Possible Changes on the Horizon for Retirement Savings

The Biden Administration is currently looking at making changes to the tax incentives of saving for retirement. Treasury Secretary Janet Yellen recently announced the Administration is considering a proposal to replace the dollar-for-dollar tax deduction with a 26% credit. More details can be found here.
What does this mean for you? If you expect to pay tax at a marginal rate higher than 26% (taxable income over $329,850 for married taxpayers and $164,925 for single taxpayers), then you could see the tax value of your retirement plan contribution diminish.
How? Under current rules, a tax deduction offsets your highest taxed income first. If you pay tax at the highest federal rate, then deferrals into your retirement plan can save up to $7,215 in federal tax, even more once you reach age 50. If the benefit on your retirement plan contribution is limited to 26%, then your tax benefit is capped at $5,070. Self-employed individuals and partners in partnerships could take an even greater hit.
Stay tuned. A change in these rules could nudge more taxpayers to consider Roth and other options to traditional retirement savings.
As always please contact us if you have questions or need assistance.