While it’s not guaranteed that taxes are going up for wealthy Americans, it does look likely.

To help fund the American Families Plan, the Biden Administration has proposed increasing capital gains taxes to 43.4%, including the net investment income surtax of 3.8%, from 23.8% for those who are making more than $1 million a year.

Additionally, the current estate, gift and generation skipping transfer tax exemption of $11.7 million is scheduled to drop by half to $5 million (inflation adjusted) at the end of 2025. However, Sen. Bernie Sanders, I-Vt., has proposed this amount be lowered to a $3.5 million exemption.

Any of these changes will make it much more difficult for those with large sums of wealth to transfer it to their beneficiaries in a tax-efficient manner.

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While politicians on Capitol Hill haggle over the details of the final tax legislation, it behooves all high-net-worth investors to evaluate proactive steps to plan for a world with higher taxes. Here are three strategies to consider today.

Capital gains recognition: Someone with large gains in their portfolio may consider recognizing the gains now in order to potentially lock in the lower capital gain tax rate of 23.8%. It’s important to note that if the Biden tax proposal is enacted in its current form, investors will be hit with the higher tax rate retroactively as of April 2021.

But the solution for many will be to time gains over several years to stay below the $1 million income threshold where the higher capital gains rates apply.

A better strategy may be to comb through your accounts for investments that have been duds. Investors with a diversified portfolio likely have some positions that have underperformed. They’ve been sitting in your account for years.

Now may be a good opportunity to recognize the losses, utilizing them to help offset large capital gains and avoid the higher tax rate on some of their investments.

Donor-advised funds: For those who are charitably inclined, a DAF is another way to shield gains from taxes. A DAF is a fund that is set up to manage charitable assets. Investors can contribute highly appreciated securities, real estate and even some cryptocurrencies to a DAF.

When the contribution is made, it’s not subject to capital gains taxes and the donor gets a tax deduction at the current fair-market value. Under current law, you may qualify for a charitable contribution deduction to offset the income at the maximum income tax rates.

As an example, a client is looking to rebalance their taxable account and sell some highly appreciated stocks. Instead of recognizing the gains, they may consider donating a portion to a DAF.

This will accomplish several goals for the investor simultaneously: bring their portfolio back to its intended allocation, sidestep capital gains tax, receive a tax deduction and allow them to contribute to the charity of their choice.

Spousal Lifetime Access Trust: Sanders has proposed reducing the estate tax exemption to $3.5 million from $11.7 million per person and raise the estate tax rate to 65% from 40%. This means a family with a nest egg larger than $7 million could owe a substantial estate tax upon a death.

One estate-planning strategy is to take advantage of the current high exemption amount and gift up to $11.7 million per spouse to an irrevocable trust. Those assets may grow outside of one’s estate, thereby escaping estate taxes.

One of the drawbacks of using some traditional irrevocable trust is the lack of access. If you set up a trust for your kids, you cannot benefit from it.  The assets may be outside your estate, but most people cannot afford to gift millions to a trust if they cannot access the money if needed.

However, a popular technique called a SLAT allows married couples to create an irrevocable trust for the benefit of one another. In such a strategy, they will each be a beneficiary of the other’s trust.

Executed today, such a strategy could allow one couple to protect up to $23.4 million of assets from the proposed higher estate taxes, plus savings on the potential growth that takes place after the gift.

Naturally, consulting a competent attorney and other financial experts is essential to properly executing this type of strategy.

Many consider 529 college savings plans to be for education, but these accounts also offer a flexible way to transfer wealth. 

There’s currently an estate tax exemption of $11.7 million per person. Although President Joe Biden campaigned on slashing the write-off to $3.5 million, it hasn’t been part of his agenda.

Regardless of what Biden proposes, the Trump-era tax break will sunset by the end of 2025, restoring the per-person limit to $5.49 million. These changes may expose more families to estate taxes. 

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One solution may be gifting more money through 529 college savings plans.

“It’s a very underutilized revocable wealth transfer tool,” said certified financial planner Philip Herzberg, client advisor at The Lubitz Financial Group in Miami.

While there isn’t a federal deduction for contributions, 529 plans have some incredible tax advantages, said Mari Adam, a Boca Raton, Florida-based CFP and senior wealth advisor at Mercer Advisors.

