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IRA Financial Blog

What the Change in Leadership Means for Your Retirement – Episode 269

Adam Talks

In this special edition of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses the impact of the Democrats gaining control of the Senate, in addition to the House and the presidency and what it means for your retirement.

As you now know, there is an imminent change in leadership coming. The Democrats have won control of the Senate, meaning they control the Senate, House and the presidency. After having a Republican president and Senate, change will be coming. This episode of Adam Talks will center on the aspects that will affect retirement savers and any tax consequences. It’s important to keep in mind that this is a bipartisan podcast, and Mr. Bergman and IRA Financial are not here to share political views. Mr. Bergman will talk about the history of the Democrats’ stances on the economy and what specifically the Biden/Harris campaign has talked about doing once they are in office.

Change in Leadership

Senate candidates Jon Ossoff and Raphael Warnock each one his respective runoff election in the state of Georgia earlier this month. Needing both seats, the Senate is now split 50/50. Of course, the incoming Vice President, Kamala Harris is the deciding vote in the event of a tie. Basically, President-elect Joe Biden can push almost anything he wants through the process. Obviously, any new bills and changes must go through the process, so expect some time before anything gets put into place. Although, some change will be coming sooner rather than later.

Congress can now repeal recently-approved federal regulations. Since it only requires a Senate majority vote, it cannot be filibustered. Essentially, this is only practical during a change in leadership (Clinton and Obama have previously done so).

Budget reconciliation can impact retirement rules, since they are tax policy. However, social security cannot. You should be aware of this as it is a way to get tax policy change, which may affect your retirement planning. A new tax bill will certainly be coming. President Trump’s bill was the Tax Cuts & Jobs Act. President Obama had his own bill as well, so expect something similar from his former vice-president.

Retirement Changes

On his website, Joe Biden says he wants to “equalize benefits across the income scale, so that low- and middle-income workers will also get a tax break when they put money away for retirement.” Biden and Harris are keen on moving away from the current system where retirement plan contributions are deductible to a credit. They propose to do away with the deduction based on your income to a 26% credit. Note: Mr. Bergman says 24% in the podcast, but later confirms it to be a 26% credit. That’s the size credit the Tax Foundation estimates Biden needs to balance the tax impact on the Treasury, while still achieving its policy goal of boosting the savings incentive for lower income people.

In sum, it would equalize tax benefits in retirement savings plans in dollars. That’s because a person in the 37% tax bracket gets a bigger dollar benefit than someone in, say, the 24% bracket. Here’s what the changes boil down to. If you are a single taxpayer whose 2021 taxable income is as much as $41,000 or married filing jointly with taxable income up to $82,000, you’ll end up with more retirement savings if you contribute as much as you already do. That’s because for every $1,000 you contribute to one of those retirement savings accounts, your tax bill will go down by as much as a net $134 vs. your tax savings under current rules, according to calculations by Independent Tax Foundation.

Of course, if you are in a higher tax bracket, this plan does not appeal to you. Instead of getting the tax deduction based on your tax bracket, you will get the lower tax credit. The idea is to encourage lower income earners to save more for retirement. If you incentivize them, they should save more.

Another possible change is a 28% cap on deductions, which was brought forth by the Obama administration. Further, there could be a cap on retirement savings – $3 or $5 million, maybe up to $7 million. Biden could increase the Saver’s Credit and make it refundable. There’s also potential in Roth retirement plans. If the tax benefits aren’t there for you, it makes sense to pay taxes now and go Roth.

Other Tax Changes & Thoughts

  • Increase top individual, corporate, and capital gains rates.
  • Individual rate could jump to 39.6%
  • Corporate tax rate could increase to 25%-28%
  • Capital gains tax rate increase could be the most significant. for the wealthy and those investors generating over $1million in capital gains, the old capital gains rate of 15% or 20% will be replaced with a tax rate of 39.6%
  • Highest capital gains tax rate since 1977 – 39.7%
  • This will have a major impact on the wealthy who earn the majority of their income from capital assets – stocks, real estate, etc
  • When capital gains were at 15% – many real estate investors argued that was better to hold real estate with an after-tax account then an IRA because of low capital gains tax rate, but if capital gains rate goes to 40% for over $1 million, real estate investors will have a tough time making strong after-tax returns and will have to turn their attention to a Roth IRA to shelter income.
  • This could be a game changes and change how people save – especially the wealthy
  • Could it impact home sales? Will there be an exclusion?
  • Carried interest treated as capital gains is likely dead.


Time to buckle up as the change in leadership will lead to major changes for retirement savers. Taxes will certain go up, especially with all the government help due to COVID-19. How this will play out, no one knows for sure. After four years with President Trump, the Democrats will look to undo anything he has done. This is not uncommon when there is a change in our government. Of course, stay tuned to Adam Talks as we break down any changes that come down.

As always, thanks for tuning in, and check out our SoundCloud page for all of our podcasts, including others that break down possible changes by the president-elect.


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