How Biden's tax plan will impact retirement planning

Retirement Solutions Group President & CEO Alan Becker joined Yahoo Finance Live to break down the long-term effects Biden's tax plan will have on retirement planning.

Video Transcript

ADAM SHAPIRO: Alan Becker is Retirement Solutions Group president and CEO. And we invite him into the stream to talk about retirement in our retirement segment, which is brought to you by Fidelity Investments. Good to have you here, Alan. And I guess the question to ask is, I would hope we all have estates in the multimillion dollars that we can leave to our families when we depart and get our heavenly reward-- hopefully heavenly. What is the status on that? These tax changes that could potentially come, where do we stand?

ALAN BECKER: Well, first of all, Adam, thanks for having me. You know, I think there's definitely a separation between the different political parties with people. But, you know, in general, though, taxes are going to most likely go up. And we're going to see more as the laws come out and we can figure out how they are.

The biggest key, though, is to be with a financial advisor so you can understand. Because a lot of this is going to be about distribution. When you're in retirement, right, and you've got to take your money out, too many people are looking at using their IRAs-- maybe they don't need the money so they're letting that stay instead of using Social Security earlier.

And if taxes go up, we're looking at a lot of different sides. We're talking about the idea of lowering the estate tax. You know, you said in the millions just a moment ago. I heard talk about lowering that down into the $3 million range. That's going to take a lot of, you know, kind of the millionaire next door, people that have a lot of money in their 401(k)s. And they're going to end up with estate tax. This is something we haven't had to face in a few years. So I think people are very concerned about it.

SEANA SMITH: Well, Alan, because there's not only individual tax, but also the corporate tax rate. I mean, what does that mean just in order for 401(k)s because if corporations are facing higher taxes, maybe they won't be as willing then to do the matching, right?

ALAN BECKER: Right, so, you know, we tell our client family that if they have a 401(k) and that 401(k) has a match, absolutely, that's free money. Don't leave that on the table. You know, invest in that. But if you have a 401(k) that is not matching, there might be better solutions out there, looking at opportunities with a true holistic financial plan, where you're looking at all different aspects of things. You can do Roth IRA so that you're not borrowing money from the government.

Because the way we look at it is, our Uncle Sam-- and I served in the military. I love this country. You know, but they're controlling our taxes. As they get raised, you know, they control the distributions, kind of like having a loan where you don't know the interest rate. So a lot of people are scared that the money's not going to go as far in retirement.

And yeah, if companies are not investing, I mean, if you really think about it, there's only a couple of ways to fix debt. You either cut spending, or you know-- or you raise taxes. And I don't see the government cutting spending any time, so yeah, the corporations, when they can't get money as inexpensive, they're going to have to spend their own capital.

ADAM SHAPIRO: What would you say to an individual-- I'm going to just pick an age out of thin air. Let's say 67 because I guess that's the point when your Social Security really maxes. Who has both the traditional IRA, but also perhaps Roth 401(k). What do you start pulling first, the Roth or the taxable?

ALAN BECKER: All right, so, to me, this is really easy. When you look at the current tax brackets-- and obviously, those are scheduled to change here. So you have to look at that, and you should be maxing your bracket. I mean, I see a lot of people, though, come into the office and like, oh, I love my financial advisor. I didn't pay any taxes last year. And I'm like, well, the lowest tax rate, you're in that, like, 12% rate. You're saving money. But if taxes go up in the future, then you're going to be paying more taxes later, right?

So why not take and live on your qualified money now, so the-- to your answer to that is the IRA, the traditional. Pull that out, max that to the highest bracket you're comfortable. But if you're 67, you want to keep that under $171,000, because then you go into Medicare surcharges.

So, theoretically, keep your income under 171 using your adjusted gross, using your qualified money to max that out. Then you'll be in the best tax rate for right now. And then use that Roth IRA for those external purchases if you-- for, like, a car, a vacation, something that's-- those wants in life, not the needs.

SEANA SMITH: Hey, Alan, real quick. We only have about a minute left. But I want to ask you, because the proportion of older workers now participating in the labor market, we've seen that steadily decline-- pretty much steadily decline. Right now, it's around the lowest level that we've seen in about a year. Have these workers retired? From the people that you are talking to, are they permanently out of the workforce? Or do you expect them to re-enter the workforce, say, a year or so from now?

ALAN BECKER: Well, life's short. And we-- I think COVID has taught us, if anything, that we don't know what the future necessarily holds, right? That, you know, we could be healthy one day and not the next. So I think a lot of, especially in our area, a lot of the older clientele are looking at it, going, why am I working? Is there something else I could be doing, whether reinvent myself, so they might go back into more of an entrepreneurial job.

But others are saying, you know, once this remote learning is over-- or remote-- excuse me-- working from home, do they really want to go back into the office and do that daily grind? So I see a lot more people retiring and enjoying life. At least, that's what we see here in the Midwest.

ADAM SHAPIRO: Life is short, but as they say at Faber College, knowledge is good. We appreciate the input. I've just made a-- well, I can't even remember the movie. That's how old I'm getting. Anyway, Alan Becker, Retirement Solutions Group president and CEO-- "Animal House"! It just came to me. That's the 50 plus year old brain.