Families may use 529 plans to invest and grow money tax-free for approved education expenses, including college or vocational school tuition.

They may also spend up to $10,000 per year for elementary, middle or high school tuition, and there’s a lifetime allowance of $10,000 for student loan payments. 

There may also be a tax break at the state level, depending on the plan.

If the child doesn’t need the funds for education, families may change the beneficiary to someone else in the same generation, Herzberg said.  

For example, the new 529 plan recipient may be a sibling, niece or nephew. 

In a worst-case scenario, someone may overfund the plan and use the money for non-qualified expenses. In that case, they may owe income taxes on the account growth, plus a 10% penalty.

There may also be a state-level levy, depending on the plan.

Despite that, the money has still grown tax-deferred for years, “which is quite a big deal,” said Adam.

Families may reduce the tax bill if their child withdraws the money and reports the income and penalty on their own tax return, she said. 

Of course, this assumes their child is in a lower income tax bracket.

“There’s hardly any downside,” she added.

With the threat of higher taxes looming, some families may be eager to shift wealth to younger generations. 

Grandparents may use a 529 plan for their grandchildren and possibly generations after that, said Herzberg. But there’s one problem: gift taxes.

Wealthy donors often worry about gift taxes, a levy on certain transfers of more than $15,000 per recipient per year. If they gift more than their lifetime limit, they will owe gift taxes on the transfer. 

However, there’s an exception for 529 plans, Herzberg said.

Donors may front-load $15,000 contributions for five years by adding $75,000 at once, and they may double their transfer to $150,000 if their spouse agrees to make the same gift.

Donors may use this strategy for multiple recipients, without the risk of gift taxes.

“This is a great way to get grandparents to start making gifts to younger generations and transferring their wealth in a way that really matters,” said Adam.

And unlike some other estate-planning tools, donors may take the money back if they need it, said Herzberg.

These perks may allow families to reduce their estate while paying for education for generations to come, he said.

“This is something that should be in the back pocket of every professional advisor,” said Herzberg.

When my clients ask about dogecoin, many say they are intrigued about the potential investment because of the news and excitement around it.

As the conversation gets more serious about investing in cryptocurrency, I ask why they want to do that. I then ask what value they think it might bring to their portfolio. There is always room for a productive conversation and I therefore tell a client they should never invest in cryptocurrency if it takes away from the original financial goals they set.

I also ask how long they think they’d be able to stick with that investment if or when volatility arrives. Once the tough questions are answered, I can determine how much of cryptocurrency investment makes sense for that particular client’s portfolio.

(If the answer to my first question is because “it’s hot right now” or a friend told them to buy it, I explain that they are probably looking to invest in cryptocurrency for the wrong reasons.)

The answer as to whether someone should invest in dogecoin — which is all the rage right now — is, of course, different for every investor. As with any type of investment, the investor needs to exercise caution because there’s always some risk tied to any investment opportunity.

I explain to clients that they need to determine how much risk they can handle, especially when it comes to cryptocurrency. And since every individual is different, the conversation will be focused on that person’s goals before deciding how much risk to take.  

If a client is risk averse, crypto isn’t the investment for them.

Of course, investors are watching the news and are well aware that dogecoin soared last week after a tweet from supporter Elon Musk, CEO of Tesla and SpaceX. Additionally, cryptocurrency exchange platform Coinbase said it would list the meme-inspired cryptocurrency. Meanwhile, Mark Cuban, owner of the Dallas Mavericks, made several social media posts in support of dogecoin.

A little background: Dogecoin was initially created in 2013 as a joke or a fun variation of bitcoin by Jackson Palmer, an Adobe software engineer, and Billy Markus, an IBM software engineer. Even with its prank-like beginnings, the technology and algorithm behind dogecoin are very serious.

Dogecoin is considered an alternative cryptocurrency coin, comparable to litecoin — another big player. Cryptocurrencies such as bitcoin, dogecoin and litecoin are actual online tokens that can used for payment for goods and services, trading and investing. The value of any asset ultimately comes down to what someone is willing to pay for that asset at a particular point in time.

That’s why, as a wealth manager, I urge clients — and any investors, for that matter — to do the proper research and be careful with trying to “time the markets” with a cryptocurrency investment.

It’s always smart to proceed with caution and to stay true to your “why” for investing.

