Insights | 04.07.21
Potential Tax Hikes Propel Wealthy Seniors Into Tax-Advantaged Retirement Plans
Amid the prospects of higher individual rates, steeper taxes on investment profits and a major shift in tallying retirement benefits, many advisors say they’re increasingly urging wealthier clients to take a tax hit now on their stockpiles, while rates are at historic lows. The delayed benefit: locking in tax-free gains in the future, when rates may rise under the Biden administration. It’s a big change from the financial planning industry’s conventional wisdom that it’s better to save now and pay taxes later, when future tax bills are often lower because you’re no longer working and thus likely to be in a lower bracket. Mitch Reiner, a managing partner and senior investment advisor at Capital Investment Advisors, says that his wealthy clients who are in or near retirement are “actively converting” portions of their traditional IRA and 401(k) plans to a Roth variant. The traditional plans hold pre-tax dollars whose gains are taxed at ordinary rates upon withdrawal or conversion. Switching them to a Roth means immediately paying taxes on the amount converted, with that pot then growing tax free.
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