Regardless of who sits in the Oval Office, you have most of the power when it comes to your money. Tax rates will fluctuate over time, yet only you can monitor your spending and take the steps required to reach your savings goals. Not only that, but you are the one who can take the initiative to max out retirement accounts available to you, and to look for legal ways to pay less in taxes now and later on.
Still, it’s smart to keep your eye out for changes that could affect your financial plan. After all, changes to the tax code or to government benefits programs could help you retire earlier or later, but you may not know how to make the most out of them unless you pay attention.
Now that we’re sure Joe Biden is our President starting in 2021, there is plenty of good news — and potentially troubling news — that could come down the pipeline. Here are some of the major Biden proposals that could impact your long-term retirement plans.
Reduced Tax Breaks for 401(k) Contributions for High Earners
One of the biggest changes expected from the Biden administration could come in how we deduct contributions made to retirement accounts like a 401(k). The way it is set up now, individuals are able to deduct contributions up to annual limits while securing a percentage-based tax break based on the rate they pay. However, Joe Biden has proposed plans to change the way contributions are treated for tax purposes, which would disproportionately favor those on the lower end of the income scale.
Instead of the system we have where high earners get most of the tax benefit, Biden’s plan would introduce a new flat tax credit of 26%. On his election website, Biden says the effect of this new credit would be “equalizing the tax benefits of retirement plans.”
If you pay less than 26% in federal income taxes, getting a flat tax credit would leave you ahead. If you pay a higher tax rate than that, you’ll get a smaller benefit when you contribute to your tax-advantaged retirement plan.
Access to Medicare at Age 60
The Biden administration also wants to lower the eligibility age for Medicare to 60 from 65, which would be a huge boon for individuals who want to retire early.
Further, the Biden administration wants to retain the major benefits of the Affordable Care Act, which is also known as Obamacare. However, the broader healthcare plan includes a public option consumers could buy into, which could increase competition and drive prices down for all Americans. 
Broader Social Security Benefits for Some
Joe Biden has plenty of plans to help older Americans, which includes the protection and strengthening of Medicare, measures intended to drive down the price of prescription drugs, and the preservation of Social Security.
Not only does his administration promise to put Social Security on the path to long-term solvency, but it aims to provide a higher benefit for the oldest Americans who are prone to spending all their savings on healthcare. The Biden plan would also implement a true minimum benefit for lifelong workers, which would be worth at least 125 percent of the poverty level. 
Higher Income Taxes for High Earners
Unfortunately, nothing is free, which is why high earners will be asked to pay more in income taxes under a Biden administration. According to the Tax Foundation, Biden’s tax proposals would boost tax rates for individuals who earn above $400,000. This includes raising individual tax rates as well as capital gains rates and payroll taxes.
Not only that, but the plan imposes a 12.4 Social Security payroll tax on income above $400,000. This would create a “donut hole” between $137,700 and $400,0000 where income was not subject to this tax. However, this new tax on income above $400,000 represents an enormous income tax increase for all income over that threshold. 
Increased Access to 401(k) Plans
Biden’s proposals also call for automatic enrollment in 401(k) and retirement plans as the default, which will result in more workers saving for their retirement early on — even with their first job.
This would probably be a major “plus” for most workers since many miss out on the power of compounding by not signing up for their workplace retirement plan early in their careers. However, not all 401(k) plans are necessarily “good” ones, nor do all employers offer matching funds for contributions. With that in mind, this proposed change will benefit some workers a lot more than others.
More Tax Credits for Some
The Biden administration also proposes an array of tax credits meant to help working families save money and build wealth. While tax credits don’t help your retirement directly, they do make it easier to save money in a retirement plan, build up your savings account, and begin to build wealth.
Just some of the tax credits proposed include:
- A temporary tax credit of up to $15,000 to help individuals and families purchase their first home
- More generous tax credits for older Americans who buy long-term care insurance
- Up to $8,000 in tax credits to help low-income and middle-income Americans pay for childcare
- Tax credits that ensure no family spends more than 8.5 percent of their income on health insurance
- An expanded Child Tax Credit worth $3,000 per child for children ages 6 to 17 and $3,600 for children under the age of 6
Keep in mind that income thresholds will aply to any new or expanded tax credits that pass. This means that they may not apply to your situation depending on your income. 
The Bottom Line
What will change when Joe Biden becomes the President of the United States? Probably not a lot — and at least not for a while. Although it’s possible some of the proposed changes we’ve highlighted above could become the law of the land, I wouldn’t stress too much about it regardless of how much you earn.
What should you spend your time and energy on? At the end of the day, you’ll be considerably better off if you focus on what you can actually control. Cut spending, save and invest more, and look for legal ways to reduce taxes at any income level.