The Big Beautiful Bill Act Could Change Your Retirement Plan — Here’s How

Listen Now:

The Smart Take:

Learn more about the Retire Smarter Solution ™: https://www.truewealthdesign.com/ep-45-retire-smarter-solution/

Sign up for our newsletter on our podcast page: https://www.truewealthdesign.com/podcast/

Have questions?

Need help making sure your investments and retirement plan are on track? Click to schedule a free 20-minute call with one of True Wealth’s CFP® Professionals.

Subscribe:

Click the below links to subscribe to the podcast with your favorite service. If you don’t see your podcast listed with your favorite service, then let us know, and we’ll add it!

• YouTube
• Apple Podcasts
• Spotify
• TuneIn
• Amazon Music

The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

Washington just passed new tax legislation. I’m sure you’ve heard of it, the One Big Beautiful Bill. And while it’s jam packed full of changes, the real story for retirees is the planning opportunities that it’s going to create, and today, we got you covered, all coming up on Retire Smarter

Walter Storholt:

Back for another episode of Retire Smarter, I’m Walter Storholt alongside a certified financial planner, Tyler Emrick. He’s also a chartered financial analyst and one of the wealth advisors at True Wealth Design, based in Northeast Ohio, but serving you all across the country, part of a great team there. And Tyler, we knew it wasn’t going away that quickly. The Big Beautiful Bill conversations rolling on today, right?

Tyler Emrick:

It is. Are you ready for round two? I think I am.

Walter Storholt:

I am. I haven’t had enough Big Beautiful Bill conversations yet.

Tyler Emrick:

No, that’s fair. That’s fair. So yeah, no, we’re excited to get pumped in, maybe take a little more granular approach as we do with most… The lead in probably said most of what we needed to here, but I think we’re going to try to unpack a little bit on what that bill means for retirees and what are some of those big planning opportunities that we have there.

Walter Storholt:

Yeah, the big beautiful Bill obviously impacts a lot of people, not just the retiree spectrum. We covered some of those wide ranging impacts on our first episode, which by the way, if you want to check that out, you can find the link for it in the description of today’s episode and go look at that video. You don’t need to have seen that one though to watch this one, so if you’re already rolling with us here, keep it going. But today, yes, we zoom into the retiree, pre retiree impact, and take it away. Let’s rock and roll.

Tyler Emrick:

Yeah, no, absolutely. We can get into something that I know a little bit more about. This morning, my ego is hit a little bit with what I got to share. So I actually cooked breakfast for my girls most mornings, a 6-year-old and a 4-year-old, and by no means am I a chef, very far, but my skills over the years have gotten what I thought was a little bit better until this morning when we cooked eggs and my oldest one came to me and flat out said, “Hey, mommy cooks eggs much, much better than you do.” And I was like, “Are you kidding me?” She gets them on the weekend.

Walter Storholt:

No filter.

Tyler Emrick:

No, not at all. And then I had to ask, “Well, what does daddy cook well?” And well, a bagel, because I put more cream cheese on it for them was the bagel comment. So my ego was hurt a little bit. I’m not going to be cooking hopefully too much more than what I got on the breakfasts there, but yeah, talking about tax maybe will redeem me a little bit here today. I don know.

Walter Storholt:

There you go. More in your wheelhouse than eggs, apparently.

Tyler Emrick:

Yes, or cooking anything for that matter.

Walter Storholt:

By the end of today’s episode, your ego will be boosted right back up with all this great financial [inaudible 00:02:53].

Tyler Emrick:

All right, fair enough. Fair enough. No, I’ll take it. And just to maybe outline the podcast a little bit, we’ll start with charitable giving, then we’ll move on to those individuals or listeners that might be thinking about early retirement, like pre-sixty-five and some of the healthcare changes there, and then we’ll finish up with maybe something that’s a little bit more broad that should be applicable to just about everybody, and that’s more along the lines of those famous Roth conversions. I’m sure a lot of the listeners are doing them, have done them in the past, and if not, certainly have probably considered them. So that’s how I see today shaking out, and we’ll just jump into the charitable giving side of things here right off the get-go.

