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The Fiscal Cliff And Stocks: What Are Your Options?

7:13 AM, Nov 29, 2012   |    comments
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WASHINGTON (WUSA) -- From Main Street to Wall Street, it seems there's no avoiding the Fiscal Cliff. If you were lucky enough to make some good stock bets, then it could pay to take your profits now, if you need the money.

Investors will see the tax rate on capital gains rising if we go over the Cliff and that could mean a lot of money out of your pocket.

Here's a scenario to consider:

Let's say you bought 1,000 shares of a Wall Street winner. You saw your $5,000 investment turn into a $15,000 pot of gold as of now -- like in the case of a stock like Pulte Homes this year. What do you do?

Sell now and you get a $10,000 profit, minus 15 percent capital gains. That works out to be $1,500 in taxes.

What if you wait and we go off the fiscal cliff? You will now pay 20 percent capital gains on the investment -- or $2000.

If your household income is over $250,000 a year, then your cap gains rate jumps to 23.8 percent. That means you will now pay $2,300.

Here's the bottom line: Sell now -- and walk away with a $8,500 check. Sell down the road and your profits could be significantly reduced. 

That's just one dilema facing some investors right now. Another potential problem for investors relates to 401K funds. Congress is currently considering some changes that could limit your contributions, tax more of your profits or even do away with 401ks altogether. That could impact a lot of people.

Currently, 61 million Americans use these investment vehicles to save for the future.

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