On Thursday, the Senate passed a new bill, already passed by the House, that extends reduced tax rates, changes the nature of the Alternative Minimum Tax (AMT), eliminates an extension to higher-education tuition deduction, and eliminates a special deduction for teachers who pay for supplies out of their own pockets.
The rich — those with over a million dollars of income each year that is generated by capital gains in taxable accounts, not earned income or gains in tax-deferred accounts — stand to win the most due to this bill.
Critics question the correlation between lower investment income rates and economic growth and say the reduced rates primarily benefit high-income taxpayers – since exposure to stocks for middle- and upper-middle income taxpayers tends to be through tax-deferred vehicles like 401(k)s.
In order to make up for the tax that will not be received by the government due to these changes, there is also a provision that will allow anyone to transform a Traditional IRA to a Roth IRA, paying income taxes during the process, starting in 2010. Opponents believe that most will opt not to convert, but there’s always a chance the rules will change by then, and no one can accurately predict what tax rates will be.
The only step left is for the president to sign the bill.
 |
Income group | |
Saves | |
Reduces tax liability by: |
|
$20K-$30K | $10 | 0.4% | ||
|
$50K-$75K | $112 | 1.0% | ||
|
$75K-$100K | $406 | 2.3% | ||
|
$100K-$200K | $1,395 | 4.4% | ||
|
$200K-$500K | $4,527 | 5.9% | ||
|
Over $1 million | $42,766 | 4.5% |
Update: Here’s last night’s story about the tax cuts that aired on Marketplace.
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{ 2 comments… read them below or add one }
I’ve nver had access to Roth IRA’s before. I like the opportunity.
Regards,
makingourway
I put up a posting on my blog with a linkback. The posting discusses specific details of the tax bill that might be helpful to investors.
Have a great day,
makingourway