What Does a Biden Win Mean for Your Retirement?

Posted on: November 23, 2020   |   Category: In The News
Seal of the President of the United States and American Flag

After an election season like no other, Joe Biden has been voted in as the next President of the United States. Whether or not you’re happy with the results, having a new president leads to many questions. What changes will a new president make to public policy? Should I invest differently based on these changes? How will these changes affect my daily life and future? Should my retirement savings plan be adjusted?  

In reality, very few long-term investments are affected by a new president. (So, no matter how tempting, don’t make any rash investment decisions.) However, there are certain sectors which will probably see changes under Biden’s administration.

Real Estate

Investing in real estate may be on your radar now that Biden is in office. Biden plans to make homeownership more affordable by establishing the First-Time Homebuyer Tax Credit. This would include a credit worth up to $15,000 for qualified homebuyers, as well as a new renter’s tax credit.  

  • These changes may increase demand for housing. Real estate investors, especially those who develop and flip houses, will have an opportunity to make a positive return on investment.  
  • Investors in rental property may see the new legislation causing one of two results: the demand for rentals may decrease if houses become more affordable or the demand for rental property may increase if paying rent is easier. Either way, it’s worth considering the investment potential of an alternative asset like real estate.  

Taxes

Biden has big plans when it comes to taxes. He intends to increase the income tax rate from 37% to 39.6% for those who make over $400,000 annually. He also proposes to tax 39.6% for those who make over $1 million in capital gains or qualified dividends.  

  • These tax reforms will affect mainly the wealthy and those who earn a high income on assets such as stocks and real estate. When deciding an investment strategy, consider the proposed tax reforms and create a strategy that minimizes the amount of taxes due.   

In addition to these sectors and a few notable others (such as renewable energy, healthcare, and technology), let’s look at specific retirement saving rules Biden intends to change.    

Flat-tax credit

Traditional IRAs, Roth IRAs, and 401(k) plans give larger tax deductions on contributions to those in the higher tax bracket. To make the benefits equal, Biden proposes using a flat-tax credit for each dollar saved regardless of your tax bracket.  For example, with a flat tax-credit of 26%, those who contribute $1,000 will receive a $260 deduction no matter how much they earn annually.  

  • If this becomes a law, more investors may fund Self Directed Roth IRAs or Roth 401(k) plans. This is because the flat-tax rate will benefit them now and they’ll make tax-free withdrawals in retirement.  

Catch-up contributions for caregivers

Due to the Coronavirus, more people had to give up their jobs to become caregivers. Biden has said that caregivers should be allowed to make “catch-up” contributions to retirement accounts. This incentivizes everyone to continue saving for retirement despite the unprecedented circumstances.    

How Does a Biden Victory Affect Retirement Savings?

Overall, a Biden victory probably means increased taxes for the wealthy and a tax break for lower-income earners. It may also lead to a shift in housing demand and updated rules regarding retirement plan contributions and taxes. Although these changes are predicted, obviously not all of Biden’s policies will be passed. Long-term, investments are not greatly affected by who is elected. Short-term, however, policy ideas and promises may create trends in certain industries. Be sure to consult a financial advisor about your retirement investing options and stick to a long-term retirement investing strategy.