So, is dogecoin a smart investment? Let’s look at some of the pros and cons.

Pros:

• Diversification
• Low price point/not expensive
• High growth potential
• Aligned with futurized investment trends
• Not backed/regulated by any government or financial institution
• On the right side of the investment trend

Cons:

• Very high risk
• A lot of volatility/lack of stability
• Not a lot of research, history and fundamentals analysis available
• May be subject to capital gains tax
• Not backed/regulated by any government or financial institution
• Lacks intrinsic value.

Social Security beneficiaries could be in for a bigger cost-of-living adjustment next year, if current economic trends continue.

But just how much farther an increase to those monthly benefit checks will go will depend a lot on inflation.

The Senior Citizens League, a nonpartisan senior group, released its first official estimate for 2022 on Wednesday, indicating there could be a 4.7% bump to benefits starting next January.

If that estimates holds, that would be the biggest increase retirees and other beneficiaries have seen since 2009, when benefits jumped 5.8%. In 2021, the Social Security cost-of-living adjustment was 1.3%.

The increase is culled from the latest Bureau of Labor Statistics data for the Consumer Price Index for Urban Wage Earners and Clerical Works, or CPI-W. The Social Security Administration uses that index to calculate its cost-of-living adjustment each year.

To be sure, this estimate is preliminary and could change. The actual COLA for next year will be based on data through the third quarter.

The current estimate is based on a 12-month average inflation projection using data through April, according to Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.

Much of the data that contributed to the estimate has to do with higher energy and gasoline prices, Johnson said.

Because the data does not include May, it’s missing the after effects of a recent cyberattack on a major U.S. fuel pipeline, which has led to a run on gasoline and price spikes in certain parts of the country.

If inflation declines and the estimate stays the same, that will help improve seniors’ buying power, Johnson said.

“A lot will depend on if inflation holds until COLA is announced and then whether inflation starts slowly coming back down again, so that by January of 2022 it’s lower than it is today,” Johnson said.

The Social Security Administration typically announces next year’s adjustment in October.

Consumer price data through May shows that Social Security recipients have lost buying power, according to the Senior Citizens League’s research.

If current inflation trends continue, “the loss of buying power could grow deeper in 2021,” Johnson said.

Chances are that deciding when to claim Social Security likely will be one of the biggest retirement choices you will ever make.

Yet a recent survey from MassMutual found that many pre-retirees are getting key facts about the program’s rules wrong — and just one mistake can hurt you financially.

The firm recently gave a 12-question true-or-false quiz to 1,500 people ages 55 to 65 who have not yet claimed their benefits.

Just 54% of respondents were able to correctly identify whether their benefits will continue to increase if they delay claiming retirement benefits past age 70. The answer is no.

Moreover, if you delay past 70, you can only go back six months to make up for lost monthly checks, said David Freitag, a financial planning consultant and Social Security expert at MassMutual.

“The benefits that they have missed, they’re never going to see,” he said.

Overall, the results showed that 35% of the respondents failed the quiz altogether, and 18% received a grade of “D.”

Just 3% of the respondents were able to answer all of the questions correctly.

Certain questions tended to stump people more.

Survey respondents were generally unable to distinguish the rules for spousal benefits after divorce and survivor benefits after the death of a spouse.

The results showed that 22% of near-retirees did not know that if a spouse passed away you cannot collect both your own and your spouse’s benefits. (Typically, you get either yours or your spouse’s, whichever is higher).

Meanwhile, 30% of respondents did not know that they might be able to claim benefits on their ex-spouse’s work record. (You must have been married for at least 10 years, among other qualifications.)

Each of those benefits comes with distinct rules, Freitag said, which means it’s important to understand them before claiming.

“Although survivor benefits sound like spousal benefits, they’re totally different,” he said.

The results were not all bad.

Most respondents — 94% — were able to correctly say that their retirement benefits will be reduced if they claim them before full retirement age (generally 66 or 67, depending on your year of birth).

A majority — 86% — were also able to accurately affirm that their Social Security benefits may be reduced if they collect their monthly checks before full retirement age and continue to work.

Curious to see how well you would do on the quiz? Decide whether each statement below is true or false, then check your responses against the answer key below.

