High-income earners have expressed concerns about potential new tax laws under the Biden administration that could affect their short- and long-term financial future.

Many of the proposed policy changes will have significant implications for those earning more than $400,000 a year. As a credit union executive, you may fall into this salary range and the tax bracket most heavily impacted if Biden delivers on his campaign promises. While the proposed changes may look slightly different once they’ve actually passed through Congress, we want to help you prepare nonetheless and make the best use of the tools available to you. We’ll walk you through what we currently know about the proposed changes, what you should consider if you’re nearing retirement, and what actions you can take to mitigate the tax impact.

Proposed Tax Changes for Incomes Over $400K Annually

With an immediate focus on economic recovery, high-income earners will likely have 2021 to plan for potential tax changes taking effect in 2022. Here’s what the new tax policies could look like if your income is over $400,000 annually:

  • Itemized deductions will be capped at 28%. If you’re currently in the 32% tax bracket, where the income threshold starts, your itemized deductions will have less impact on your tax return. 
  • Top-tier tax brackets will go back up to 39.6%. This may not significantly affect those already in the current top tax bracket of 37%. It is, however, a much larger jump in tax brackets for those earners in the 32% tax bracket.

With these changes, it’s critical to find strategic ways to reduce your taxes and the cost of your deductions. You may consider:

  • Making contributions to pre-tax savings vehicles, such as a Health Savings Account, 457(b), or 401(k)
  • Using any outside business income, such as from consulting, to contribute to a self-employed retirement plan
  • Refinancing or restructuring your mortgage loan to minimize your mortgage interest

Proposed Tax Changes for Incomes Over $1M Per Year

The proposed change would tax long-term capital gains and qualified dividends as ordinary income for those earning over $1 million annually. These earnings are currently taxed between 15% and 20%. In the future, these earnings could be taxed at twice the rate, in addition to taxes on your regular income.

Your income might be closer to $1 million annually than you think. Before you assume you don’t fall into that category, consider your various retirement plans, bonuses, or other revenue streams—they can add up fairly quickly. 

To mitigate the impact, you may consider:

  • Making design changes to your retirement plans to restructure the timing of income and bonus payouts 
  • Repositioning highly taxed cash reserves, use on demand debt like a HELOC instead.
  • Harvesting tax losses to capture up to 40% of any losses your investments incur

Proposed Changes to Contribution Deductibility

For income earners in the 35% tax bracket, new tax laws could mean contributions made to an IRA, 401(k), or other qualified plans, which currently receive a tax deduction, would be replaced with a tax credit proposed at 26%. 

This change would make it harder to reduce your tax liability. While you would be saving the same amount, you’d no longer be able to reduce your income by whatever you contribute to these plans. You could also be potentially taxed twice when you’re ready to take it out at the federal or state level. 

To prepare for this change, you may consider employing a Roth strategy in 2021 if you do not already have one. (You can see how this strategy works in some examples we’ve modeled in our webinar.)

Proposed Changes to the “Step-Up in Basis” Rule

Biden’s campaign proposed eliminating the step-up in basis rule that applies to inherited assets, potentially impacting anyone, regardless of income. The current step-up in basis rule allows you to adjust the value on an appreciated, inherited asset—for example, on a stock that has grown substantially over the years—and reduce the amount in capital gains tax the recipient has to pay. Fortunately, if you have a split-dollar agreement, which may make up a significant part of your net worth, it will not be included in your estate. If you have substantial assets and a large estate, you may consider:

  • Taking full advantage of your annual gift-tax exclusion, allowing you to give $15,000 per person, per year tax-free
  • Giving capital gains property to charity or family members in lower tax brackets
  • Reviewing your estate plan’s legal structure to protect against future tax acts

If Retirement Is Within Five Years

As a credit union executive, your financial picture is complex, with multiple retirement income vehicles available to you beyond the ordinary 401(k), like a 457(b), 457(f), or split-dollar agreement. There are additional factors to consider when you’re nearing retirement and are in your highest-earning years, especially in light of potentially historic tax changes. If you anticipate earning more than $400,000 per year, now is the time to coordinate your planning to protect your largest assets. Here’s what you can do today to prepare for your future:

  • Conduct a cash flow analysis. A year-by-year review of how much money you’ll need will help you determine how best to optimize your risk and allocate your assets over your retirement years.
  • Calculate your custom thriving index. This number will tell you the return rate necessary to reach your goals and not outspend your income in retirement.

How ACT Can Help

We encourage you to watch our entire webinar for more information regarding potential changes to the tax code and strategies you can use to prepare. How the Biden administration’s proposed tax changes will be realized are still unknown, and we will share updates as they’re available. 

Remember: a significant tax change can harm your long-term plans. Everyone has to analyze their individual financial situation to determine which strategies are right for them. At ACT, we’ve worked with credit union executives all over the country and are familiar with the various retirement plans, benefits, and unique income factors that affect you.


Information and data used is derived from sources that we deem to be accurate.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. 

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