In today’s episode, you’ll learn more about:
- How the new senior tax deduction could influence Roth conversion decisions and retirement income planning
- Whether changes to the standard deduction, SALT limits, and itemized deductions create new opportunities
- How charitable giving strategies, including qualified charitable distributions, could reduce your tax bill
- Which retirement account distributions, Roth conversions, and investment decisions need attention before December 31
- Why planning for next year’s taxes, Medicare premiums, and future retirement income matters just as much as minimizing this year’s tax bill
Listen Now:
The Smart Take:
Can you qualify for a mortgage after retirement? Should you pay cash for your next home, borrow against your investments, or take out a tra
Go Inside the Episode:
0:00 – Intro
2:07 – Income Target This Year
7:42 – New Deduction Rules
11:50 – Charitable Giving
14:34 – December 31 Deadline
16:46 – Preparing for 2027
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The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Episode Transcript:
Walter Storholt:
Well, Tyler, we’re getting toward the end of the year and I know that that is always a busy time for retirement and of course tax planning.
Tyler Emrick:
Oh, absolutely. And this year is even a little different because we got some new tax legislation that came about last year that’s affecting some of those decisions this year.
Walter Storholt:
And what kind of decisions are we going to be talking about?
Tyler Emrick:
Well, we got the typical ones, right. How high do we take income? Do we fit in some Roth conversions? And there’s quite a few new deductions that are sneaking their way in this year that are going to be impactful for many retirees.
Walter Storholt:
Okay, very nice. I know we’ve got a pretty good list of things that’ll be changing, some that are related to charitable distributions, maybe some higher limits on itemized deductions and some additional things that we’ll be aware of as well, including a new tax deduction for folks over 65, right?
Tyler Emrick:
Yeah, there is. Absolutely. So we’re going to cover all that today when we start thinking about, well, what should be on every retiree’s mind as they come into year-end and the tax planning opportunities that are ahead of them.
Walter Storholt:
Well, thanks for joining us on Retire Smarter. I’m Walter Storholt, as always, joined by Tyler Emrick. He is a Certified Financial Planner, a Chartered Financial Analyst, and one of the wealth advisors at True Wealth Design. And Tyler, that year-end is fast approaching my friend.
Tyler Emrick:
It is.
Walter Storholt:
And we’ve got the old checklist that we’re dusting off to get ready.
Tyler Emrick:
We do. Yeah. It seems like each year we kind of get in this normal routine, right. And this year’s even a little more quirky than years past because obviously we have some legislation changes from the One Big Beautiful Bill that are taking effect this year that throw a little hiccups into maybe some of the normal things that we wanted to look at. So we wanted to kind of dive into that checklist this year and see what some of the changes are from prior years.
Walter Storholt:
It’s kind of interesting ’cause the One Big Beautiful Bill Act seems so long ago, but you’re right, some of those things weren’t exactly immediate. They were set to take effect in future years. And this is one of the years where several things kind of started kicking in a little bit, so good to know.
Tyler Emrick:
Yeah.
Walter Storholt:
We got some oldies on the checklist as always, but some new things to add in there as well. So what’s up first?
Tyler Emrick:
You got it. Yeah. So the first thing we want to dive into is kind of one of the oldies but goodies, but with a little tweak to it. And that is what should be on everybody’s mind heading into these last few months of the year is how high do we want to be taking our income this year? Right. What’s our income target? We’ve gotten most of the money we needed to live off this year. How high do we want to be taking our income? Or are we on the flip side, are we looking to lower that income number and looking for some additional deductions? But as I look in our meeting with many of our families here over the coming months, and certainly we’re about three weeks into our year-end tax and investment review meetings, and for a lot of retirees, the big question mark is again, how high to take our income?
And the reason for that is because when we kind of look at our families and where they are generally falling from an income standpoint on a year in and year out basis, a lot of families are using the first income IRMAA tier. So IRMAA is that where your Part B premiums start to increase if your income goes too high. They kind of use that as their income target and how high they want to go. Well, for a married couple filing jointly, that keeps their income in that 22% tax bracket. And for individuals that have big RMDs coming down the road that might be bumping them up into higher tax brackets down the road, a lot of families are looking in saying, “All right, hey, I want to at least take my income up to that first IRMAA tier. Don’t want to pay more for my Part B premiums, but I certainly want to fill up that 22% tax bracket.” And the change for this year is actually due to that new senior bonus deduction. Okay.
