If you’re like some Americans, you may be wondering how the new tax plan is going to affect you. To say “the new tax plan isn’t going to affect me” may be an incorrect statement; sooner or later the new plan will change something in your financial life. It doesn’t matter if you’re on ‘one side of the isle or the other’ or in the ‘middle,’ there will be changes. None of us know how the new tax plan will affect retirement savings plans, personal deductions, your ‘take-home pay,’ or our country’s deficit in the future. Here are the new tax plan’s features to take into consideration as you plan for your situation:
401(k) Retirement Savings Plans: Future legislation will determine if 401(k) plans remain pre-tax contribution accounts or become more like current day Roth IRA accounts where contributions are after-tax and grow tax-free. This is being proposed (and will be considered) as a way for the US government to bring in more money to offset the tax cuts in this new tax plan.
Secondly, House Republicans are considering capping the 401(k) worker contribution limit to $2400 per year when it takes effect.
Retirement Pre-Tax Savings Recommendation: Max out your pre-tax retirement savings contributions for 2017, 2018, and until this change takes effect (if it does). Regardless, save, Save, SAVE because you should never rely on the government to take care of you and solve your retirement problems.
Mortgage Interest Deduction: Currently mortgage interest deductions are limited to deducting interest on a $1 million and under loan. The new tax plan cuts the maximum loan amount in half to a $500,000 and under loans, affecting mortgage holders that live in high-cost housing markets and millennials as they enter home ownership.
Mortgage Interest Deduction Recommendation: Avoid multiple loans and re-financing as a tax-saving strategy and get that home loan paid off as soon as you can. Carrying mortgage debt is not a benefit to you and especially not for those with notes over $500,000 with this plan.
Take Home Pay: With changes to individual tax brackets, the new plan moves from seven to four tax brackets. There has been a lot of hype on this proposal; savings will be for child-less, single Americans if they itemize their taxes. Some lawmakers believe this will hurt families who have benefitted under the current tax brackets. The US doesn’t have a flat tax rate; our taxes are calculated on a progressive scale. No one knows if we will have more take-home pay due to this plan, or will ‘pay in’ when we file our taxes.
New Tax Plan Personal Income Tax Recommendations: Visit your tax professional to determine how the new tax plan will affect you. Double check to validate you are maximizing your personal with-holdings or are with-holding enough to avoid paying in when you file. Until this one takes effect, we really don’t know what it will do to paychecks, which is why it is essential to work with a tax professional.