This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

What To Do if Washington Takes Your Retirement Dividends Away

NEW YORK ( TheStreet) -- While all eyes are on the tight election race between President Obama and Mitt Romney, income-seeking investors had better focus on tax strategies heading into 2013.

There are major worries as the tax cuts signed into law by President George W. Bush are set to expire at the end of this year, considering that control of the two houses in Congress is split. President Obama has expressed a desire to extend the tax cuts again -- except for individuals earning more than $200,000 a year and couples filing jointly who earn more than $250,000.

For investors, an obvious concern is that their top margin tax rates will increase in 2013. Taxpayers whose current marginal rates are 25%, 28%, or 33%, will see their top rates increase by 3%.

Taxpayers currently in the 35% bracket -- for 2012 earning $388,351 or more, filing jointly -- will see their top marginal rate increase to 39.6%.

For joint-filers earning more than $250,000 ($200,000 for individual filers and $125,000 for married couples who file separately) there will be an additional 3.8% Medicare tax beginning in 2013 to pay for the Patient Protection and Affordable Care Act of 2010, also known as "Obamacare", for the lesser of earnings above the threshold, or investment income.

Taxes on qualified dividend income is currently capped at 15%, which will expire at the end of 2012, without action from Congress and the president. This means that the expiration of the Bush tax cuts can have a huge effect, even on filers who aren't in one of the higher tax brackets.

Under the current cap on dividend taxes, if an investor's adjusted gross income -- again, married, filing jointly -- is below the $70,701 threshold for the 25% tax bracket, the investor is paying no taxes at all on qualified dividends, which include most income from corporate bonds and preferred stock. For higher-income investors, the top "all-in" rate paid on taxable dividend income, including the new Medicare tax, can be as high as 43.4%.

1 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
KMP $102.03 1.98%
APU $49.34 0.00%
BAC $16.04 0.00%
JPM $61.58 0.00%
WFC $55.15 0.00%

Markets

DOW 18,214.42 -10.15 -0.06%
S&P 500 2,110.74 -3.12 -0.15%
NASDAQ 4,987.89 +20.7530 0.42%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs