10 Recent Economic Headlines and What They Mean for Your Money (Will Roth Conversions Be Scrapped?)

As summer ends and the economy continues to reopen, there has been a lot of significant economic news. Here are 10 recent headlines and what each of them means for your money. Some of these headlines report on events that have happened. Others are anticipating future events. Each may have a significant impact on your future wealth and security.

1. Will Roth Conversion Opportunities Be Scrapped?

Triggered by backlash against billion dollar Roth accounts owned by some of of the wealthiest Americans, Congress has made moves to curtail Roth savings opportunities for everyone. Here a few of the specific proposals in Congress related to Roth accounts:

Contribution limits and RMDs for large IRAs

For single taxpayers with taxable income over $400,000 and married tax payers with income over $450,000, Congress may limit further contributions to a Roth or traditional IRA if the total value of an individual’s tax advantaged accounts exceeds $10 million. Furthermore, people with the aforementioned income and account values would be required to take Required Minimum Distributions, even if the account holder is less than 72.

Income Limits on Roth Conversions

Starting in 2032, Roth Conversions would be eliminated for single taxpayers with taxable income over $400,000 and married taxpayers with income over $450,000.

Elimination of back-door conversions

Congress is proposing the elimination of all back-door Roth IRA conversions and mega backdoor Roth IRA conversions regardless of income levels.

What to do?

It is worthwhile to consider your Roth opportunities before this year’s end. And, look hard at conversion possibilities over the next 10 years. Use the Boldin Retirement PlannerPlus Roth Conversion Explorer to assess if you would benefit by converting funds between now and 2032. You may also want to start prioritizing Health Savings Account (HSA) contributions which are another tax efficient savings vehicle.

2. September Stock Slump

It is important to note that stocks are up overall for the year — around 15% as of this writing. However, September saw about a 5% pullback from recent highs. It is easier than ever to update your account values in the Boldin Retirement Planner. You can link your accounts or efficiently update all of them on one screen, immediately assessing the impact of the updated values. However, remember that asset prices will go up and down. Know your investment strategy and remember that short-term gains and losses are not your long-term reality unless you actually sell the asset. It is very important to have an investment strategy, perhaps in the form of an Investment Policy Statement and to know under what circumstances you will sell or rebalance your portfolio.

3. Budget Reconciliation

At the end of the day, Thursday, Sept. 30, the government managed to pass a short-term spending bill to avert a government shutdown and the possible suspension of all government spending, including Social Security payouts. The legislation keeps the government funded through Dec. 3. This gives lawmakers some wiggle room to work out spending. If you rely on government benefits or services in anyway, this is something to keep an eye on. Chances of an actual default are remote, but not inconceivable due to gridlock between parties and the result could be quite disastrous. How disastrous? So disastrous that there is a rising chorus of powerful voices aiming to remove the debt ceiling all together.

4. Mortgage Rates Rising

Rates for a 30-year fixed mortgage sneaked above 3%. Experts believe they’ll continue rising. The increase could impact your home’s value, flattening or potentially reducing a sale price. In fact, Yale Professor of Economics, Robert J. Shiller, told Yahoo Finance, “There is a chance that we will see big declines [in housing prices] in coming years.” If you have an adjustable rate mortgage or line of credit, understand the implications to your monthly budget of rising rates. You may also want to adjust your assumptions for housing appreciation in the Boldin Retirement Planner and think carefully about if and how you might use your home equity for retirement.

5. Retirement Savings Mandates

Part of the massive reconciliation package working the way through Congress is a provision that would make workplace retirement savings plans mandatory. All businesses would need to provide retirement savings opportunities to employees. And, employees would be automatically enrolled and obligated to contribute at least 6% of their income. The plan is designed to bolster the retirement readiness of more Americans. Critics say that low income Americans can’t afford to save and that small businesses can’t afford to offer savings opportunities.

6. Possible Capital Gains and Income Tax Hikes for the Wealthy

The wealthy are bracing for tax hikes. One proposal in Washington D.C. will see an increase for capital gains taxes as well as an increase in the top individual income rate for taxable incomes above $400,000. (Another proposal sees an increase only for those making more than $1 million. Many wealthy taxpayers are looking to minimize the increases by:

• Selling businesses and stock investments now to avoid an increase in capital gains taxes in the future.
• Pushing income into 2021 to avoid higher rates in 2022.
• Seeking Roth conversion opportunities in the near term.

Use Boldin’s PlannerPlus Roth Conversion Explorer to assess conversion opportunities. Plus subscribers can also review taxable income charts to understand future tax brackets.

7. Estate Tax Increases

There is also a proposal to reduce the estate and gift tax exemption to $5.85 million from $11.7 million. This will mean that more people will be potentially subject to estate taxes starting next year. Gifting assets before year-end is an opportunity to consider if you anticipate leaving more than $5.85 million. You may also want to set up a trust to shield wealth from the tax.

8. Tax Cuts for Poorer Americans

One proposal has the tax rate for those making below $40,000 dropping by 24%.

9. Inflation May Be Only Temporary

While inflation rates have been heading upward, Federal Reserve Chair Jerome Powell said on Thursday, Sept. 30 that high inflation rates are likely to dissipate in the next year. He believes that the increase in rates is a temporary blip due to supply chain hold ups.

10. Social Security and Medicare in Financial Trouble

New analysis shows that the marquis American retirement benefits programs are in even more financial trouble than previously forecast. Social Security will face a shortfall in 2033 with Medicare being out of reserves by 2026. It is likely that Congress will move to protect these programs, but one can never be sure. If you have yet to start receiving benefits, it may be worthwhile to run a worst case scenario in the Boldin Retirement Planner with a reduction in your benefits and strategize a plan for covering the difference.