There were a handful of changes that as you’re wrapping your arms around gifting and what might be some of the opportunities that would be available for you with the new tax legislation. There are a few housekeeping stuff that’s just very specific, and then of course, it does get a little bit more granular, a little bit more nuanced and a little bit more challenging as you think about how to implement some of these. So let’s start with some of the easy ones and some of the basics, because obviously a lot of the families that we work with and clients that we work with are charitably inclined, which I think is absolutely amazing. And I always make the comment to them that obviously we’re not doing our gifting just to get a tax break, but if we can do it more smartly and pick up a few tax savings, then hey, why miss the opportunity to be able to do that?

So I understand that there might be a number of listeners that do a lot of gifting and they maybe haven’t been able to take advantage of any tax breaks or anything like that in the past, so with this new legislation, that’s going to probably change a little bit here. And the first big change here is that, we mentioned it on the last podcast but there is a new above the line deduction for your gifting. It doesn’t start until 2026, and I use this term above the line. What the heck does that mean?

And just very simply, all it means is that you do not have to itemize your deductions to take advantage of this one. So if you’re an individual that takes the standard deduction, which there are a whole host of individuals that take the standard, probably much, much more than actually itemize, you’re going to start picking up a deduction for some of your gifting – two grand if you’re married, filing jointly, and a thousand bucks if you’re single – where otherwise and in years past, you probably haven’t been able to take those as a deduction if you haven’t been itemizing.

So there is a little bit of quirkiness to it, Walt, as with anything. Those gifts, and for that deduction, it has to be a cash gift, so specifically, it can’t be to a donor advised fund, which we’ve talked about many times in the past. They’re wonderful planning tools, we use them a lot. It can’t be stock gifts or anything like that, which is another great way to do your gifting. So this above the line deduction comes with a little bit of caveats. It does have to be cash, but the good news is we don’t have to itemize our deductions to take advantage of it. So that’s first and foremost, one of the first things that I wanted to bring up.

Now, as we peel back the onion a little bit on the gifting, now we want to get a little more granular on what if you are one of those individuals that itemize on your deductions, or better yet, what if you’re one of those individuals that are close to itemizing? Like, hey, you got some deductions, SALT deductions maybe a little higher, which we’ll touch on. Maybe you have some mortgage interest, maybe you do a little bit of deductions through charity, but you don’t quite make it to that ability to be able to itemize.

Well, for situations like that, we do what we call bunching strategies where we bunch and do a lot of your gifting in one year to jump up and get you above that standard deduction, and then take the standard for a couple of years and then go back and do it again. And one of the key things that we do to do that is a donor advice fund where you can make that gift, take the deduction in a year, but then you don’t have to actually send it to the church or charity until the next year or the year after or whatever. So you can actually complete the gift for a tax reason, but it doesn’t necessarily have to go to the charity at that particular time, because the donor-

Walter Storholt:

It’s nice that you can still spread out your giving.

Tyler Emrick:

You can, you can.

Walter Storholt:

Okay.

Tyler Emrick:

So it’s a tool that we’ve been using for a number of years, really since the TCJA, the last tax legislation that passed, and you’re talking some real savings here if you’re able to manage it and it works within your gifting strategy. So for individuals that are doing that or individuals that are itemizing, starting in 2026, there’s actually a new charitable deduction floor. So what that means is that if you are itemizing and you’re doing those charitable deductions or gifting, essentially, they’re going to take a half a percent of your adjusted gross income and you’re not going to be able to deduct that amount. So let’s run through the numbers and give you a little bit of an example.

So if an individual, or excuse me, if a family has AGI of $200,000, so AGI, adjusted gross income, it’s a line item right on your 1040, so if you pull out your old tax forms, you look down the lines, you’ll see one that says adjusted gross income. They’ll take that number, half a percent of it, so if you made $200,000, that’s a thousand dollars, 0.5%. So essentially, if you did $20,000 of gifting, that thousand dollars is a floor and you don’t get to deduct it. So they’re taking some opportunity away come 2026 for those individuals that maybe were looking to do that bunching strategy where they do a bunch of gifting come next year. That might be something that would bring up your gifting and make you maybe want to start doing that a year early because in 2025, we don’t have that same floor. So as your income gets higher, that floor gets higher and that eats into some of what you’re able to deduct as you’re thinking about that gifting.