So what this is, Walt, is just essentially for individuals that are listening that are over 65, you get an extra deduction this year, 6,000 bucks for you. And then if your spouse is over 65, your spouse would get $6,000 deduction as well. Now, this is on top of your normal standard deduction, which we all know, Walt, senior deductions now are, they’re getting up there pretty high. A little over 32,000 bucks can be higher than that even for some individuals. Right. So this senior bonus deduction is very impactful. I mean, 12 grand for a married couple, both over 65. But as with anything, there’s income limits that are going to derive how much of that deduction you actually get. And those income limits where that deduction starts to lower are about 150,000 of modified adjusted gross income, which means basically that is much, much lower than that traditional income target of that first IRMAA tier, which is roughly closer to $220,000 roughly, give or take depending on your target.
So that’s a big gap of like, well, hey, if I go under our old plan and fill up that 22 bracket up to the first IRMAA tier, well, I mean, we’re looking at almost $70,000 more of income above the limit for that senior bonus deduction. Now, the thing about the senior bonus deduction is it’s not a cliff. It’s not like, hey, if we’re $1 over, it goes away. It’s a slow progression. As you continue to add more, the senior bonus deduction goes off. So as you could imagine, well, this brings up a really good time for us to talk with our clients and our families around, well, what are we trying to accomplish? Let’s kind of recenter ourselves a little bit and make sure like, hey, used to be filling up the 22% bracket, no-brainer, think it makes sense. You start adding in, giving up this senior bonus deduction.
All right, well, how does that affect my tax bracket and does that still make it worth my while to continue with those Roth conversions? So definitely an added layer of conversation, certainly depends on the family, what they’re trying to accomplish, what their long-term tax rates look like. And that’s where the planning piece comes into play, Walt, where we really need to make sure that we’re doing this on a case-by-case basis and those conversations can be a little different. So a little tweak to the old income planning that should be on everybody’s docket here as we think about this year and the end of the year.
Walter Storholt:
We’re talking about a couple thousand in savings, I guess, for most families potentially here. Is that kind of the amount we’re looking at?
Tyler Emrick:
Yeah. Well, it could actually add a couple percent onto the effective tax rate of the Roth conversion. So what I mean by that is like, hey, if typically we would look at doing that Roth conversion up to the first IRMAA, maybe you’re paying 22% in federal taxes on it. I’ve seen the effective rate as high as 24, 25% on that conversion ’cause you’re giving up that senior bonus deduction. So that changes the equation a little bit, right. It used to be, “Hey, what’s my long-term tax rate? Is it above or below 22% or the same?” Now that might be closer to 25%. Does that make sense still to pay an effective rate of 25% when we start looking at what it is long-term for the family?
Walter Storholt:
Okay.
Tyler Emrick:
So yeah, that’s it.
Walter Storholt:
For some it may, for some it won’t, you just got to run the numbers and case-by-case?
Tyler Emrick:
You do, right. And again, I go back to this is where we’re leaning on that financial plan because we’ve done that work. We have a very good understanding of what we think your tax bracket’s going to look like down the road and how it changes over time. This is where we can kind of lean on that and drive those conversations and all the nuance that comes into it, whether it be estate planning, what your assets are going to look like down the road, that type of thing. So it’s great conversations, fun conversations, but it definitely tweaks the plan a little bit and goes back to this, hey, that’s why planning is a yearly thing. We had some of this tax law changes and it’s absolutely impacting how high we’re recommending people take their income this year. So that’s a big one.
Walter Storholt:
That’s not the only deduction change, right? That was just that specific one for those over 65, but everybody’s affected by a few others?
Tyler Emrick:
There are. Yeah. No, absolutely. So that would be on the second kind of idea on the list here is just trying to make sure you have a full grasp of what those deductions look like and how they’ve changed. We talked about the senior bonus deduction here. There is also a new deduction for individuals that itemize for some of the way that they do their gifting, which we’ll talk about that here in a minute. And then there’s also a new deduction for individuals. Well, it’s not a new deduction, but the way it’s applied is a little different with the SALT deduction. So when most families look at their tax situation for a year, they’re going to fall in one or two buckets, right. They’re going to either take the standard deduction for married couples filing joint that’s a little over 32,000 bucks. For single, it’s 16,000.
