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Trump Tax Cuts Set to Expire
December 31st, 2025 poses a significant concern for anyone who has an IRA, 401, or similar savings plan. The Trump Tax reductions expire. If you are taking Required Minimum Distributions (RMD) this is important to your net disposable income.
The proposed tax changes will increase tax rates across all income brackets, exposing a substantial portion of your earnings to higher taxation. The estate tax exemption will be reduced by half, and the standard deduction will decrease by 50%, pushing more of your income into higher tax brackets.
For retirees currently taking RMDs, the implications are particularly consequential under the existing tax regulations. Many retirees fall within the 12 to 22% tax bracket when taking RMDs. However, with the expiration of the Trump tax cuts, these same RMD withdrawals could potentially push your income into the 28 or 33% tax bracket. Furthermore, this increase in income could also trigger additional charges related to IRMAN medical expenses and other financial obligations.
The traditional approach to tax planning and RMD strategies may result in significantly higher costs due to the impending tax increases. Relying solely on traditional RMD methods and passively following government mandates can lead to inadvertently and unnecessarily providing more of your earnings to the IRS than legally required.
Implement a distribution strategy before these tax changes take effect. A prudent distribution strategy should incorporate proactive approaches such as Roth conversions, qualified charitable distributions, or tax-efficient income streams like annuities to satisfy required minimum distributions (RMDs). Additionally, consider the impact of Medicare surcharges, which can be considered hidden taxes that may silently deplete your savings.
The traditional approach to research and development (R&D) may result in significantly higher costs due to the impending tax increases. Relying solely on traditional R&D strategies and passively following government mandates can lead to unwittingly and unnecessarily providing more of your money to the Internal Revenue Service than legally required.
**Prepare for Economic Turbulence**
To hedge against the possibility of higher taxes it's essential to proactively incorporate a volatility buffer into your financial plan. A volatility, buffer is a powerful yet frequently overlooked strategy by many financial advisors. It involves setting aside a portion of your retirement accounts to cover two to four years’ worth of living expenses or RMDs. These funds are strategically allocated to avoid exposure to market downturns, allowing you to draw from the buffer instead of selling investments at a loss during periods of decline. This approach provides your portfolio with the breathing room it needs while the market recovers. Rather than simply hoping the stock market remains stable and ignoring potential risk, you take a proactive approach to managing volatility by implementing a buffer that prepares you for both the ups and downs of the market.
If Trump wins, you can adjust the buffer. If he loses, this strategy could be your financial lifeline during uncertain times.
**The Potential Benefits of Roth Conversions**
Traditional Individual Retirement Accounts (IRAs) and 401(k) plans may have been advantageous during one's working years, but they can become significant tax liabilities in retirement. Given the anticipated increase in tax rates, converting these accumulation vehicles into Roth IRAs may prove to be a prudent financial strategy. By paying taxes upfront during the conversion process, individuals can lock in the current lower tax rates and subsequently benefit from tax-free growth and withdrawals, as well as tax-free inheritance transfers.
Under the present legal framework, individuals have the flexibility to convert to a Roth IRA at any time and in any amount, even after retirement. However, this opportunity may not persist indefinitely. Roth IRAs also exempt account holders from Required Minimum Distributions (RMDs), allowing the assets to grow tax-free for as long as desired, thereby creating a greater wealth-building prospect for the account owner and their heirs. Initiating a Roth conversion not only secures tax-free growth but also mitigates the risk of future tax hikes adversely impacting one's retirement plan.
Prompt action on a Roth conversion could be the difference between a tax-burdened retirement and a tax-free financial future.
A little number crunching and consultation with your financial advisor may be worth your time and effort.
[A major source for this article came from Sean Keefe from AMAC's Safe Planning Group]
COL Randall C. Lt Col Charlie Brown MAJ Dale E. Wilson, Ph.D. CPT Jack Durish CSM Charles Hayden SGM Erik Marquez MSgt Dale Johnson LTC Tom Jones SFC James Baber Cpl Vic Burk SPC Michael Duricko, Ph.D riko, Ph.D
December 31st, 2025 poses a significant concern for anyone who has an IRA, 401, or similar savings plan. The Trump Tax reductions expire. If you are taking Required Minimum Distributions (RMD) this is important to your net disposable income.
The proposed tax changes will increase tax rates across all income brackets, exposing a substantial portion of your earnings to higher taxation. The estate tax exemption will be reduced by half, and the standard deduction will decrease by 50%, pushing more of your income into higher tax brackets.
