What Will Tax Reform Mean to you?

Congress is all about tax reform. Everyone seems very excited about it, but what does it really mean to you, your portfolio and of course your taxes? Having a forward-looking tax strategy is more critical than ever, especially if you are retired or planning for it.

No matter how you slice it, tax-reform it is going to significantly affect your finances. It is way too early for me to spell out all the specifics, but it is one of the most important proposals that I think is likely to come into effect.

Retirement plans, such as 401k contributions will be “Rothified”

The 401K plan is the leading retirement savings vehicle in the U.S., with more than 55 million active users; with current contributions of over $5 trillion to the plans as of March 31, 2017. Currently, 401k contributions are tax-deductible and the taxed upon withdrawal.

One of the proposals is to tax them up front and then make them tax free upon withdrawal, just like a Roth IRA. This would actually be great for investors as the money would grow tax differed and then come out tax free.

My concern is that many people only contribute to their retirement plans for the tax deduction and when faced with a decision on April 15th, they will bypass it.  That will be very unfortunate for people without the foresight to realize that they will one day get old and need the money.

I can see the reasoning by Congress. This would create a huge increase in taxes collected for the next several years. However, it could be a disaster down the road and lead to huge budget problems as the baby boomers take money out. Of course, leave it to Congress to only look for the quick fix.

Investment Strategy

It is more important than ever to have a “Forward-Looking Tax-Strategy”. We incorporate one into each of our client’s comprehensive retirement master plans. As we get closer to and into retirement, we must graduate from the accumulation approach to a preservation and soon to be distribution strategy.

That is precisely when it is time to graduate to a retirement advisor who should understand how to prepare you for the different phases of life and who takes a comprehensive planning approach and invests your hard-earned money to get the best returns with the least risk possible.

Feel free to contact me with any comments or questions.

Cheers -Keith

916-925-8900

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