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Electric Vehicle (EV) Tax Credit: Biden’s Bill Could Put More Savings in your Pocket for Retirement

Have you thought about going electric with your next car purchase? Electric vehicles continue to grow in popularity as the technology matures, prices come down, and gas costs rise. And if the Build Back Better bill passes, the increased tax credit for buying an electric vehicle could provide a big boost for your retirement savings.

Of course, we know the positive environmental impact of electric vehicles, but what are the financial benefits? Let’s look at how buying an EV can fit into your retirement plans.

How the Proposed Bill Could Net Big Savings for Retirees Who Purchase an Electric Vehicle

The federal government already offers a tax credit of up to $7,500 for new electric vehicle purchases. Even if the Build Back Better bill fails to pass the Senate, this will stay in place and make EVs attractive.

However, the proposed tax credits in the new bill are even more generous. There are a few key provisions that could mean bigger savings for retirees buying an electric vehicle:

  • Extra tax breaks - The maximum tax credit goes from $7,500 to $12,500. While the base credit is the same, up to $5,000 in new credits are available for electric vehicles manufactured in the United States by a union workforce.
  • Refundable credit - The existing tax credit is non-refundable, meaning it can reduce your tax burden if you owe, but you won’t get a refund for it. Under the BBB bill, the credit would be refundable. This means that even if you’re already due a refund, the EV tax credit will increase the amount you get back.
  • More flexibility - The bill also allows auto dealers to claim the tax credit on the customer’s behalf. This effectively reduces the sticker price, which can reduce up-front purchase costs. However, you’ll no longer receive a tax credit or refund later, so be sure it makes sense for your financial situation before going this route.
  • Income limits - As long as your adjusted gross income is under $250,000 (or $500,000 if filing jointly) you’re eligible for the credit. If you’re using the tax triangle to maximize your savings, the EV credit can fit nicely into your tax strategy.

Along with federal tax credits, many states offer incentives and subsidies for electric vehicle purchases. For example, the Colorado Energy Office’s Zero Emission Vehicle Tax Credit program covers both EVs and plug-in hybrids.

Benefits of Owning an Electric Vehicle

When electric vehicles were new, their primary draw was that they were better for the environment than gas-powered cars - fully electric vehicles produce zero CO2 emissions and don’t rely on gasoline. Unfortunately, EVs were far more expensive, and thus out of reach for many people.

As the scope of the climate crisis becomes clearer, moving away from fossil fuels becomes more urgent. Thankfully, electric vehicles have also dropped significantly in price. Coupled with the fact that gas prices are at a seven-year high - and show no signs of slowing - EVs make more sense than ever. Here are just a few major benefits of driving an electric vehicle:

  • Lower fuel costs - Research from the National Renewable Energy Laboratory found that EVs could save from $3,000 to $10,500 on average over the life of the vehicle compared to gas-powered cars. And with gas prices expected to remain high into 2022, that number could go up.
  • Savings on maintenance - Electric motors have fewer moving parts than traditional engines, and they don’t need oil changes or replacement parts like spark plugs and fuel filters. Thanks to regenerative braking, your brake pads will also last longer.
  • Charging flexibility - Since you can charge your electric vehicle at home whenever you want, you’re free to take advantage of off-peak electric rates to minimize your energy costs. Additionally, a growing network of public charging stations - including places like malls and grocery stores - allows you to plug in while you’re away from home.

Dollars and cents aside, electric vehicles can also provide a more comfortable ride. They have full torque from a standstill, accelerating more smoothly than gas-powered cars. The lack of engine noise makes for a quieter experience, and improved weight distribution enables easier turning and handling.

Fitting a New Electric Car into Your Retirement Plans

With inflation continuing to rise, many retirees are watching their costs more closely. An electric vehicle can be a great way to reduce ongoing costs like gas and maintenance. And the tax credits can be a real boon. However, you still want to be sure a new car purchase makes sense:

  • Don’t overspend - Tax credits and maintenance savings are great, but you still need to stick to a budget. Spending beyond your means is a quick way to derail your retirement plans.
  • Withdraw wisely - If you’re going to use savings to buy a new car, keep tax implications and required minimum distributions in mind.
  • Your old car - When you get rid of your old car, make sure to consider the value of selling it vs. the potential tax write-off you’d get by donating it.

If you’re unsure about any of the financial aspects of buying a new electric vehicle, a trusted fiduciary financial advisor can help. They’re obligated to act in their clients’ best interests, so you can trust that they’ll help you make the right choices to build your ideal retirement.

Want to make sure you're getting sound financial advice? Download a copy of our Fiduciary Oath Guide today to learn what a fiduciary advisor is and why you can count on them to guide you towards a secure and comfortable retirement.

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