Estimated read time: 5-6 minutes
You might be concerned about inflation, stock market volatility or a possible recession. But many economists think you should be worried about something else:
Expiring tax cuts.
Because if these tax cuts expire, it would be an immediate haircut for your retirement savings.
The Tax Cuts and Jobs Act (TCJA) — also known as the "Trump tax cuts" — was the largest overhaul to the tax code in three decades. As a result, taxes are lower today than they've been in over 40 years.
The Trump tax cuts lowered individual income tax rates, doubled the estate and gift tax exemption, nearly doubled the standard deduction for individual and family tax returns, and created a single corporate tax rate of 21%.
But with these changes set to expire soon, Americans could be paying much higher taxes on their income and investments. And this could be especially painful for retirees.
Why would Congress let these tax cuts expire?
To put it simply: A lot has changed since the tax cuts were enacted in 2018.
Our government responded to the pandemic with an unprecedented spending spree. Trillions of dollars were spent on economic stimulus, infrastructure updates, social policies, and other programs like the Inflation Reduction Act.
In 2018 our national debt was $21 trillion. Today our national debt has skyrocketed to more than $32 trillion (and it's still growing).
But here's something that's important to understand: the government doesn't have any money of its own. Its only source of revenue comes from taxes. And all of this debt has to be paid back somehow.
The top Federal income tax rate tops out at 37% today. But if you look back at the history of tax rates, the top Federal income tax rate was 70% in the early 1980s, when our national debt hadn't even topped $1 trillion.
So what do you get when you have record-high national debt with 40-year-low income tax rates? You have a perfect recipe to raise taxes.
We aren't suggesting that the highest tax rates will return to 70%, but there's a lot of room for the government to raise today's rates.
If the Trump tax cuts expire
If the Trump tax cuts expire in 2025, retirees could face significant financial hardship.
If Congress does not extend the TCJA, many [people] could end up paying thousands or even tens of thousands of dollars in additional taxes.
–The Street
For starters, individual income tax rates will go up. And the government could take the opportunity to raise taxes even higher.
Tax rates could also rise for investment income, capital gains and interest earned on savings accounts. As a result, these higher taxes would take a bigger chunk of income and impact lifestyles in retirement.
Given that many retirees are already struggling with higher living expenses due to sustained inflation, higher taxes could be one more devastating blow.
How could you insulate yourself from higher taxes?
Even if the Trump tax cuts don't expire, our national debt is still more than $32 trillion. So either way, higher taxes could be just around the corner.
The good news is you have options that could reduce your taxes in retirement and essentially "Washington-proof" your nest egg.
This won't happen by preparing and filing for your taxes every year on April 15.
The real savings would only come from taking advantage of retirement tax planning.
With retirement tax planning, you're looking forward, not backward. And you're using strategies that could reduce the taxes on your IRA and 401K withdrawals, social security benefits, and other investment income (including real estate, dividends, interest, etc).
The savings here are often significant. It's not uncommon for B.O.S.S. to uncover tens of thousands of dollars in tax savings for a client. In some cases, it could be more than $100,000 in tax savings depending upon how much money you've saved.
If you want to learn how much money you could save in taxes when you retire, B.O.S.S. will prepare a free, customized B.O.S.S. Retirement Tax-Savings Analysis specifically for you.
Here's how it works
After getting some basic information from you, B.O.S.S. researches the strategies that are best suited for your specific situation. Then they'll sit down and freely share these strategies with you so you can see what your savings could be.
One final important note
When people learn there are opportunities to save on taxes in retirement, they think they should talk to their CPA. But retirement tax planning is a completely different skill set than preparing and filing a tax return. This is why we recommend working with a fiduciary advisor who specializes in tax planning.
To unlock the full potential of your retirement savings, schedule your free tax-savings analysis with one of our fiduciary advisors by clicking here.
About the authors: Ryan Thacker and Tyson Thacker are the president and CEO of B.O.S.S. Retirement Solutions. They are a five-time winner of Utah's Best of State Award and have six offices located throughout the Wasatch Front.
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This is for illustrative purposes only, results may vary. Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency. Marketing materials provided by Infinity Marketing Services.
