Trump The Tax Bracket

Optimize your IRA to minimize taxes and net the greatest benefit

As the electoral dust starts to settle across the nation, Donald Trump will take the helm as Commander-in-Chief of the United States this January. From a financial perspective – whether you were in the Trump camp or not, it is important to understand the nuances of how a Trump presidency may bode for retirement accounts, the tax code, and other personal finance concerns. If you’re concerned about what may happen to your income after Trump takes office, keep the following strategies in mind to maximize your earnings and protect your invested dollars.

Trump’s Changes

Fewer Tax Brackets: Planned changes from the Trump administration will likely include a shift to the IRS code to include fewer tax brackets than before – a reduction from seven distinct levels to three. Clinton was in favor of seven brackets, which may have shifted a greater tax burden on those earning just $37,650 per year. What this means is that creating a more advantageous taxable income scenario may be easier under Trump – and that has a direct correlation to protecting an individual’s earnings.

Changes to Deductions: Clinton had ruffled some feathers with her plan to limit the percentage of deductions an individual could take to just 28%, while Trump plans to push a child care deduction that could cover the national average cost of childcare. The independent Tax Foundation analyzed Trump’s tax code plan and indicated that it would in fact lower taxes for virtually all Americans – though those who may benefit the most are the wealthy.

Managing Your Money

When creating an intelligent investment strategy that will optimize your IRA, it is important to factor in several key drivers. First, how much can you afford to set aside, pre-tax, to fund the investment account? Next, will this amount enable you to retire; knowing you’ll likely need about 85% of your pre-retirement earnings to live comfortably? Lastly, does this strategy maximize your earnings – considering which tax bracket you’ll likely fall under? Talking with your advisor is a wise move, but keep the following equation in mind when establishing how to optimize your IRA under a Trump administration:

If you make $35,000 per year and want to invest in your IRA, try to contribute an annual minimum of $6,000 to your IRA to pull your taxable income down to Trump’s lowest proposed bracket – “earnings under $29k.” This will keep you in the 0% bracket meaning you’ll have no tax liability and will likely receive a full refund on your tax payments throughout the year.

If you make $60,000 per year, keep your IRA contributions to at least $6,000 and that’ll position you in the $29,000 to $54,000 bracket, which only taxes at a rate of 12%. Since you only pay on the amount between $29,000 and $54,000, your maximum tax liability would be just $6,480. If you didn’t contribute to your IRA and earned $60,000 per year, you’d part with 25% of your income, which amounts to $15,000 in taxes vs. $6,480. Your living wage would be a difference of $47,520 vs. $45,000. As you can see you actually keep an extra $2,520 in your pocket as well as 6K for your future by – contributing to your IRA. On the other side of the coin, if someone offers you a raise from $54,000 to $60,000 you actually might want to turn them down!

Trump’s tax brackets amount to the following:

Earnings under $29k – pay 0%.

Earnings $29k – $54k – pay 12%

Earnings $55k – $154k – pay 25%

Earnings over $155k – pay 33%

By keeping these proposed tax thresholds in mind when allocating your investable income, you’ll minimize your tax liability and maximize the amount you’ll have available during your retirement years. Always seek information from your tax person regarding for tax information. For more information on IRAs – especially Gold IRAs, contact American Bullion today.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.