1. If I take benefits before my full retirement age, they will be reduced for early filing.
2. If I am receiving benefits before my full retirement age and continue to work, my benefits might be reduced based on how much I make.
3. Once I start collecting Social Security, my benefit payments will never change.
4. If I have a spouse, he or she can receive benefits from my record even if he or she has no individual earnings history.
5. If I have a spouse and he or she passes away, I will receive both my full benefit and my deceased spouse’s full benefit.
6. The money that comes out of my paycheck for Social Security goes into a specific account for me and remains there, earning interest, until I begin to receive Social Security benefits.
7. Under current Social Security law, full retirement age is 65 no matter when you were born.
8. As a divorced person, I might be able to collect Social Security benefits based on my ex-spouse’s earnings history.
9. Under current law, Social Security benefits could be reduced for everyone in 2035.
10. If I file for retirement benefits and have dependent children age 18 or younger, they also may qualify for Social Security benefits.
11. If I delay taking Social Security benefits past the age of 70, I will continue to get delayed retirement credit increases each year I wait.
12. I must be a U.S. citizen to collect Social Security retirement benefits.

Answers:

1. True
2. True
3. False
4. True
5. False
6. False
7. False
8. True
9. True
10. True
11. False
12. False

If you receive Social Security or Supplemental Security Income benefits and are still waiting on a stimulus check, you should file a tax return as soon as possible in order to get your money, the Social Security Administration said.

The announcement pertains to the first $1,200 and second $600 economic impact payments that were approved by Congress last year. Even if you have no income, you should file a return if you are missing those checks, the Social Security Administration said.

Filing a tax return can also help the IRS process the third $1,400 checks the government is still sending out.

“Most Social Security beneficiaries and Supplemental Security Income (SSI) recipients should have received their [economic impact payments] by now,” the Social Security Administration said in its announcement.

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Meanwhile, a recovery rebate credit has been added to this year’s return — line 30 of Forms 1040 or 1040-SR for seniors — in order to let people claim any missing funds from the first two stimulus checks.

Once a return is processed, that will prompt the IRS to send out those payments, the Social Security Administration said.

As the tax agency processes returns, it is also sending out new $1,400 stimulus checks to anyone it did not previously have on record, as well as “plus-up” payments to anyone who did not receive the full payment to which they are entitled.

The refund will include any missing money from the first or second stimulus checks, the Social Security Administration said. The third stimulus checks, however, will be sent separately.

If you have already filed a 2020 tax return, you do not need to take action, the government agency said.

The IRS has encouraged federal beneficiaries to submit their information in order to make sure eligible dependents are counted in their payments.

Getting stimulus checks to federal beneficiaries has been an ongoing effort since the government approved the first payments last year.

In March, the Social Security Administration sent information to the IRS to help get the third $1,400 stimulus checks to almost 30 million people.

Sure, you likely have nowhere near the wealth held by divorcing couple Bill and Melinda Gates.

Yet when it comes to protecting your assets ahead of marriage, that doesn’t particularly matter, experts say. If you plan to wed, it may be worth determining how you and your spouse would each protect your assets and financial interests in case you end up going your separate ways.

“Anyone who has significant assets — which is in the eye of the beholder — that they either earned or inherited, and would want protected in the event of divorce, should consider a premarital agreement,” said Gary Altman, founder and principal attorney of estate-planning law firm Altman & Associates.

The Gates, worth an estimated $130.3 billion and splitting after 27 years of marriage, apparently had no prenuptial contract — a so-called “prenup” — in place. Instead, a separation agreement — aka a postnuptial agreement — is guiding how their assets will be divided, according to published reports.

Most soon-to-be newlyweds likely don’t envision divorce in their future and therefore may think an agreement is unnecessary. Yet if the unanticipated event happens — whether soon or decades down the road — trying to agree on who gets what could be challenging at best and devastating at worst.

“It’s about the idea of protection,” said certified financial planner Heather Comella, lead planner with financial wellness site Origin. “Think about if you’d need these assets to survive if your marriage were to fall apart.”

Comella said if you have children when you enter the marriage, you also need to consider how much you’d need to support them over time, as well. 

A prenup also could specify whether or not there would be spousal support — aka alimony — if there is a divorce or breakup, said CFP Stacy Francis, president and CEO of Francis Financial in New York. 

“We’ve also seen couples … protect themselves from each other’s debt issues or past run-ins with addiction,” Francis said.

