The Trusted Advisor

Build Back Better Act – what it may mean for you

Posted by John Knisely, Financial Planner on Dec 6, 2021 2:27:06 PM

The Build Back Better Act is a proposed legislative spending plan aimed at raising revenues and changing or adding certain governments programs. At this point, we can only speculate at what will pass and what will not, but one thing that is for certain - change is coming. More specifically, a majority of the revenue proposals will impact high-income, high net-worth and small-business owner individuals.

The below summarizes a few areas of the bill that might influence your personal financial situation and provides necessary steps to ensure you are adequately prepared for change.

Income Tax Rates

The top marginal income tax rate will increase to 39.6% for individuals earning greater than $400,000 or married couples, filing jointly earning greater than $450,000. Taxpayers who are currently in the $400,000 - $500,000 income range will be affected most, moving from the current 35% to 39.6%.


  • Accelerate income in 2021 to take advantage of lower tax bracket.
  • Delay charitable contributions that may offer greater tax deductions in 2022.
  • Maximize contributions to employer sponsored retirement plans.
  • Small-business owners that offer a qualified retirement plan should review plans to ensure they are offering the most effective means of income deferral.
  • Business owners without a retirement plan should consider implementing one in 2022 to allow for income deferral.

Capital Gains Tax

The top capital gains tax rate will increase from 20% to 25%, affecting high earners in the $400,000 - $500,000 range. The effective date of this provision is retroactive to September 13, 2021. Therefore, any capital gains after this date will not be taxed at current rates. While it may be too late to lock in the lower capital gains rate, you can still plan for future years. Work with an advisor to construct a tax efficient investment strategy to minimize future capital gains.

Roth Conversions

Converting a traditional IRA to a Roth IRA has thrust itself to the forefront of financial planning. This technique is useful for individuals who currently find themselves in a lower tax bracket than in retirement. A Roth conversion offers the benefits of tax-free growth, no required minimum distributions and a tax efficient way to pass assets to the next generation.

The proposed bill would eliminate the ability of high-income earners ($400,000 - $500,000) to do a Roth conversion. The effective date of this proposal is after December 31, 2031. This advanced date provides a window of opportunity to determine if a Roth conversion is right for you.


  • Determine if a Roth conversion fits your future goals and planning. It is most effective to pay taxes from other resources to maximize the conversion amount.
  • Consider the different ways to adjust your income below the threshold to maintain the ability to convert.
  • Do you plan to retire before age 72? Consider taking advantage during your retirement years, when you have little to no earned income.

In summary, these a just a few items to consider as it pertains to proposed changes. Consult with your financial advisor or accountant to determine what warrants immediate or future action.

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The opinions expressed and material provided are for general information only.

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