Top tax moves to make when planning for retirement

October 2, 2021

Greg Kling, USC Leventhal School of Accounting Associate Professor, joined Yahoo Finance Live to discuss taxes and retirement planning.

Video Transcript

SEANA SMITH: Professor Kling, it's good to see you. Let's start talking about what people need to do in order to best position themselves for taxes heading into the final three months of the year, because President Biden putting forward his tax proposal. Now that we're starting the fourth quarter, what moves should people be making over the next couple of months?

GREG KLING: Well, Seana, first off, thanks for having me here today. There's really two things. One is the tried and true things that tax professionals would always recommend to their clients. And then there are the things that, of course, we have to consider because of the new potential tax law change. So just a quick discussion about what some of the major changes are being proposed right now is we're looking at a capital gains rate, top rate that's going to go from 20% to 25%. And so that obviously is concerning for certain taxpayers who expect to have high capital gains.

We've also got the top tax bracket going from 37% to 39.6%, a 3% surtax on incomes over $5 million. And one of the big controversial ones right now is the lowering of the estate tax exemption. So in terms of year end planning, the tried and true things that people would do are things such as maximizing your 401(k) contribution, considering Roth IRA conversions, and just considering where your capital gains are going to fall.

SEANA SMITH: And Professor, just in terms of I guess how you're looking at specific positions right now, coming off what was a pretty volatile month of September, certainly a lot of uncertainties going forward, just how has your line of thinking changed? Or has it changed at all as a result of what we've seen play out over the last couple of weeks?

GREG KLING: Yeah, so that's a great question. I mean, what I would say is, is that you really want to figure out what camp you're in. If you think that the capital gains rate is going to go up for you 5%; maybe it'll be a little less, maybe it'll be around 5%, we're still wondering where that's going to fall, then actually folks this year might decide to not recognize capital losses, pick up as much capital gains this year with the anticipation that next year we might have a higher capital gains rate.

SEANA SMITH: And Professor, just in terms of the biggest mistake that people make, I think that's the number one thing that people want to avoid obviously when you talk about the biggest mistake that people make when it comes to planning for their retirement. What do you see as the most common thing that people do?

GREG KLING: You know, it's actually not necessarily tax-related. I would say it's more the idea that you can do it all on your own. I think the benefit of tax professionals and investment professionals really make a huge difference. Maybe aside from that, it's just the idea of not maximizing their available contributions, whether that's an individual retirement account, a Roth IRA, or again, participating in some sort of employer-sponsored plan like a defined contribution plan, defined benefit plan or 401(k) plan.

SEANA SMITH: Professor Greg Kling, great to have you. USC Leventhal School of Accounting Associate Professor, thanks so much for taking the time and we hope you have a great weekend.