Additionally, if you expect a large inheritance down the line, you may want a prenup to ensure those assets are not factored into the divorce equation at all, Francis said.

“The goal of a good prenup should be the facilitation of an honest discussion on finances, kids, future goals, and the financial consequences of the marriage ending,” she added.

While prenuptial agreements in various forms have been around for centuries, they have been put more to use in recent decades. 

“The use has increased, but not by as much as I think it should be,” said Altman, who has been doing estate planning for more than three decades.

Altman routinely now asks his estate-planning clients if they want a clause in their legal documents that would require their children to enter into pre- or post-marital agreements if they want to access their inheritance.

“They say you can inherit $1 million, but you can only get it if you sign an agreement saying your spouse can’t have it,” Altman said.

The House Ways and Means Committee is poised to consider a bill on Wednesday that would make changes to how U.S. workers save for retirement.

The measure, known as the Securing a Strong Retirement Act of 2021, comes less than a year and a half after another major retirement-savings bill, the Secure Act of 2019, was signed into law by then-President Donald Trump. Like that legislation, this new bill has bipartisan support: Its sponsors are Ways and Means Committee Chairman Richard Neal, D-Mass., and ranking member Kevin Brady, R-Texas.

“Retirement issues have a bipartisan legacy that continues with the Neal-Brady legislation,” said Wayne Chopus, president and CEO of the Insured Retirement Institute. “We are confident that Congress will act quickly to help more people build economic equity and strengthen financial security to sustain them throughout their retirement years.”

Among the provisions included in the new bill, which is similar to a version floated last year by Neal and Brady, is gradually increasing the age when individuals must begin taking required minimum distributions from their retirement accounts to age 75 from 72 (the Secure Act changed it to 72 from 70½) and requiring most companies that open a new 401(k) plan (or similar workplace option) to automatically enroll their employees.

“We’ve learned over time … that people who are auto-enrolled are much more likely to stay in the plan,” said Melissa Kahn, State Street’s managing director of retirement policy.

The bill also would index to inflation the “catch-up” contributions that individuals age 50 or older can make to their retirement accounts (an extra $6,500 for 401[k] plans and $1,000 for IRAs). And, it would increase those catchup amounts for individuals age 62 through 64, as well as allow workers to get 401(k) matching contributions (from employers) when they pay student-loan debt instead of contributing to their retirement savings account.

Additionally, certain restrictions on qualified longevity annuity contracts would be lifted. Right now, the maximum that can go into a QLAC is either $135,000 or 25% of the value of your retirement accounts, whichever is less. The bill would remove the 25% cap.

“You’re sort of limited today in terms of how much you can put in a QLAC,” Kahn said, adding that eliminating the cap would allow individuals who have high account balances to reach that $135,000 limit.

The new measure is expected to be voted on during the committee’s markup session on Wednesday, when amendments could be introduced and either adopted or killed. If the bill makes it out of committee, it would then be scheduled for a full House vote, although the timing of that is uncertain.

It’s no secret that the Covid-19 pandemic has hurt workers of all ages.

Yet when it comes to older workers — those ages 50 to 62 and up — some may have fared worse than they did during the Great Recession, according to recent research from the Center for Retirement Research at Boston College.

Just how older workers were affected depends on their age cohort, and whether they are ages 50 to 61 or 62 and up, according to the analysis of data from the Census Bureau’s Current Population Survey.

For those ages 50 to 61, the data shows that Covid-19 was harder on low earners than high earners.

Nineteen percent of those in the lowest earnings tercile were no longer working in 2020 compared to one year earlier, the data reveals. In comparison, in 2009 during the Great Recession, 17% of people in that category were no longer working.

Meanwhile, 9% of the highest earnings tercile were no longer working in 2020, compared to 11% in 2009.

“The big thing that stands out about any recession, including the Covid recession, is just the extent to which it hurts lower income people more,” said Geoffrey Sanzenbacher, research fellow at the Center for Retirement Research at Boston College.

Despite the negative consequences for people in this age cohort, there was not a noticeable increase in how many consider themselves to be retired. Part of that may be due to the fact that they are not yet 62, and thus unable to claim Social Security retirement benefits.

For those ages 62 and up, it’s a different story.

