A NEW tax plan is on the cards – and it could be welcome news to millions of parents thanks to a child tax credit extension.
Speaking on the Suze Orman’s Women & Money podcast, Mrs Orman said the bill “could affect all of us if it is enacted”.
The bill was first revealed last month by House Committee on Ways and Means, the chief tax-writing committee of the House of Representatives.
Although still only a proposal, below we explain how it could impact you.
Single taxpayers can currently contribute the maximum of $6,000 a year to a Roth account as long as their income is below $125,000.
The amount is then reduced for earnings up to $140,000.
However, “if you made more than that and you wanted to contribute to a Roth IRA, the only way that you could do it or one of the ways that you could do it anyway is by going through the back door,” Mrs Orman noted.
It meant you’d open a traditional IRA, fund it with money you already paid taxes on and then convert it to a traditional IRA.
However, under the new bill, this back-door option will be shut.
Mrs Orman added: “If you wanted to convert [an IRA]to a Roth, you best do that before the end of this year because chances are starting in 2022, you’re not gonna be able to.”
Next up, the committee suggested the roll back of a state and gift tax exemption to pre-2017 levels.
The original law said that you’d be able to gift or leave $11.7million per individual to anybody without paying a state tax.
This was meant to stay into effect until 2025, but if the bill is enacted, the amount will be reduced to $5.85million per person in 2022.
This will affect “many of you” who’ll be hit with gift tax or estate tax, Mrs Orman said.
Thirdly, the next proposal means the top ordinary income tax bracket will increase.
However, unless you earn more than $400,000 a year as a single filer, it won’t affect you.
It also won’t impact married couples filing jointly who earn less than $450,000 a year.
If you’re fortunate enough to earn more than this, the tax rate will increase from the current rate of 37% to 39.6% under the bill.
Similar to the income tax hike, the capital gains tax will also go up to 25% for the top earners.
This will be the highest capital gains tax rate in the US since 1997, Mrs Orman noted.
She added that even if it only officially comes into effect in January, it’ll be applied retrospectively as of September 14, 2021.
Last but not… Brinkwire Brief News.