Investing with the New Tax Plan

Feb 19, 2018

The first major tax overhaul in nearly 30 years is signed and ready to go in 2018. But what changed? What stayed the same? And how does it affect individual investors, in general, and you, in particular? The nearly 1,100-page tax bill covers many details and situations, and knowing how they will affect you gives you the ammunition to make informed decisions. Here are a few key highlights.

What Stayed the Same?

  • Long-term capital gains. LTCG rates, which apply to investments held longer than one year, remain at 0 percent, 15 percent, and 20 percent. Zero percent LTCG applies to those with incomes up to $38,600 for single filers ($77,200 for joint filers). Fifteen percent LTCG applies to single filers between $38,601 to $425,800 (between $77,201 to $479,000 for joint filers). Twenty percent LTCG applies to single filers with incomes of $425,801 or more ($479,001 or more for joint filers).

  • Net Investment Income Tax. (Also known as the Affordable Care Tax) It remains at 3.8 percent for single filers over $200,000 ($250,000 for joint filers).

  • Contribution limits for Traditional and Roth IRAs. The maximum contribution for an individual under the age of 50 is still $5,500 ($6,500 over the age of 50).

  • Deductibility of IRA and HSA contributions. These are subject to previous requirements.

What Changed?

  • Short-term capital gains rates. Investments held less than one year will now be taxed as ordinary income—the highest marginal rate for taxpayer. That means they’ll be lowered for most investors, corresponding to the new income tax brackets.

  • Federal estate tax exemption. This was increased from $5.6 million to $11.2 million.

  • Roth re-characterizations (reversals). These are no longer allowed after 2017. If you converted to a Roth in 2017, you can still re-characterize by the 2018 deadline.

  • Miscellaneous itemized deduction. These are no longer allowed. They include tax preparation fees, investment fees, safe-deposit box fees, union dues, and trustee fees that are higher than 2 percent of Adjusted Gross Income.

This is by no means the complete list of what’s covered in the new tax bill, but we think these points will be pertinent to most of you. As always, you should consult a tax professional about your specific situation before taking action.

Prior to implementing any investment strategy referenced in this article, either directly or indirectly, please discuss with your investment advisor to determine its applicability. Any corresponding discussion with a Bedel Financial Consulting, Inc. associate pertaining to this article does not serve as personalized investment advice and should not be considered as such.

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