Or if you have enough itemized deductions to get above that, then you’re going to be an itemizer, right. Pretty big hurdle, Walt, to get over, 30-some thousand bucks for married couples filing jointly. But for those individuals that traditionally have taken the standard deduction, one of the changes is how we’re impacting the SALT deduction. So the SALT deduction is part of those itemized list. Again, the itemized list does need to be above the standard before it matters to you at all. So the question becomes though is when we start adding up all those itemized deductions, they can be substantially different because the SALT deduction was capped at 10,000 in years prior, now it actually has increased to 40,000 from a cap. When I say SALT, SALT is state and local taxes. So think property taxes, think state taxes that you pay. We’re adding those up and they’re going towards that list of itemized deductions.
Well, for individuals that might have had $40,000 of state taxes and property taxes that they paid in a year, they used to be capped at 10. Well, they’re picking up almost 30,000 more in deductions under that scenario. So they might go from taking the standard to actually itemizing. For those listening, the big deductions for itemizers as you’re kind of just running through your head, “Ooh, could this impact me?” SALT’s the big one. Your mortgage interest is the second one, that’s deductible. Any margin interest, if you have taxable accounts that you’re borrowing off of, that’s included in there as well. And then your gifting would be included as an itemized deduction.
So you want to add all those up. If they’re higher than the standard, then hey, you might go from taking the standard deduction to actually itemizing this year, which changes maybe your gifting strategy or some of the other things that you’re doing from a tax standpoint. So be aware of these new deductions, the SALT deduction, the enhanced senior bonus deduction we talked about earlier, and how or if they’re applicable to your situation. Always important.
Speaker 1:
What would your life look like if you designed it around your true wealth? It’s a powerful question and one that True Wealth Design helps individuals, families, and business owners answer every day. With a fully integrated approach to financial planning, tax strategy, investments and business advisory, their team can bring clarity and confidence to every part of your financial life. Take the first step toward a stronger financial future with a no-cost, no-obligation discovery meeting. Just click the link in today’s show description to get started.
Walter Storholt:
For those who maybe live in high tax-states-
Tyler Emrick:
Oh, yeah.
Walter Storholt:
… and then especially if you maybe own multiple properties in high-tax states where-
Tyler Emrick:
High-tax states, yeah, or even Ohio, right.
Walter Storholt:
… in the past, let’s say your tax bill was $20,000, but you could only take 10 of that. Now, obviously-
Tyler Emrick:
You could potentially take the full-
Walter Storholt:
… with that higher ceiling-
Tyler Emrick:
Correct.
Walter Storholt:
Yeah.
Tyler Emrick:
Yes. Now, as with anything, just when we were talking about the first one, that senior bonus deduction, it’s based off income limits and levels and how high it is. Same thing for the SALT deduction.
Walter Storholt:
Okay.
Tyler Emrick:
So hey, if you end up making a little too much money, well, that cap on the SALT deduction might slowly start to get back down to that 10,000. So inevitably, many levers to consider here as you’re kind of doing it up, but you want to know how they’re going to impact you and how it’s impacting the tax situation for this year and really the upcoming year too, so yeah.
Walter Storholt:
Okay.
Tyler Emrick:
Yeah.
Walter Storholt:
Sounds good.
Tyler Emrick:
So new deductions. The third thing, which I touched on a little bit earlier, some of the changes are really affecting how we’re helping families through their gifting strategies, right.
Walter Storholt:
Yeah.
Tyler Emrick:
So the big change here is that for individuals that are actually taking the standard deduction, so you’re not itemizing, there is a deduction for cash gifts to charities, church charities. For single individuals, you can deduct a thousand bucks. For married couples, you can deduct $2,000. So that’s a deduction that maybe wasn’t there in the past. Maybe you never kept track of your gifting ’cause it was here and there and you’re like, “Hey, I take the standard deduction anyway.” Hey, this is a year where when you go to file your 2026 tax return, you want to make sure that you’re giving those cash donations to church or charity and keeping track of them so that way, hey, maybe for married couples filing joint, you can take a $2,000 deduction that you otherwise wouldn’t.
