Tax reforms could impact your retirement saving.
As a working American, you are affected by tax law.
There is no legal way around this.
Just ask Willie Nelson.
As such, any change in the tax code will impact you.
According to a recent CNBC article titled “Tax reform could change the way you save for retirement,” proposed legislation will influence how you save.
Republicans are planning to simplify the tax system.
In fact, their goal is to have taxes filed using a mere postcard.
Although postage may be simpler, the solution itself is not as easy.
To simplify the tax code this much, deductions will need to change.
The legislation proposes eliminating most individual deductions.
Some would remain.
- Mortgage interest
- Charitable donations
- 401(k) contributions
There is some concern from the public about whether retirement deductions could be removed.
With these deduction worth about $583.6 billion through the year 2020, those dollars could be an appealing means to make up funds from other tax breaks.
How does the tax system currently work with retirement savings?
Currently, individuals can defer taxes on money they place in a retirement savings account.
Once the money is withdrawn, it is taxed.
What are some proposed changes to the retirement saving tax code?
There are several different plans.
One involves half of the savings to be taxed up front and the other to be taxed later.
The moneys taxed up front could then be withdrawn tax free in retirement—similar to a Roth IRA.
Another option is the creation of a new universal savings account.
How would this work?
Individuals could contribute up to $5,500 after taxes into this account, but withdrawals could be made tax-free at any time—rather than merely in retirement.
A third option is instating a cap on deferred contribution.
The current limits are $5,500 for an IRA (with inflation adjustments) and $18,000 a year for a 401(k).
Ultimately, the Republicans would like to simplify the system into three income tax brackets—12 percent, 25 percent and 33 percent.
This would decrease the top rate by 6.6 percent.
Anytime tax changes are made, it will impact you—the taxpayer.
Although nothing is official, you will want to work with an experienced financial advisor, certified public accountant and estate planning attorney regarding how any changes would impact your goals and your strategies.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: CNBC (June 29, 2017) “Tax reform could change the way you save for retirement”