So that’s a little nuanced one, but if you’re sitting here listening, going, “Ooh, I was planning on funding a donor advised fund come next year,” hey, that might be something we want to expedite and maybe move up to 2025. Because you think about another big change with the tax laws is, well, we extended out the lower rates, right, Walt? So really, you think about those deductions, as long as your income is staying the same through ’25 and 2026 and you’re falling in the same marginal tax bracket, well, there’s probably not too much of a difference there from a true tax savings whether you do the gift this year or you do it next year, because if you’re in the 24% marginal rate this year and your income’s going to stay the same, you’ll be into it again come next year. We originally thought it would be about 3% more across the board, so that’s another one of those big nuance change.

But I think this new floor to the charitable deductions is going to rear its head. It’s not a ton. It’s a little nuanced, right, Walt? But it’s certainly something to be mindful of as you’re thinking about that gifting strategy and how you’re outlining it.

Walter Storholt:

How does that relate to the first point that you made about the non-itemized above-the-line deduction? Does that floor still apply in that case as well or are these two working differently?

Tyler Emrick:

They work differently, yep. So two separate deductions, because again, to your point, the above the line where we don’t have to itemize, we can still take the standard. That $1,000 deduction for single, 2,000 for joint, that’s still there, no floor there, you can take it. This would only apply, this floor would only apply if you actually itemize your deductions, your state and local taxes, your mortgage interest, and then of course, your gifting are probably the big ones that most families have, so that floor only applies in that case of it being an itemized deduction.

But you think about the timing here, Walt, there’s some considerations here too, because a lot of times when we use those donor advised funds and we use the bunching strategy and we maybe do two or three years’ worth of gifts to that account, the donor advised fund, well, now the thing is are you going to give up that above-the-line deduction come 2026 because all your gifting in 2026 would come from the donor advised fund? So there’s a little nuances there of a give and a take on, well, hey, how do we maybe maximize it and how do we help make some of those decisions and do it in the most efficient way possible? I’ll go back and say it again. Hey, we don’t gift for a tax deduction, but well, hey, if we can do it more efficiently and it works within it, hey, why not take advantage of it and do it?

Walter Storholt:

Yeah, I would imagine you’ve got a lot of clients who they’re deciding they’re gifting and they’re charitable giving, and then it’s not that you’re not being proactive about some of this tax planning, but some of this is in the spirit of retroactively saying, okay, now that this is how you’re giving or want to give, these are your goals, here’s the most efficient way you can do it.

Tyler Emrick:

You nailed it.

Walter Storholt:

So that’s where it’s typically going in. So if there’s a little inefficiency, it’s okay because it’s in the spirit of the right order there.

Tyler Emrick:

You got it. Yeah. Well, and too, you look back, the families that typically do that gifting, it is pretty recurring. It’s pretty consistent. They seem to settle into a nice rhythm when they do it and have certain goals that they want to accomplish, and certainly retirement can change that so we need to be mindful of that. Obviously, there’s other ways that we can do efficient gifting. You think about those famous QCDs, qualified charitable distributions, those start once you turn 70 and a half. So we want to be mindful of the sizing on a bunching strategy or contributing money to a donor revised fund, all these little nuances that the new legislation’s throwing our way too, and just making sure that we’re not losing sight of it.

And the other thing with gifting too that I want to maybe close it out on is that there’s probably going to be more opportunity for families to do itemizing and actually gifting, because the changes to the SALT deduction. When you start adding up the itemized deductions and what you can take, the big ones are gifting, maybe your mortgage interest, and then this SALT deduction, which stands for state and local taxes.

