Retirement Tips Seniors Will Need If the Capital Gains Tax Changes


Have you heard proposed changes to the capital gains tax rate buzzing around the retirement planning world? If you are already a senior citizen and are depending on your retirement savings to fund the rest of your retirement, you may want to consider following these four tips that seniors will need if the capital gains tax rate changes.

1. Know The Current Rates. At this time, the top capital gains tax rate is 23.8%. It is actually this much because the 20% top capital gains tax rate has a 3.8% surcharge added to it for the highest earners that was intended to fund the expansion of the Affordable Care Act. This is the rate for long-term capital gains, meaning you have held the assets being taxed for more than one year without selling them. (Short-term capital gains tax rates are already the same as ordinary income tax rates.) This rate currently applies to individuals who earn $445,850 or more per year, or married couples who earn more than $501,600 per year. You may already pay 23.8% in long-term capital gains tax. Alternatively, you may pay a lower rate, depending on your overall income and tax bracket. If you pay a lower tax rate, you might still pay the 3.8% surcharge, which is paid by individuals earning $200,000 or more per year, and married couples earning $250,000 or more per year.

2. Figure Out Your Potential New Rate. Current proposals have the highest long term capital gains tax rate set at 43.4%. This adds the top 39.6% ordinary income tax rate currently imposed on the highest earners to the 3.8% surcharge. This top rate would be paid by earners of greater than $1 million in income annually. Many seniors who currently have combined retirement and investment income that is greater than $500,000 but less than $1 million annually will not pay the proposed top rate. It can be critical to find out what your rate would actually be to plan ahead as best you can.

3. Understand How Retirement Accounts May Differ. Many seniors withdraw money from a variety of retirement accounts for living expenses. Different accounts could be impacted by changes to the capital gains tax rate differently. Money in a Roth account, either a Roth IRA or Roth 401(k) plan, can be withdrawn free of tax. Current proposals to change the capital gains tax rate won’t affect money you take from a Roth account. Money taken from a traditional IRA or 401(k) plan, however, is taxable when withdrawn, so the new tax rates could affect your withdrawals.

Tax planning can be critical in helping to ensure you have adequate funds throughout your retirement years. For assistance navigating these issues, and related legal issues, our office is here to help. Please contact us to schedule a time to speak.

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