Money Moves to Make after the 2020 Election
By: Barry E. Haimo, Esq.
October 15, 2020
Depending on which parties take hold of the White House and Congress, the consequences for your taxes could be substantial. Therefore, it is imperative to watch the elections with your tax situation in mind, as 2020 election results could shift your tax and estate planning dramatically.
As soon as the results are in, be prepared to take immediate action in these three areas of your tax planning, which could be significantly affected by the election’s results.
Convert to a Roth IRA
Many retirement savers keep much of their savings in traditional IRAs and 401(k) accounts, and will be required to pay taxes when they make withdrawals from these accounts in retirement. It’s possible that those tax rates will increase significantly depending on the election’s results.
By converting to a Roth IRA, you’ll be able to lock in the current, relatively low income tax rate by paying taxes now in exchange for lifelong tax-free growth in your Roth IRA.
Take Profits on Stocks
The Democratic party has advocated rising capital gains taxes above the levels that the Republican party signed into law shortly after President Trump’s election. The biggest difference could be in long-term capital gains, which are taxed at lower rates if you’ve held the investment for more than a year. Should the Democratic party return to the White House, that tax break could be eliminated, potentially doubling the capital gains tax rate.
Smart year-end tax planning often involves looking for losses to offset capital gains, and if Trump wins, this is a good strategy. However, if Biden takes office, it could be prudent to sell off winners to pay lower taxes now.
Estate Planning Moves
Tax reform enacted by the Trump administration significantly increased the amount of money people can pass to future generations without paying estate taxes. Currently, up to $11.58 million is not taxable, but opponents of this policy have advocated to reduce this exemption back to $3.5 million.
Should Trump win reelection, efforts to cut estate tax exemptions are likely to fail. However, a democratic win could advance efforts to cut exemptions, which could significantly affect your heirs’ inheritance.
Should efforts to cut tax exemption start to look like a possibility, if you have a large estate, you would want to consider substantial gifts and altering your will as part of your estate planning to lock in exemptions while they are still available.
Protecting Your Assets in Uncertain Times
Taxpayers have had a lot to worry about this year, even without the potentially paradigm-shifting election that is only weeks away. However, it is important to keep tax planning and estate planning in mind as soon as the results are in.
Interested in learning more about protecting your assets? Get in touch to discuss your tax and estate planning needs.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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