Walter Storholt:
Yeah. So, nice benefit.
Tyler Emrick:
Nice, clear. Yeah. Easy change.
Walter Storholt:
Yeah.
Tyler Emrick:
The other one would be for individuals that are itemizing. And this goes back to our gifting strategies in general. We talk a lot about qualified charitable distributions. We talk a lot about donor-advised funds and bunching strategies and the like. And all we’re trying to do with those is trying to say, “Hey, can we look at this through a tax lens and pick up a little bit more in deductions than we otherwise would have?” Well, there is a new floor on what you can actually deduct from gifting starting this year. It’s half a percent of your adjusted gross income. So for those families that are having higher income that’s hitting their tax return, you’re getting less of a deduction for your charitable contributions this year because you can’t deduct anything until you get over that half a percent floor of your AGI.
So for what, a couple who is AGI is a couple hundred thousand dollars, your first thousand dollars of gifting in that scenario are not deductible. You have to hit above that floor before you can start doing your deductions. So no real planning around that necessarily as opposed to, hey, just being that it’s aware, understanding that that’s kind of a downside to the gifting for this year from a tax standpoint, so …
Walter Storholt:
Yeah. It’s kind of like the thousand that flowed the direction of the standard was made possible by sort of taking [inaudible 00:14:02].
Tyler Emrick:
A little bit of a tweak, right. Yeah. So some listeners might be going, “Heck yeah, I’m going to pick up an extra deduction that I never otherwise got.” Others who are used to itemizing and do gifting strategies to donor-advised funds and the like, you’re getting a little bit less of a tax benefit this year because you got to get over that floor. So all good stuff when we start thinking about gifting to charities and we always say, “Hey, you don’t do it. You don’t gift to a charity just to get a tax break, but certainly if we can get something from a tax standpoint, we want to be efficient with it, allow you to give more gifting down the road.” Right.
Walter Storholt:
Yeah.
Tyler Emrick:
So we talked about income planning. We talked about some of the new deductions, maybe even some of the specific ones to charitable. What should be the list? Well, I mean, hey, if you’re listening, what are the big items that we can run through really quickly that you want to be checking off as you’re kind of heading into this year-end planning? These are the same checklists that we’re kind of looking at as advisors with the families that we’re meeting with now and will be for the upcoming couple of months here through the end of the year. And the first thing I wrote on that list for anybody that’s taken required minimum distributions, you want to verify your amounts, make sure you get your tax withholding out. This is generally once you get into about your mid-70s, you have to start pulling money from your pre-tax retirement accounts, understanding those distributions, the amounts and the tax withholding on them are important. The other one would be the next on my list is Roth conversions.
This goes back to how high do we want to be taking your income this year? Do we want to be adding additional income tax or income to the tax return this year to pay taxes and get it out of the way? Or are you in the other camp? Are you looking for ways to do deductions? So this would be things like contributions to IRA accounts, making sure your HSA contributions are done, making sure you’re maxing out your 401(k) and you’re on track for some of those things. These are all good year-end tax list items that you want to kind of check on to make sure, ’cause you still got some time to make adjustments if you’d like. The other big one would be for those families that have large accounts outside of retirement. So these would be taxable brokerage accounts. Hey, do we want to go in there and realize some gains this year ’cause maybe we’re at a preferred tax rate this year?
Or do we want to maybe harvest some losses for some positions that might have not done so well this year? So both those are equally important, but we want to be reviewing and looking at those brokerage accounts to do it. Certainly looking at any gifting strategies that you’re doing for this year as well, I think needs to be kind of top of mind outside of the list that we had. But those are the big ones, Walt, that I had on that every family should kind of be looking at, going through. Maybe it’s a quick check for you and goes through, but this is just making sure everything’s kind of buttoned up as we kind of finish out the year here.
Walter Storholt:
Yeah. I know you guys truly think long term at True Wealth Design, but I think most of the time we can also boil tax conversations down into a two-year window. You’re always looking at this year’s taxes and next year’s taxes, or once the calendar changes, it flips slightly to last year’s taxes still on the docket and this year’s taxes. But it’s always sort of that sliding two-year window.
Tyler Emrick:
100%.
