May 10, 2013 The Dispatch/Maryland Coast Dispatch Page 67 ... Revisit Savings Strategy Often Due To ACA Provisions FROM PAGE 66 of household income on health care expenses, and medications accounted for more than half that amount, according to a 2012 government report. The ACA has already begun trying to reduce prescription costs for Medicare beneficiaries by gradually closing the gap fully by 2020, leaving Medicare beneficiaries with a 25 percent copayment for all prescriptions. There are aspects of the ACA that may affect areas other than health care as well. The ACA is expected to cost an estimated $1 trillion over the next decade, and much of that will be met by higher taxes on earners in the upper brackets. That may require revisiting your asset allocation and your financial strategy. Starting this year, wages in excess of $250,000 for married couples and $200,000 for individuals are subject to an additional 0.9-percent Medicare tax, bringing the total Medicare tax rate on that income to 2.35 percent. The wealthy (those with a modified adjusted gross income of $250,000 if married and filing jointly, or $200,000 if single) may be subject to an additional 3.8 percent Medicare surtax on investment income, which includes dividends, capital gains, rents, royalties, annuity payments and interest payments. That new surtax took effect on Jan. 1, 2013, at the same time as a provision under the American Taxpayer Relief Act of 2012 (passed at the beginning of 2013) that increased tax rates on long-term capital gains and dividends to 20 percent from 15 percent for couples whose taxable income exceeds $450,000 a year and individuals whose taxable income exceeds $400,000. The 3.8 percent Medicare surtax and higher long-term capital gains and dividends rate could result in a 23.8 percent rate for some investment income for certain high earners. As a result, you may want to consider holding dividend-producing stocks in your retirement accounts because taxable distributions from an IRA, 401(k) or qualified pension plan are exempt from the surtax. Growth stocks that don't pay dividends, meanwhile, may belong in your taxable accounts: Although you will eventually owe taxes for long-term capital gains on potential appreciation of such holdings, that won't happen until you sell your shares – an event whose timing you can control. High earners may want to realize capital gains during years when their modified adjusted gross income drops below the $200,000-to-$250,000 threshold to avoid paying the 3.8 percent tax on those gains, suggests Vinay Navani, CPA, a partner at the accounting firm of Wilkin & Guttenplan. Many of the provisions of the ACA are being phased in gradually, and some have yet to be finalized. Your Financial Advisor can help you stay updated and together you can revisit your retirement savings strategy on a regular basis. You can also consult your tax advisor for more information. – Brian Selzer Special To The Dispatch (The writer is a senior financial advisor and can be reached at 410-213-8520.) 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