3 Ways Biden’s Tax Increases Could Sink Your Retirement
Does it ever seem to you that it’s becoming more and more difficult to afford the things you used to? Even if you’re bringing in a good income, does it seem like everything you buy just keeps getting more and more expensive, and like you can never quite get ahead of the curve? If so, you’re not alone. Millions of Americans are in the same boat with you. And unfortunately, that feeling of falling behind is going to get a lot worse.
The Biden administration is getting ready to pass what could end up being the biggest tax increase since 1968. While Biden and his allies in Congress are trying to pass it off as a “soak the rich” type of scheme, the reality is that ordinary Americans are going to feel the effects as well.
The measures that will be taken towards investors are particularly worrisome, especially as retirement accounts are coming in for greater scrutiny. If you have money socked away in a 401(k), IRA, or similar account, the government sees you as a cash cow, and you could get milked.
Here are three of the biggest threats to your retirement savings that are coming from the Biden administration.
1. Capital Gains Tax Increases
President Biden wants to raise taxes on capital gains. This is ostensibly for reasons of fairness, as high income households often bring in much of their income from capital gains rather than from wages, and wages are taxed higher than capital gains.
Of course, the obvious solution would be to lower taxes on wages, but lowering taxes wouldn’t pay for all big government programs Biden wants to fund. So capital gains taxes are likely going to rise.
Biden is essentially proposing a doubling of the capital gains tax rate, from 20% to 39.6. And when other add-on taxes are thrown into the mix, the actual tax rate on those capital gains could end up being over 48%.
The capital gains tax increase is being proposed as one to only affect large earners, those who earn over $1 million in long-term capital gains each year. But as with all tax increases, once the camel’s nose is under the tent, there’s no telling who will be affected in the coming years.
After all, the highest income tax rate was only 6% when it was passed in 1913, and only 3% of the population was affected. Yet now we all have to file income tax returns each year, navigating a labyrinthine and arcane system of laws and regulation, and even low income families pay far higher percentages in taxes than the rich did back then.
Even worse than the capital gains tax increase is the fact that it is intended to be made retroactive. So people subject to the higher rates may end up having to pay retroactive taxes for assets they held thinking that they would only be subject to the 20% rate.
The obvious effect of such a tax increase is that many high-income households could decide to dump their capital assets in order to minimize their tax exposure. That could come in the form of stock and bond sell-offs. And the effect of that could be to drive down prices for stocks and bonds, plunging markets into a correction or even a crash.
Evidently Biden is willing to risk a stock market crash in order to raise capital gains taxes, but your portfolio could be affected too, even if you’re not subject to the new higher tax rates. You may very well pay for his tax increase in the form of investment losses on your stocks and bonds if a sell-off ensues.
2. Corporate Tax Increase
Biden also wants to raise the corporate tax rate, which if he is able to implement would end up being higher than competitors such as China. Aside from pushing businesses into continuing to offshore their operations, an increase in the corporate tax rate could negatively affect numerous businesses.
Higher tax rates mean less money that companies can plow back into operations, maintenance, or research and development. It means less money that can be paid to investors in the form of dividends. And the resulting drag on both production and profit could have a negative impact on stock prices, which could harm the well-being of your investment portfolio.
3. IRAs Targeted
One aspect of Biden’s plans that should worry investors is that IRAs and retirement accounts are starting to come under the microscope. Democrats are afraid that some investors have too much money in their IRAs, and they want to ensure that that money gets taxed. All of a sudden, what seemed like a great way to save money for retirement is starting to look like a target for the IRS.
It looks as though Biden wants to target IRAs above a certain threshold, forcing mandatory distributions if you have above a certain amount of money in your IRAs. But again, as with the income tax, the temptation will be to move that threshold gradually lower until more investors are forced to sell their IRA assets in order to raise more revenue for the government.
Retirement accounts are no longer unrestricted safe havens. They’re now on the government’s radar screen, a big fat source of money ready to be raided whenever the government feels the need for more money. And it could only be a matter of time before your retirement accounts are on the hit list.
Can You Protect Yourself?
Thankfully there are ways you can protect yourself against this money grab. One of the first things to do is consult with your tax advisor to see what kinds of strategies might work for you, and what kind of tax ramifications you’ll experience.
If capital gains tax increases result in a stock market correction, moving into alternative assets such as precious metals could provide you with some protection. You can even roll over or transfer assets from your existing 401(k), IRA, TSP, or similar accounts into a gold IRA, allowing you to benefit from the potential growth in the gold price in the event of stock market weakness.
Or, depending on what your tax advisor recommends, you may consider a direct purchase of gold coins or bars, which are taxed at a maximum 28% collectible rate. Certainly if you’re one of those facing a 48% capital gains rate on your investments, the prospect of a 40% reduction in taxation has to look appealing.
Whichever route you decide to take, the precious metals experts at Goldco can help you through the process. Our experienced professionals have helped thousands of customers just like you add precious metals to their investment portfolios.
Don’t let your hard-earned retirement savings fall victim to a government money grab. Contact Goldco today to find out how you can protect your wealth with gold.