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IRA Financial Blog

What a Biden Victory Means for Your Retirement Accounts – Episode 244

Adam Talks

IRA Financial’s Adam Bergman discusses the possible effect a Biden victory in the 2020 election would mean for investors and, especially, retirement savers.

The presidential landscape is heating up. The Democratic National Convention just wrapped up and then RNC is ongoing right now. There’s a lot of talk about Joe Biden winning the presidency in the upcoming 2020 election. What will a Biden victory mean for Americans? On top of that, we may see a swing in the Senate to the other side of the aisle. If that happens, we can have sweeping changes to our country. Essentially, it will all come down to taxes.


Biden has already talked about what he plans to do with taxes. Let’s take a look at some of the numbers:

Income Tax Rates – Biden plans to repeal the tax break for the wealthy (those earning at least $400,000). The Tax Cuts and Jobs Act (TCJA) reduced the tax from 39.6% to 37%. A Biden victory means that rate goes back up. There will also be a Social Security tax implemented for those high earners.

Corporate Taxes – The TCJA also reduced the corporate tax rate from 35% to 21%. Biden plans to bump the rate up to 28%. He will also implement a minimum tax rate of 15% for corporations with over $100 million in book profits.

Capital Gains – This is the big one for those earning $1 million annually. A Biden victory will look to make these people pay ordinary tax rate (39.6%) on all capital gains. Currently, only short-term gains are taxed as ordinary income. Long-term gains are only taxed as high as 23.8%

Estate & Gift Taxes – The TCJA essentially doubled the basic exclusion amount to $11.58 million. Everything above that would be taxed at 40%. However, Biden would lower that threshold, meaning you would pay taxes on lower amounts. Lastly, he would get rid of the step-up in basis. Unrealized capital gains would be taxed at death.

What Does a Biden Victory Mean for Us

As we just laid out, a Biden victory will lead to more taxes, especially for the rich. Lower income earners will see a break for sure, but the more you make, the more you will get taxed. How can you prepare for a Biden presidency? It’s time to utilize tax-advantaged accounts, such as the IRA. Moreover, the Roth IRA may be your best bet to lock in lower tax rates.

As you probably know, you don’t pay taxes annually on the assets held by your retirement account. In the case of a traditional plan, taxes are deferred until you withdraw during retirement. Plus, you get an immediate tax break on all contributions, since they are made with pre-tax funds. On the other hand, if you choose a Roth plan, your qualified withdrawals are tax-free. This is because you fund the account with after-tax money. The only downside is that there is no upfront tax break.

We know taxes will go up in the future, especially due to the government stimulus packages for the COVID-19 pandemic relief. It makes sense to pay taxes now, while they’re still relatively low. Also, converting traditional funds to a Roth plan also makes a lot of sense.

The Power of the IRA

In addition to the tax advantages of IRA plans, if you utilize a Self-Directed IRA, you can invest in just about anything you want. No longer do you have to invest in what your provider allows. Instead, you can invest in assets you want, such as real estate, precious metals and hard money loans.

Moreover, the Roth IRA, especially when self-directed, is arguably, the best retirement plan out there. Imagine funding the plan throughout the years with $50,000 of your after-tax money. By the time you reach age 65 and are looking to retire, you could have over $1 million in tax-free money!

A Biden victory, along with the Democrats gaining a Senate majority, will definitely lead to much higher taxes. Higher earners need to seriously consider the advantages of the IRA, Roth IRA and retirement planning. As always, you should work with a financial planner to see what plan fits your needs.

Listen to the Podcast

Mr. Bergman delves deeper into the effects of a Biden victory, including details of the step-up in basis for beneficiaries. Lastly, he speaks about the other big winner in a Biden victory – life insurance.

As always, thanks for listening to Adam Talks and be sure to find us on SoundCloud or your favorite streaming platforms!


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