Now, it used to be capped, Walt. It used to be capped at $10,000, so if you have a high income, you could be paying more in state taxes than $10,000. Think about your property taxes that you pay. In Ohio, Walt, they’re pretty high. We got families paying five, $10,000 in property taxes if not more, and all that lumps into this one number for a SALT deduction, and it used to be capped at $10,000. Well, with the new legislation, they actually increased that all the way up to $40,000 is the new cap. There’s some income limitations on there. For families basically making less than a half a million dollars a year, they’re going to be fine and maybe be able to deduct up to that $40,000 number, and that does increase in 2026 and goes up to 40,400, and then from ’27 to ’29, it goes up 1% per year.

But the gist is, hey, that SALT deduction was capped at 10K. Now its cap is 40. So you think about this hurdle that we need to get over for families before they actually start to itemize. Well, that might get a little easier for those of you that maybe you’re gifting a few thousand bucks a year but you were so far away from the standard deduction that you didn’t even keep track of it or didn’t even consider it. Well, if we start an account for this increased SALT deduction, well, now you might be closer to the standard and it might make some of these bunching strategies or a donor advice fund much, much more applicable than maybe what it was in the past. So I think it is going to really open the door, and if you’re listening and you’re talking to your CPA or you’re talking to your financial advisor, this probably should be on the docket.

If you’re gifting three to 5,000 bucks a year, that’s probably the start of where you would start to be thinking about, “All right, hey, and then how is this SALT deduction going to impact my itemized deductions and how can I use that? And maybe is this year going to be a year where we should maybe look at a donor advised fund or something like that?” So a lot of fun stuff as you think about gifting, and if you can take advantage of it, I think these three things, the above the line deduction, hey, that’s for everybody. That’s simple. If you weren’t keeping track of your gifting because you never itemized, well, starting in 2026, you should. You got this new charitable deduction floor which is going to take a little away come 2026, and then the SALT deduction increasing certainly is going to open the door for maybe some families that weren’t considering it.

So all fun stuff. Obviously gifting is great. It always amazes me the amount of families that are charitably inclined and how important it is and what they give to, and it’s one of the fun conversations obviously we get to have as an advisor. So anytime I can drive that conversation, learn a little bit more about the why, and then, hey, if we have an opportunity here, all the better.

Speaker 3:

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:

Yeah, fun part of the planning process. Moral of the story to me sounds too like more people may want to consider moving away from the standardized deduction into the itemized. Anybody that has found themselves on that cusp, there might be some compelling reasons for why they might go the itemized route now.

Tyler Emrick:

You got it. No, absolutely. So now, another big thing as we think about retiree planning that I hear all the time, especially when we start talking about, well, when do you plan to retire? What’s that goal? How far do you want to work and what’s that target age for you? And I don’t know how many times, Walt, families will come back and we’ll say, “Well, 65. That’s when I get Medicare. That’s when we get that healthcare situation.”

Walter Storholt:

It’s the default date, right?

Tyler Emrick:

It is. It’s a big one. It is absolutely a big one. And a lot of the good work that we do is opening up the idea that hey, retirement before 65 is not only possible, but it can be really good and can certainly be managed, and this healthcare hurdle of having access to Medicare doesn’t have to prohibit you or stop you from retiring.

Walter Storholt:

Do you see the situation also where it’s the first spouse is hitting 65, and so then the younger spouse is like, “Well, sure, one of us has hit 65, but can I also now walk away from work?”

Tyler Emrick:

You got it. Oh, it comes up there, but Walt, it’s even the flip, right? So it would be if like, “Hey, I’m the younger spouse, I’m going to retire. I’m out.” He or she, my spouse, is going to work till 65 and cover us for healthcare, so it’s like one gets out the door and is able to retire, and then because the other is going to work 65.

Walter Storholt:

Yeah, another scenario [inaudible 00:18:00].

Tyler Emrick:

Because they’re like, “Well, hey, one of us has to make it to 65 to get us to Medicare age,” and that’s ingrained in the thought process of a lot of individuals as they start thinking about retirement and what’s possible, and again, it’s just another hurdle that we need to get over. But that hurdle, one of the big ways we get over it is really talking families through, well, what are your options for healthcare pre-65? And we’ve talked about them on the podcast in the past. There’s COBRA, there’s individual healthcare, there’s a multitude of options that are available, but one of the big ones is going on an Obamacare plan or an ACA plan. There’s a bunch of abbreviations for it, but this would be individual healthcare that would be available to you.

