What Does Change in Political Leadership Mean to Your Retirement?

By Jeffrey Levine, Director of Retirement Education 
Follow Me on Twitter: @IRAGuru4EdSlott

What is there to say that hasn’t already been said (10,000 times)? The election of Donald Trump to be our next President shocked the pollsters, the American public and, by all accounts, even the President-elect himself. Reactions are obviously divided, to say the least, but one thing that has united most retirees, regardless of the side of the aisle that they sit on, is the question, “What does this mean for me?”

There are, of course, no guarantees, especially when it comes to politics. That said, there are a number of changes that seem highly likely. Here are just a few to consider:

·      With almost full certainty, the 3.8% surtax on net investment income that impacts certain high-income taxpayers will be repealed, and likely before the end of 2017. The tax, which was introduced as part of the so-called “Obamacare” laws, is a major target for both Congressional Republicans and the President-elect himself. Even if President-elect Trump’s position on some of the aspects of Obamacare soften – as they already seem to have – this provision of the law is generally thought to be destined to go. The only real question here is whether other priorities will push back the “repeal and replacement” of Obamacare long enough that the change doesn’t come until 2018.

·      The top income tax rate is likely to be lowered from its current high of 39.6%. President-elect Trump’s plan called for just three income tax brackets, but Congress may wish to amend his plan somewhat. Regardless, both sides want to lower the top rate and you can expect that to happen in 2017. What does this mean for you? Well, it may significantly decrease the benefits of making a Roth conversion in 2016 (but don’t stop one if you’ve already planned for it, you can always recharacterize it before October 15, 2017). It also means that such conversions may become more beneficial next year. There’s no guarantee as to how long the new lower rates will last, so if this likely change comes to pass, you may want to strike while the iron is hot.

·      The overwhelming likelihood is that the estate and gift tax is on the way out. The only real question at this point seems to be how high the step-up in basis will be. Early indications are that it may be as high as $10 million. What a change that would be! In many situations, the combination of no estate tax and a $10 million step-up in basis would allow you to avoid ever paying tax on large swatches of wealth. Just hold on to the appreciated asset until you pass away and your heirs will be able to reap the benefits tax-free.

·      Here’s something you probably weren’t aware of… prior to the election, the stretch IRA was in real serious danger of being eliminated. In fact, a bill containing the change had already been “scored,” which means it was pretty far down the road to completion. Donald Trump’s election doesn’t reverse that possibility, but it does make it a little less likely than before. Simply put, there may be bigger fish to fry.

·      Many pre- and post-retirees rely on Social Security for a good portion of their income. Interestingly, this is one area where the President-elect and the Republican Party, which he now leads, differ substantially. The good news for pre- and post-retirees here is that President-elect Trump ran on a platform that included keeping the “promises” we had already made with respect to Social Security. If he holds to that position, the system could remain substantially unchanged for at least the next four years.

What will actually happen from here? Who knows! But it’s probably going to be one heck of a ride for the next few years. Things are likely to change… and fast! Whenever that’s the case, those armed with the information the quickest have an edge. So stay tuned, stay up to date and stay focused on achieving your long-term goals.


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