Tax conversations to have with your financial professional

By Phil Wright - March 05, 2021


tax-conversations-to-have-with-your-financial-professional tax-conversations-to-have-with-your-financial-professional

New Tax Changes Could Affect Your Financial Health

Time to Discuss the Implications with Your Financial Professional.

President Biden is not wasting any time putting his plans into action. The $775 billion plan he announced while campaigning last year to fund a new national caregiving program was only the beginning of a very ambitious agenda he can now move forward on. And it appears he will move quickly. Within hours of his inauguration on January 20, 2021, Biden signed 17 executive actions.   

Encouraged by a party that now controls both the House and the Senate’s tie-breaking vote, Biden will pursue even broader proposals that address climate change, racial injustice, immigration, and our most urgent threat today – the ongoing COVID pandemic. Solving these issues will be daunting and expensive. That is one reason why his plan includes sweeping changes to the tax code that could have lasting implications for investors and retirees.

Now is an excellent time to revisit your retirement plan with your financial professional and discuss the potential impact of Biden’s proposed tax policies, as well as strategies you may want to consider for protecting your assets.

Potential Policy Changes

According to a Tax Foundation analysis in October 2020,1 Biden’s plan includes more than 25 proposed changes to the current tax code. That would certainly meet most investors’ definition of sweeping changes.

Among Biden’s extensive list, the proposals sparking the most attention include:

  • Increase in the top income tax rate from 37% to 39.6% for individuals and from 32% to 39.6% for married couples filing jointly, who earn more than $400,000 a year.2  
  • Increase in the capital gains tax to 39.6% on income over $1 million generated from long-term capital gains and qualified dividends.3
  • Increase in the corporate tax rate from 21% to 28%.4
  • Limiting itemized deductions to 28% for filers earning more than $400,000 a year. 
  • Applying a Social Security payroll tax of 12.4% on earnings above $400,000 a year.6
  • Reduce estate tax lifetime exemption from $11.7 million to $3.5 million.7
  • Eliminate the "step-up" when heirs inherit property upon the owner's death that enables heirs to step-up the original basis of the property to the current market value.
    • The new proposal would eliminate that ability, potentially requiring heirs to pay capital gains tax on the property's appreciated value from the original cost to the current market value.
What About Timing?

Further complicating the question of timing is that Biden’s administration will grapple with an ongoing pandemic, heightened political tensions, a damaged economy, and ballooning national debt. That hardly makes for a recipe of speed in pushing through new tax legislation.

So, it is possible that many of Biden’s initiatives, which will likely need bipartisan support to pass, may not be considered by Congress until the 3rd quarter of 2021. That could mean the passage of new legislation that would not become effective until January 1, 2022. However, even if new legislation does not pass until late into this congressional session, Biden may have the ability to make the new laws retroactive to the beginning of the year.

For high-income earners above the $400,000 threshold, that might eliminate several of the strategies they could have pursued in 2020 to avoid the higher 2021 tax rates like accelerating 2020 income and using Roth conversions.

Even if Biden’s efforts stall, and he cannot garner the support to pass his significant initiatives early on, he has another tactic called “budget reconciliation” he can use late in the session to get laws passed. Rather than requiring a 60-vote majority in the Senate to pass new legislation, budget reconciliation requires only a simple majority or 51 Votes. With the two new democratic seats gained in the Georgia runoff elections in January 2021, Senate seats are split equally 50-50, with Vice President Kamala Harris the deciding 51st vote.

Of course, there are rules and restrictions applicable to the budget reconciliation process, including the requirement to gain censuses approval in financial and budget committees before taking the issue before the Senate. Budget reconciliation only allows proposals related to specific items like spending, revenue, and debt limits.

The use of budget reconciliation is not without precedent. President Barak Obama used it in the late stages to pass portions of the Affordable Care Act, and President Trump used it to pass the 2017 Tax Cuts and Jobs Act. Due to the complexity and prior committee approvals required, Biden may not pursue this approach. But it does remain at his disposal.

Considering Tax Strategies

While nobody can predict when and what types of changes in the tax code will be passed and become effective, it is smart to begin thinking about how new regulations could impact your investments and retirement. Your financial professional may prepare “what-if” scenarios for you to illustrate the potential impact of the proposed tax law changes could have on your financial situation.

While several potential tax strategies available to investors may have expired at the end of 2020, other approaches may still be available. Harvesting tax losses in 2021 or investing in tax-deferred retirement instruments could prove to be useful tactics.

What to Expect

It is worth remembering that tax policies pursued by one administration are often changed or even reversed when a new administration assumes power. So, what may appear to be retirement-altering changes to the tax code should be viewed through the lens of history. Tax policy is always changing.

Meet with your financial professional and discuss your options. And try a little humor to balance any anxiety you may be feeling. As author Dave Barry says,8 “It’s income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta.” Ouch! 




1. "Details and Analysis of President Joe Biden's Tax Plan," Garrett Watson, Huaqun Li, & Taylor LaJoie, October 2020.

2. "Biden's Tax Plans For His First 100 Days- His Stimulus Tax Proposals Are Just The Beginning," Kemberley Washington, January 2021.

3. Ibid.

4. Ibid.

5. Ibid.

6. "Tax Planning for a Biden Presidency," Brian Dethrow, Ronald Kerridge, Argyrios Saccopoulos, Nathan Smithson, Erin N. Tuggle, Ashley Withers, November 2020.

7. "2021 Biden Plan Estate Planning Advisory," The National Law Review, January 2021.

8. "130 Inpsirational Quotes About Taxes," Geoffrey James.

About the author

Phil Wright, Assistant Vice President, Content Marketing, Jackson National Life Distributors, LLC

Phil Wright is the Assistant Vice President of Content Marketing at Jackson National Life Distributors, LLC (JNLD), and an award-winning financial writer. 

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Tom Hurley and Phil Wright are affiliated with Jackson. All other authors are not affiliated with Jackson.