Markets Smelling Uncertainty….

Most stock market indexes were down slightly last week.  This morning, when I first tuned into CNBC @ 4:45am, the futures were down over 500 points on the Dow, with similar pressure on the other indexes.

Last week’s blog (read it here!) listed the reasons that many believe a market pull-back is coming.

This week, additional factors are added to the list:

  • Barron’s reported over 1 week ago the second largest Chinese property development firm, Evergrande, is close to defaulting on $300 billion of debt. This is worth watching as many other assets/investments are linked to Evergrande.
  • US Debt Ceiling will be debated now as we need to authorize additional debt over our current limit, to pay our current bills.
  • West Virginia Senator Joe Manchin is suggesting the US should “pause” on voting on the 3.5 trillion spending package until 2022. Is this a bad thing??  If you’ve reviewed the September 13th release by Democrats on the House and Ways Committee, seeing a true reality of the potential new tax increases and new rules, you may think not!

Looks like a bit of a pullback.  How much?  Will it happen?  As always, time will tell, however could be soon!  Keep in mind, markets do surprise to the up and downside, and never go up and down as most predict.

For the week, the Dow nudged down (.05%), the S&P 500 lost (.54%), and the Nasdaq (.46%).  Small caps bucked the trend, at least for the week, rising .45%.

Foreign and Emerging Market stocks were down (1.38%) and (2.19%) respectively.

US Treasury yields moved higher, closing the week with a yield of 1.37%.

House Ways and Means Tax Proposal

This proposal definitely focuses on individuals with taxable income over $400K and joint filers with taxable income over $450K.  If you are in one of these categories, your taxes will go much higher if the bill passes in the current form.

My question: if you earn those figures or slightly more, are you considered a millionaire or a billionaire that this tax package is supposed to go after? 

The new 39.6% Federal tax bracket begins after individuals reach $400,000 and joint filers $450,000. This is a huge increase on many small business owners.  In 2021 for a joint filer to reach the highest bracket of 37%, taxable income needs to exceed $628,300.  Enough said on that.

In addition to the higher income taxes for income over the $400k and $450k, additional changes will occur:

  • Roth conversions will only be allowed until 2032.
  • Capital gains tax rate will go up to 25% from 20% for these income levels.

At any income level, the ability to convert your “after-tax” retirement plan dollars to a Roth IRA will be prohibited.  Also, the Backdoor Roth IRA and the Mega-Backdoor Roth IRA will become a thing of the past.

Not many investors have over $10 Million in their IRA’s and 401K’s.  If you do, the new law (if passed), will make certain you can’t have much more.  At any age, if you earn over 400/450K depending on filing status, and have over 10 million, you will have to take an RMD of 50% of the amounts between 10 and 20 million and pay tax…..  Over $20 million, the RMD is 100% that needs to come out and pay tax. 

The estate tax exemption will drop from $11,700,000 today to approximately $6,000,000.

The bill contains much more!!!

We’ll know within the next couple of months whether any of these proposed tax increases come to fruition.  You should not make any changes now, however strategizing certainly makes sense.

For example, if you earn near the $400K and $450K respectively, you may want to speak with your CPA to see if you can accelerate part of your 2022 income to 2021, to avoid some of the tax increase.

Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.




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