they can claim larger Social Security benefits when they retire.
What Does the Biden Plan Mean for Your Retirement?
The effect of Joe Biden’s policy proposals will depend heavily on your income level and what his administration manages to pass through the Chambers of Congress. The proposals listed above are just a few of the many included in the President-elect’s sweeping tax and retirement reform plans. If you are retired or currently saving for retirement, it pays to do your research and get educated about how new laws could impact your investment and saving strategies. If you are not sure how to proceed with your retirement saving, Crash Proof Retirement ® can help you. Our team of licensed retirement phase experts can educate you about the exclusive Crash Proof Retirement ® System and teach you about little-known tax laws and strategies that can help you weather the potential storm of retirement reforms. Thousands of retirees all around the country have gained peace of mind after receiving a retirement planning education from the retirement experts at Crash Proof Retirement ®. Call 1-800-722-9728 or visit crashproofretirement.com to find out more about how our proprietary Crash Proof Vehicles can protect your retirement savings from the constantly changing retirement landscape and learn about strategies that you can use to have a financially secure retirement.