For retirees currently taking RMDs, the implications are particularly consequential under the existing tax regulations. Many retirees fall within the 12 to 22% tax bracket when taking RMDs. However, with the expiration of the Trump tax cuts, these same RMD withdrawals could potentially push your income into the 28 or 33% tax bracket. Furthermore, this increase in income could also trigger additional charges related to IRMAN medical expenses and other financial obligations.
The traditional approach to tax planning and RMD strategies may result in significantly higher costs due to the impending tax increases. Relying solely on traditional RMD methods and passively following government mandates can lead to inadvertently and unnecessarily providing more of your earnings to the IRS than legally required.
Implement a distribution strategy before these tax changes take effect. A prudent distribution strategy should incorporate proactive approaches such as Roth conversions, qualified charitable distributions, or tax-efficient income streams like annuities to satisfy required minimum distributions (RMDs). Additionally, consider the impact of Medicare surcharges, which can be considered hidden taxes that may silently deplete your savings.
The traditional approach to research and development (R&D) may result in significantly higher costs due to the impending tax increases. Relying solely on traditional R&D strategies and passively following government mandates can lead to unwittingly and unnecessarily providing more of your money to the Internal Revenue Service than legally required.
**Prepare for Economic Turbulence**
To hedge against the possibility of higher taxes it's essential to proactively incorporate a volatility buffer into your financial plan. A volatility, buffer is a powerful yet frequently overlooked strategy by many financial advisors. It involves setting aside a portion of your retirement accounts to cover two to four years’ worth of living expenses or RMDs. These funds are strategically allocated to avoid exposure to market downturns, allowing you to draw from the buffer instead of selling investments at a loss during periods of decline. This approach provides your portfolio with the breathing room it needs while the market recovers. Rather than simply hoping the stock market remains stable and ignoring potential risk, you take a proactive approach to managing volatility by implementing a buffer that prepares you for both the ups and downs of the market.
If Trump wins, you can adjust the buffer. If he loses, this strategy could be your financial lifeline during uncertain times.
**The Potential Benefits of Roth Conversions**
Traditional Individual Retirement Accounts (IRAs) and 401(k) plans may have been advantageous during one's working years, but they can become significant tax liabilities in retirement. Given the anticipated increase in tax rates, converting these accumulation vehicles into Roth IRAs may prove to be a prudent financial strategy. By paying taxes upfront during the conversion process, individuals can lock in the current lower tax rates and subsequently benefit from tax-free growth and withdrawals, as well as tax-free inheritance transfers.
Under the present legal framework, individuals have the flexibility to convert to a Roth IRA at any time and in any amount, even after retirement. However, this opportunity may not persist indefinitely. Roth IRAs also exempt account holders from Required Minimum Distributions (RMDs), allowing the assets to grow tax-free for as long as desired, thereby creating a greater wealth-building prospect for the account owner and their heirs. Initiating a Roth conversion not only secures tax-free growth but also mitigates the risk of future tax hikes adversely impacting one's retirement plan.
Prompt action on a Roth conversion could be the difference between a tax-burdened retirement and a tax-free financial future.
A little number crunching and consultation with your financial advisor may be worth your time and effort.
[A major source for this article came from Sean Keefe from AMAC's Safe Planning Group]
COL Randall C. Lt Col Charlie Brown MAJ Dale E. Wilson, Ph.D. CPT Jack Durish CSM Charles Hayden SGM Erik Marquez MSgt Dale Johnson LTC Tom Jones SFC James Baber Cpl Vic Burk SPC Michael Duricko, Ph.D riko, Ph.D
Retirement
Taxes
Economy
Budget
Edited 12 d ago
Posted 12 d ago
Responses: 6
A "volatility buffer" is always a great suggestion for any individual (also referred to as a "cash reserve", "emergency account", etc.).
The possible changes to your tax burden is just one of the factors people should be using to determine how large that pot of money should be.
The possible changes to your tax burden is just one of the factors people should be using to determine how large that pot of money should be.
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SPC Jeff Daley, Ph.D: Brilliantly done and so apropos to so many of us who need to be aware of the significant negative financial impacts if the Trump Tax Reductions are allowed to expire. Thank you.
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Back when Trump implemented the cuts, I had my employer take more out of my check in case for some reason the cuts were repealed. Not that I want them to but, I won't be any worse off if they do reinstate the tax cuts. I got bigger refunds and, I never spend my refunds anyways. I put them into certificates for the future.
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