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How the Proposed Tax Changes Could Impact Your Financial Plan

By Joe Arnold, AIF®


September was a big month for the Biden administration’s Build Back Better Agenda. Long-awaited draft legislation for the budget reconciliation bill was released, bringing the bill one step closer to a vote on the House floor. This bill has far-reaching implications for people in all tax brackets, and it’s important to review the changes with a qualified professional in order to fully understand how your financial plan will be impacted. 


We’ve put together an outline of the biggest tax changes to be aware of and what you can do to mitigate your risk. This is by no means an exhaustive list, so please be sure to familiarize yourself with the full text here.

What Will Change?

The tax portion of the Build Back Better Act is as expansive as the infrastructure plans themselves. Here are some key features of the proposed plan:

  • The highest federal income tax rate will increase to 39.6%, up from 37%. This tax rate will take effect starting in the 2022 tax year and applies to single filers making more than $400,000 per year and married couples making more than $450,000 per year.

  • There will be a new 3% surtax on individuals with modified adjusted gross income greater than $5 million. This additional tax will take effect in 2022.

  • The capital gains tax rate will increase from 20% to 25%. This tax rate will take effect for capital gains recognized after September 13, 2021.

  • Corporations will be taxed according to a progressive rate schedule from 18%-26.5%. This replaces the previous flat tax of 21%.

  • Roth conversions for high-income earners (i.e., backdoor Roths) will no longer be available starting in 2032. This applies to single filers making more than $400,000 and married couples making more than $450,000. It also prohibits any after-tax qualified retirement accounts (like 401(k)s) from being converted to a Roth IRA, regardless of income level, starting in 2022.

  • The estate and gift tax lifetime exemption will decrease to $5.8 million per taxpayer starting in 2022. This is down from the previous exemption amount of $11.7 million. However, the valuation reduction limit for real estate used in family business will be increased to $11.7 million starting in 2022.

  • Grantor trusts will be considered part of the taxable estate. This includes Irrevocable Life Insurance Trusts (ILITs), Spousal Lifetime Access Trusts (SLATs), and Intentionally Defective Grantor Trusts (IDGTs). This change will only affect future trusts, and not those already created prior to the enactment of the tax law.

Implications and Effect

The points listed above are only a proposal at this point, and everything in the proposal is subject to change. We are encouraging everyone to familiarize themselves with the changes that may be coming soon. The effect of the changes could be far-reaching, and not only for clients in the higher tax brackets. If you haven’t used your lifetime tax exemption, it is imperative that you understand your options now to swiftly implement before the year ends. If you are not familiar with the significant benefits of grantor trusts, now is the time to speak with a knowledgeable authority. Finally, in light of the income tax proposals that could take effect over the next few years, planning properly beforehand will put you in a better position to minimize any detrimental effects on your situation.

Be Proactive

If you would like to better understand how the tax changes apply to you and how to plan accordingly, we at Foundation Wealth Advisors can help. Schedule a complimentary appointment by calling (440) 899-7535 or emailing me at

About Joe

Joe Arnold is an independent financial advisor and the founder and president of Foundation Wealth Advisors, LLC, an independent firm whose advisors provide private investment management for individuals and families, as well as retirement plan consulting for small and mid-sized businesses. With 20 years of experience in the financial industry, Joe specializes in providing objective advice to individuals, as well as transparency in building and managing company 401(k) retirement plans. He is committed to putting his clients’ best interests first in all decision-making and recommendations. Based in Westlake, Ohio, he serves clients in the Cleveland, Akron, and surrounding areas, as well as throughout the country. Joe received a bachelor’s degree in business administration from Cleveland State University and is an Accredited Investment Fiduciary® (AIF®). He has been featured on national television, including CNBC and FOX Business, and quoted in various publications, including The Wall Street Journal, CNN Money, Forbes, and others. Joe lives in Rocky River, Ohio, with his wife, Allison, and their two grown children, Kevin and Keira. An avid golfer, he is a former Class A PGA of America teaching professional and NCAA Division 1 athlete. When he’s not working, he enjoys playing golf, reading, and honing his culinary skills. To learn more about Joe, connect with him on LinkedIn.

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Check the background of this financial professional on FINRA's BrokerCheck