2018 Tax Reform

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4 Key Takeaways for Investors

By: Chris Merchant, CFP® Hunt Country Wealth Management

After reviewing the Tax Cuts & Jobs Act that was recently approved by Congress and signed into law by President Trump here are 4 Key Takeaways that Investors Should be Aware of.

  1. Expansion of 529 College Savings Accounts makes them more attractive.

Until now 529’s could only be used for college expenses.  But now, these accounts can be used to pay for primary and secondary education expenses up to $10,000 per year, per student. Previously, the only tax-preferred account that could be used for education costs prior to college were Coverdell Education Accounts. Coverdell’s are still available, but they have disadvantages to 529s, including lower contribution limits and often higher expenses.

Contribution limits for 529s remain the same, allowing contributions in 2018 of $15,000 for single taxpayers and $30,000 for those married filing jointly.  Some savers may consider making 5 years of contributions at once, $75,000 for individuals, or $150,000 for couples.

  1. 401(K) & IRAs remain mostly unchanged.

Good news for savers in 401(k) and IRA accounts.  The tax benefits for retirement accounts stay the same despite worries that contribution limits would be reduced. There are a few minor changes that retirement savers should be aware of.  Notably, investors who converted Traditional IRAs into Roth IRAs can no longer undo the conversion once it’s done.

  1. Tax rates on dividends and capital gains remain unchanged.

Tax rates on dividends and long-term capital gains remain unchanged in 2018.  For capital gains and qualified dividends, the maximum rate is 15% for taxpayers in lower tax brackets. For people in the highest tax bracket, the rate is 23.8%.

  1. Municipal Bonds are still attractive.

The reduction of the top tax rate may reduce the attractiveness of municipal bonds for a small segment of taxpayers.  But because of the loss of itemized deductions municipal bonds could become more attractive to a larger segment of tax-aware investors. Investors seeking tax-advantaged income and diversification may still find municipal bonds to be a beneficial part of their portfolio and a source of tax-preferred income.

Article Written by Chris Merchant for Distribution by Hunt Country Wealth Management.

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