With a change of leadership, changes in policy are sure to come. Joe Biden has said little about his prospective changes to the retirement system, but he has mentioned one significant change. Biden has thrown around the idea of having retirement contributions counted as a tax credit. This is in contrast to the current method of counting them as a tax deduction, lowering your overall taxable income. To dive into the details regarding this aspect of the retirement system under a Biden administration, we go to a video by Travis Sickle.
The reason we are looking at a video by Travis Sickle is primarily because his video was the most succinct and comprehensive. Sickle runs a financial planning and asset management firm called Sickle Hunter Financial. As an experienced financial planner, Sickle has made his living navigating people through the retirement system. This has lead to some very informative and consumable video content for us to analyze.
How the Change Helps Lower-Income Workers
On its face, this change offers some extra tax savings for workers in low-to-moderate tax brackets. The share of their tax burden decreased by the new credit would be a bit higher than the current deduction. This means that, in isolation, this change does help incentivize retirement savings for those who normally don’t think they have enough income to save.
The Other Side
The flip side, which Sickle explains near the end of the video, is that this change can put other tax credits in jeopardy. For many low-income workers, tax credits like the Earned Income Tax Credit and the Child Tax Credit. Some of these other tax credits have income thresholds that one must not exceed in order to qualify. So, since their retirement contributions no longer reduce their taxable income, they may not qualify for other helpful credits and benefits that they otherwise would have.
This idea is a two-sided coin, and we will have to see what changes when it comes time to actually implement Biden’s plan. Meanwhile, sign-up to these retirement platforms to help you prepare for your retirement.
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