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How the Proposed Tax Changes Could Impact Your Financial Plan

How the Proposed Tax Changes Could Impact Your Financial Plan

September 30, 2021

By Rick Hellberg, ChFC®, CLU and Michael Diaz

As many are aware, Congress has proposed changes to the tax code to cover the cost of the new spending bills. Our partner from Delegated Planning, Carrie Jones, has created assembled some content from trusted sources to help break down the recent proposal from the House Ways and Means Committee. (1) Below are some highlights to note about what would happen if the Congressional tax proposal were enacted into law today. These points are not all-inclusive.

  • The top marginal income tax rate would rise from 37% back to 39.6%, which starts at a lower taxable income range, starting in 2022.
  • Capital gains rates would increase with 25% as the new top rate, effective TODAY.
  • S corp profits would be subject to employment and Net Investment Income Tax (NIIT), starting in 2022.
  • Corporate taxes would increase from flat 21% to progressive rate up to 26.5%.
  • The backdoor Roth would no longer be available, starting in 2022.
  • Roth conversions would no longer be available for clients whose income exceeds $450,000 (married filing jointly), starting in 2031.
  • After-tax 401(k) contributions can no longer be converted to Roth, starting in 2022 (which would eliminate the mega backdoor Roth strategy).
  • Estate and gift tax lifetime exemption would decrease from $11.7 million today to $5.8 million, but increase the valuation reduction limit for real estate used in family business to $11.7 million, starting in 2022.
  • Grantor trusts would be included in an estate, including some Irrevocable Life Insurance Trusts (ILITs), Spousal Lifetime Access Trusts (SLATs), and Intentionally Defective Grantor Trusts (IDGTs), effective with new trusts executed after enactment and with new gifts/funds transferred after enaction.

Implications and Effect

The points listed above are only a proposal at this point, and everything in the proposal is subject to change. We are encouraging everyone to familiarize themselves with the changes that may be coming soon. The effect of the changes could be far-reaching, and not only for clients in the higher tax brackets. If you haven’t used your lifetime tax exemption, it is imperative that you understand your options now to swiftly implement before the year ends. If you are not familiar with the significant benefits of grantor trusts, now is the time to speak with a knowledgeable authority. Finally, in light of the income tax proposals that could take effect over the next few years, planning properly beforehand will put you in a better position to minimize any detrimental effects on your situation.

We Are Here to Help

If you are planning to retire, sell real estate, or gift significant amounts of money in the next few years and would like objective information or insight on how important financial decisions like these could be affected by the current tax proposal, please reach out to us for a complimentary conversation by contacting our offices at 610.940.1441 or info@peteralexanderinc.com.

About Rick

Rick Hellberg is president and CEO of PeterAlexander, a financial planning firm founded in 1991. Rick is passionate about providing quality, objective financial solutions so his clients can pursue their financial goals and create the legacy they desire. He strives to equip his clients with comprehensive financial services and advice so they can be empowered to make sound financial decisions. The plans Rick and his team develop help their clients to reduce their taxes, educate their children, fund their retirements, pass their businesses on at fair value, and create programs to attract and retain valuable employees, all so that they can focus on what matters most to them. Rick has a Bachelor’s degree in Liberal Arts from Penn State, along with the Chartered Financial Consultant® (ChFC®) and Chartered Life Underwriter (CLU) designations. He has spent over 40 years working with successful individuals and designs tailored solutions to meet his clients’ unique needs. 

Rick resides in Philadelphia with his lovely wife, Lisa, and their two Shiloh Shepherds, Bentley and Winston. He is also the very proud father of two wonderful young men, Peter and Alex. In 2010, Rick ran for Congress in the 2nd District of Pennsylvania and has stayed active in local politics. To learn more about Rick, connect with him on LinkedIn.

About Michael

Michael Diaz is a financial advisor at PeterAlexander with over 15 years of industry experience. Michael is passionate about helping people overcome financial challenges and avoid potential pitfalls so they can focus their time and energy on the most important things in their life. He spends his days working with successful business owners and families, implementing investment and tax reduction strategies to maximize their wealth. Michael’s goal is to help protect his clients’ financial security, putting them first and helping them navigate every stage in their financial journey. Michael earned his Bachelor of Science in Commerce and Engineering from Drexel University. When he’s not working, you can find Michael traveling, cheering on local sports teams, and exercising outdoors. Michael loves spending time with his wife, Abby, and their baby girl, Monroe. To learn more about Michael, connect with him on LinkedIn.


(1) https://www.bkd.com/alert-article/2021/09/house-ways-means-committee-proposes-tax-increases