⏰ Retirement Tax Bill Could Jump by 26.9% in 3 Years!? - Here's What to Do...

Tax Hikes Looming: How to Take Advantage of Current Tax Opportunities

In this video, the speaker discusses how taxpayers have a limited window of opportunity to take advantage of lower tax brackets before tax hikes come in 2026. The speaker provides examples of how retirees' tax bills will rise by 20-25% and emphasizes the importance of having a forward-looking tax plan.

The Reason for Tax Hikes

• The sunsetting of the Tax Cuts and Jobs Act in 2026 will cause tax hikes.

• If Congress takes no action, these rules will sunset in 2026.

• There has been no serious discussion around extending this bill.

Examples of Retirees' Future Tax Bills

• A single retiree with $78k gross income would see their tax bill rise nearly 23% from $7.6k up to $9.4k.

• A retired couple with a pension, Social Security, RMD, and other sources would see their tax bill rise by 27% from $8.1k up to $10.4k.

• A retired couple performing Roth conversions and maxing out the 22% bracket would see their tax bill rise nearly seven thousand dollars for a sixteen and a half percent increase.

Key Changes Coming in This Tax Bill

• Reversion back to old tax rates means each bracket is set to rise two to four percent outside of the 10 and 35 percent brackets.

• Roth conversions are a key strategy you can use today to take advantage of these current lower tax rates.

• Movement in tax brackets as well; three key brackets that will see an adjustment down are the current 24 bracket, 32 percent bracket, as well as the 37 percent bracket.

Benefits of Roth Conversions

• There is a tax benefit if you're converting at lower rates today than you will see in the future.

• If you're converting at 22% today and later find yourself in the exact same bracket that will be a 25% bracket, it makes sense to pay 22% today to avoid 25% tomorrow.

• An opportunistic retiree can be a bit more aggressive and convert into the next bracket (24), which is still lower than 25%.

Conclusion

• It's imperative to have a forward-looking tax plan and take advantage of current tax opportunities.

• Due to the various tax traps that retirees face, they will see a 20% tax increase.

• Retirees should implement key Tax Strategies over the last five years.

Tax Changes Coming in 2026

This section discusses the tax changes that will take place in 2026 and how they will affect retirees.

Standard Deduction and Personal Exemption

• The standard deduction is decreasing, which means more income will be taxed at higher rates.

• The personal exemption is being eliminated, adding another tax hurdle for taxpayers with substantial income.

• Overall, the deduction decreases by $2,350 for single filers and $4,700 for joint filers.

Roth Conversion Strategy

• A prudent tax planning strategy is to max out the 24% bracket for the next three years and then drop down to max out the 22% bracket thereafter.

• This strategy can deliver substantial tax savings of upwards of half a million dollars in pure after-tax benefit depending on how long a couple lives.

• It's important to note that this needs to be a dynamic process and should be adapted accordingly each year.

Federal Estate Exemption

• In 2026, the current estate exemption will be cut in half, affecting fewer retirees but massively impactful for those it affects.

• Anything under the exemption is tax-free but anything over is taxed at a high rate of up to 40%.

Tax Planning for Retirees

The video discusses the importance of tax planning for retirees, especially in light of potential tax hikes and changes to estate taxes and subsidies.

Conservative Spending Goals

• A Monte Carlo analysis shows that retirees with $3 million in their early 60s and conservative spending goals may face estate taxes in above-average trials.

• Estate taxes apply to all assets, including Roth IRAs.

• Retirees can take advantage of the current doubled estate exemption before it reverts back to old brackets.

Reversion Back to Subsidy Cliff

• In 2026, the Affordable Care Act Insurance marketplace will revert back to the subsidy cliff.

• Currently, a retiree can earn six figures worth of income and still receive a substantial subsidy north of $500 per month.

• Come 2026, there is a point around $70k-$80k for a married couple where they fall off the cliff and lose their subsidy after showing just a few extra dollars north of this income threshold.

• This further emphasizes the importance of forward-looking tax planning.

Efficient Withdrawal Strategies

• Savvy retirees who plan and coordinate their investment, tax, and estate strategies properly will have the biggest savings.

• Click on this video for additional information on how to efficiently withdraw from saved assets.