Lower earners in that age cohort were still more likely to be not working. Yet when compared to the Great Recession, the unemployment rate was about the same, 38% in 2020 versus 37% in 2009.

However, high earners ages 62 and up were more likely to be unemployed. In 2020, 22% of those in the highest earnings quartile were no longer working compared to a year earlier, versus 18% who fell into that category in 2009 during the Great Recession.

High earners retired at a greater clip during Covid-19 than in the Great Recession. In 2020, 15% of that cohort were retired a year after working, versus 10% in 2009. Yet the rate at which lower earners retired stayed about the same, 26% in 2020 versus 25% in 2009.

The results compare data from December 2020 to December 2019. There would likely have been a more dramatic difference in unemployment rates had the data measured for earlier months in 2020, Sanzenbacher said.

Admittedly, the health risks tied to Covid-19 could have prompted some employers to encourage workers to retire.

“From the data, we can’t really tell whether it’s pure choice on the part of the employee or whether it’s a joint decision of some kind,” Sanzenbacher said.

As the pandemic wears on far longer than many expected, some workers who at first identified as unemployed may now say they are retired.

That decision could also prompt them to claim Social Security benefits early, which is a concern, Sanzenbacher said.

Generally, if you claim at 62, the earliest age at which workers are generally eligible, you take permanently reduced benefits. Ideally, workers will wait until full retirement age to get 100% of their benefits, or up to age 70 to get enhanced benefits by waiting to claim.

“The best thing you can do to have a retirement where you have a high income is to delay claiming Social Security,” Sanzenbacher said.

As home prices soar, some sellers in red-hot markets may face a costly surprise come tax time.

President Joe Biden will propose in a nationwide address Wednesday a capital gains tax increase for the top 0.3% of households — those making more than $1 million per year.   

But the proposal may also deliver a tax bill to those selling a home with significant gains.

Wealthy Americans now paying the top capital gains rate could see a hike to 43.4%, from 23.8%. Both rates include a 3.8% levy on net investment income, created by the Affordable Care Act.  

The tax increases may impact more than stocks, bonds and cryptocurrency, however. Homeowners looking to cash in on sizzling home prices could also receive a bill.

“The proposed increase in federal as well as state capital gains tax rates could sting [home sellers] on the margins,” said Sharif Muhammad, founder and CEO of Unlimited Financial Services in Somerset, New Jersey.

Even with median home prices reaching all-time highs, Muhammad said, many sellers avoid paying capital gains on home profits because of a special tax break.

Single taxpayers can subtract up to $250,000 from their profits, and married filers may qualify to exclude up to $500,000. Anything more is subject to capital gains taxes. 

There’s a strict IRS rule, though: It must be the seller’s primary home for two out of five years before closing on the sale, with a few exceptions, like a job- or health-related move.

While many can save on capital gains taxes, home sales in high-dollar markets could bump some sellers over the $1 million income threshold in the year of the sale, especially without the exclusions.    

“I don’t expect the law to impact a lot of people, but selling in some markets could put someone over $1 million in income for the year,” said Leona Edwards, a Nashville, Tennessee-based certified financial planner and wealth advisor at Mariner Wealth Advisors.

The Los Angeles area, for example, has seen a year-over-year increase of 24.8%, with the median list price at $1,199,000, according to data from Realtor.com.

Those who bought during dips over the past 20 years, like after the Great Recession, may be caught up in the tax hike. 

For example, let’s say a single home seller earns $200,000 per year. If they bought a home for $250,000 and sold for $1.5 million, they could have annual income above the $1 million threshold, even with the $250,000 exclusion. 

Combined with state taxes, the total capital gains rate could be more than 50% in California, a Tax Foundation report estimates.  

Although some sellers may receive a bill, there are ways to reduce the burden.

Before making a move, Edwards said, follow the exclusion rules when timing the sale. 

“You may get burned when you keep a home as a rental property and sell later on,” she said. 

Muhammad said sellers might slash their bill with so-called tax-loss harvesting, which uses some investment losses to offset gains.  

Sellers may also consider home improvements they have made, like renovations, that can reduce profits by increasing the home’s original purchase price, known as the “cost basis.” 

Tax planning shouldn’t happen in a silo, however.

“Make sure you’re planning things out with enough lead time to help offset the windfall and potential tax ramifications,” he said.