![]() Owners must live in the home at least two years out of the past five years before the sale date to qualify. The IRS considers homes as capital assets, and single and joint tax filers are exempt from paying capital gains taxes on the first $250,000 and $500,000 of a sale respectively. ![]() It’s also worth noting that Biden’s capital gains tax proposal could impact low- and middle-income homeowners in hot housing markets. Financial advisors agree that long-term savings could help investors withstand stock market changes and reach their retirement goals. As an example, if the tax hikes trigger a stock market sell-off (this happens when traders make a lot of quick sales), the value of their retirement portfolio could change.įor reference, the financial services company Fidelity says that the average balance for defined-contribution plans like 401(k)s or 403(b)s in the first quarter of 2021 was $123,900, almost twice as much as the average balance in 2011 (which was $72,800).įidelity’s president of workplace investing, Kevin Barry, said in a related press release that “the stock market’s recent performance provided a boost to retirement savings balances.” And while investors cannot control the performance of the stock market, Barry explained that they can control how much they save into their retirement accounts. While Biden’s budget proposal may target mostly high-income taxpayers, the finances of low- and middle-income Americans could also be impacted in different ways. Combined, these plans cost more than $6 trillion. This means that they have more flexibility on how much in taxes they will have to pay by limiting the amount they take out to keep their income beneath the top tax rate.īiden’s tax hikes aim to raise revenue for his Build Back Better agenda, which is made up of the approved American Rescue Plan, and the proposed American Jobs Plan and American Families Plan. ![]() So if Biden’s capital gains tax hike gets approved, high-income investors could save money by paying a lower rate now.Ĭomparatively, investors moving money into tax-deferred retirement accounts like 401(k)s, will be able to postpone paying taxes on the money they invest until withdrawal. But for many high-income Americans facing Biden’s proposed tax hikes, choosing when to pay taxes is crucial to maximizing their investments.īiden’s 2022 budget proposal is driving attention to tax-advantaged retirement accounts like Roth IRAs and 401(k)s as an alternative strategy to mitigate capital gains tax increases and grow capital through tax-free or tax-deferred investments.Īs an example, an investor who moves money into a Roth IRA, will have to pay taxes up-front, but could make tax-free withdrawals as long as he or she is age 59.5 or older and holds the account for more than five years. ![]() How Biden’s Tax Plan Affects Retirement Accountsīenjamin Franklin says that death and taxes are inevitable. Let’s break down how Biden’s tax increases could affect your retirement plans. A financial advisor can help provide expert advise on which strategies make most sense for your finances. But while the president’s tax hike could compel high-income investors to move their money into tax-exempt retirement accounts like Roth IRAs, it could also benefit tax-deferred retirement plans like 401(k)s for low- and middle-class taxpayers. Taxpayers with an adjusted gross income over $1 million will also have to pay this rate on long-term capital gains and qualified dividends. President Joe Biden’s 2022 budget proposal raises the top income tax rate up to 39.6%. How Biden's 2022 Tax Plan Could Affect Your Retirement - SmartAsset
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