In President Trump’s proposed tax plan, personal income tax brackets are reduced from seven brackets to three. If the Republican-controlled Congress agrees, here’s what the new brackets would look like:
|Ordinary Income Rates||Single-filers||Married Joint-filers|
|12%||$0 – $37,500||$0 – $75,000|
|25%||$37,500 – $112,000||$75,000 – $225,000|
Additionally, President Trump’s proposal would significantly raise the standard deduction from $6,300 to $15,000 for single filers and $12,600 to $30,000 for married couples filing jointly. If passed, this would perhaps be the biggest personal income tax overhaul since the mid-1980s.
Besides the expectation of some extra cash in your wallet, how can you plan ahead to take full advantage of this opportunity? After all, tax rates will certainly change again at some point in the future.
Follow these proposed changes closely — it may be a timely year to do a Roth IRA conversion. What do I mean? (Never heard of a Roth IRA? Have a look!)
You can convert pre-tax contributions in a Traditional IRA into a Roth IRA. The dollars you convert to a Roth are fully taxable at ordinary income tax rates. There is no penalty if you are below age 59 ½. You are phased out from contributing to a Roth IRA directly if you have an adjustable gross income (AGI) starting at $118,000 for single filers or $186,000 for married couples filing jointly. There is no income phase out limit for Roth conversions, however.
So if you are considering a Roth conversion, this may be a good year to do it if Congress lowers ordinary income tax rates. A conversion would hurt less, and you’ll be setting yourself up for tax-free retirement income in the future once you need the funds.
To discuss if a Roth conversion is right for you, give the CERTIFIED FINANCIAL PLANNER™ professionals at CameronDowning a call at 305.384.7260. Let’s talk.