What might happen to your IRA and 401(k) if former vice-president Joseph R. Biden Jr. should become the next President of the United States.
According to Kelly Campbell, the CEO of Campbell Wealth Management, says there could be plenty of changes. For instance, Biden wants to equalize the tax benefits for those contributing to their retirement plans, while incentivizing lower income earners to contribute more to their savings.
Currently, any contribution to your company’s 401(k) plan is subtracted from your income before your income tax is determined. The higher your tax bracket, the more benefit you get for contributing the same amount of money. For example, if you make $200,000 per year and you contribute the current maximum contribution ($19,500 for those under the age of 50), your income tax will be based on $180,500.
Also, depending on which bracket you are in, you could get vastly different tax breaks for the same contribution. For example, someone in the 37% bracket will get a tax savings of $7,215. For someone in the 10% bracket, that same $19,500 contribution will receive a $1,950 benefit.
According to Kelly Campbell, the CEO of Campbell Wealth Management, there could be plenty of changes. For instance, Biden wants to equalize the tax benefits for those contributing to their retirement plans, while incentivizing lower income earners to contribute more to their savings.
This means a lower tax for lower- and middle-income earners, says Campbell.
And it also means that higher earners could likely subsidize the taxes and retirement benefits for lower income earners by paying more taxes. Read Biden’s Proposal Would Shift the Distribution of Retirement Tax Benefits and The Biden Plan for Older Americans.
This also leads to two interesting potential outcomes, wrote Campbell in an article published on TheStreet’s Retirement Daily.
First, if higher income earners get a lower tax benefit for contributing to their 401(k), they may change their position by contributing their savings to a Roth 401(k).
Second, if these higher income earners put their money into a Roth 401(k), tax revenues could immediately go up.
Under Biden’s plan, almost all workers without a pension or 401(k)-type plan will have access to an automatic 401(k), which provides the opportunity to easily save for retirement at work.
And should Trump be re-elected, Campbell said there are no stated plans to alter 401(k) and IRA plans.
For more, read Campbell’s article, How the Election May Affect Your Retirement, on TheStreet’s Retirement Daily.