Your Taxes And Investments In 2018: What's Changed?

The 2018 tax bill is one of the most consequential changes to the American tax code in a generation. It's far from simply another tax cut or increase.

Instead, it restructures numerous benefits and programs while trimming overall rates for most earners. Investors are particularly sensitive to changes in the tax code and need to be aware of this new law before filing next year. Here are a few ways in which the tax law may affect investors and their investments.

The Alternative Minimum Tax

One important change in the 2018 tax bill is the increase in the lower threshold for the alternative minimum tax (AMT).

The AMT is a parallel tax structure along with the conventional income tax system. It's designed primarily for high earners and those with high amounts of investment income who don't already pay high amounts of income tax. This tax hits investors harder than it does for those who don't have investments. However, there's a threshold where taxpayers have to start worrying about the parallel structure of the AMT. In the 2018 tax bill, the lower threshold for the AMT is raised to a little over $50,000.

This change means that thousands can stay in the traditional tax structure without worrying about and paying AMT. More individuals will be able to cut their tax bill and perhaps invest more than they would have otherwise.

529 College Savings Plans

Another shift is the change in 529 planning contributions. 529 plans are used across the country to help pay for college. They're important reservoirs of funds that can defray the tax bills of investors.

This new tax law expands the use of these 529 plans to K-12 education. Parents with children in private schools can have accounts with preferential tax treatment grow and pay for a child's education for years.

IRAs and the New Tax Law

The third tax law change that affects investors is the end of the Individual Retirement Account (IRA) recharacterization tool.

In prior years, investors could change their Roth IRAs into traditional IRAs and vice versa if they could complete the change before Oct. 15. The shift was designed to reduce capital gains tax burden depending on how the market moved. However, the end of this recharacterization means that the IRA and Roth IRA will become more fixed categories.

Ending the tax benefit for a changeover means a higher tax penalty in some instances. It also means that investors must be more careful about their investments and how they work with the different types of retirement accounts. Without a benefit to changing accounts, it may be better for an individual to do more research and be more certain about what type of retirement account they want before committing.

Conclusion

The 2018 tax law will continue to provide complex decisions for investors. Investors need to stay vigilant on any changes as well as the prescripts of the original law, especially if you plan on starting to invest through an online brokerage, in cryptocurrency, or any other web-based vehicle. A few extra hours of research can mean hundreds or even thousands of dollars in tax savings or legal troubles.