Walter Storholt:
So since this is the end of the year, that’s all the stuff to be done and buttoned up by the 31st, really mostly concerning this year’s taxes. But because we always know it’s sort of that two-year rolling window of shifting decisions, what about 2027 stuff that we can be proactive about?
Tyler Emrick:
Correct. Yeah. I feel like these are the best places to get very granular with your planning. I always say when we go through, we love these big financial plans, the Monte Carlo simulations, the 30-year projections out. These things are very good at a 1,000-foot view of how you’re tracking, what does your tax situation look like down the road? But a lot of times the systems that we use to do those calculations and present those, they don’t do a wonderful job on the granularity of like, “Well, where’s my next dollar coming from? Where am I going to live off of next year? Hey, what should be my income target in this particular year and next year?” And I think that gets back to what you’re saying here on that two year window is a wonderful way to put it ’cause we always take a more granular approach when we start looking at this year and the upcoming year and trying to make sure that we fully have our arms wrapped around where’s your money going to come from?
How high do we want to be taking your income? What tax strategies do we want to implement in that particular year and the upcoming year? And do we have everything in place to make sure that those get done? So very, very important as you’re kind of thinking about, hey, if you’re going through this next year’s checklist, taking a peek into what next year looks like … Or excuse me, as you’re looking at the checklist for year-end for this year, taking a peek into next year is always beneficial. We’re doing it in our meetings here towards the end of the year here as well. And it’s a big piece of the pie when we think about what we’re trying to accomplish in the upcoming months.
Walter Storholt:
Yeah. So take a look at the slice of this year and also a slice of next year and you’ve got the whole pie covered in a way.
Tyler Emrick:
Got it.
Walter Storholt:
I like that. I like that. It’s that time of year we’re starting making a lot of food analogies, people.
Tyler Emrick:
I like pumpkin pie. I’ll probably be getting me some here in the next couple of weeks, I would imagine.
Walter Storholt:
Pie, cake, turkey. We’ll make all sorts of things.
Tyler Emrick:
It’s all good.
Walter Storholt:
Yeah. It’s good stuff. Well, hey, it’s a great reminder that if you listen to today’s episode and you’re like, “Yeah, this all sounds great, but it also sounds a little overwhelming. That’s a lot of stuff to check. It’s a lot of stuff to walk through-
Tyler Emrick:
Sure.
Walter Storholt:
… What’s IRMAA again? I got to figure that out. RMDs, what was that age? When do I need to be ready for it? How do I make that? How do I bring all these things together?” Well, ultimately that’s what the conversations with True Wealth Design look like for every client, answering those questions. Where are the gaps in our plan? How can we solve these different issues, problems that come up? Where do we need to be reactive? Where do we need to be proactive? That’s really all the conversation starts to evolve into. And so if you would like to dive a little bit deeper into your specific situation, your plan, you can do that.
All you have to do is go to truewealthdesign.com and schedule a time to meet by clicking the “Let’s Talk” button. We’ve also got that linked right in the description of today’s show to make it easy for you to find. Click that, schedule your visit. It is a 20-minute discovery call remotely from wherever you are. So it’s just easy to join and have that initial conversation. See if you’re a good fit to work with one of the team members. And also if it’s just going to be like, do you have enough gaps that need solving or are you in great shape? You’re going to get some of those answers in that initial call. You don’t have to have all your documents pulled up and every statement and all those kinds of things. Some general knowledge of where you stand and what your goals are all you need to start the conversation. So again, just check that link in the description of today’s show, schedule your discovery call or go directly to truewealthdesign.com. Tyler, thank you so much for the help today and have a great rest of your week.
Tyler Emrick:
Absolutely. You too.
Walter Storholt:
What are you for Halloween this year, you and the girls?
Tyler Emrick:
Nothing picked out yet, but I know the girls, I got a basketball player and I got a nurse. So we got a basketball player and a nurse picked out, which is the most important. We’ll see what I end up being.
Walter Storholt:
Nice. Nice. Awesome. A basketball-playing nurse, perhaps.
Tyler Emrick:
Maybe. I don’t know. I can join the team.
Walter Storholt:
Love it. All right. Well, everybody have a great week. Happy Halloween to you as well. And we’ll see you next time right back here on Retire Smarter.
Speaker 2:
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