And those policies, they can be pretty costly, especially based off where you live, and the plans can be a little less open, meaning the networks are a little tighter, your docs might not be in the plan that’s available to you in your zip code, so there are some hurdles there. But one of the things that make individual healthcare plans more affordable, so much more affordable, is the fact that the government has tax subsidies that are afforded to you based off of your income. So we have individuals that have been retired for a number of years and are paying nothing for individual healthcare as a monthly premium, and the reason for that is we are able to manage what hits their tax return, and these tax subsidies, you essentially cover their premium payments for their healthcare. Now, that doesn’t mean that you’re not going to have potential costs. There are deductibles, there are out of pockets, but you think about getting on a plan that has a very minimal monthly premium, that solves a lot of maybe issues that would be out there first. You look at COBRA-

Walter Storholt:

1,500 a month or maybe more extravagant than that premium.

Tyler Emrick:

It can be, yeah. Well, even COBRA, right? COBRA can be for a family of two, it can be upwards of $1,500 a month, no problem. So you start talking about, well, I have an option that my premiums can be very minimal to nothing, but the big caveat there if you didn’t pick up on it already is that if we can manage your income, and that became a little easier. There were two legislations that was passed, the American Rescue Plan and the Inflation Reduction Act, and what they did is those two policies essentially changed the way these subsidies were calculated and opened them up to more individuals. So families that had 80, 90, a hundred thousand dollars hitting their tax return as income, they still were able to pick up and get some of these subsidies to lower their healthcare premium.

Now, with the new legislation that passed, that’s no longer going to be the case. There’s actually a very hard cliff, and once your income hits over that cliff, those subsidies go down to zero and you start paying the full bore of what that healthcare plan costs, which is a big deal. If your income and that income target or that income cliff is going to be different for every listener that we have on here, because it’s based off where you live, it’s based off your household, how many individuals are in your household, how old those individuals are, so it’s going to be different for everyone. But to give you a little bit of an idea on how big and impactful this can be, for most individuals, that number, and this starts in 2026, so this isn’t for 2025. This is coming up, this is in 2026. Once a household of two, roughly aged 60, once they’re modified adjusted gross income, so that’s another little caveat. That’s the income number that they use and there’s a little bit that goes into that calculation, but for all intents and purposes today, let’s just say the income.

If your household income, once it starts getting at around $80,000 a year that actually hits your return and you go over that cliff, you go from getting almost 10 to $12,000 a year towards your healthcare premiums from the government to zero. So literally, hey, $1 over that cliff, you could lose 10 grand, 12 grand, depending on where you live, depending on the way the subsidies are calculated. And you talk about a mistake-

Walter Storholt:

If your salary is 81,000, go to your employer and ask for a decrease.

Tyler Emrick:

Well, if you’re working, hopefully you have access to healthcare, but you’re right, Walt, managing that becomes extremely important.

Walter Storholt:

Yes.

Tyler Emrick:

And then because of that, then now the lead up to that year where you go on an individual healthcare plan and the planning that goes into that becomes even more important as well. Because you might be listening here saying, “Well, hey, I need more than 80 grand a year to live off of.” Okay. Well, do you have money in Roth accounts? Do you have money in cash? Do you have money in taxable brokerage accounts where we can get access to that money without it all hitting your tax return? Could we maybe delay social security? There’s a multitude of things that we could potentially do to say, hey, how much do you need to live off of? We got to make sure you get that, but we do have some flexibility on, well, which accounts do we use? Where does that money come from? And you start thinking about wanting to retire before 65. Managing these ACA subsidies becomes a huge value add and a big opportunity, especially as you start thinking about the benefit of planning ahead and being able to do it.

And now with the tax law changes, it just makes the mistake of not managing your income that much more, because again, if we’re $1 over that cliff, you’re talking a pretty sizable change in what you’re paying from a healthcare plan standpoint if you’re on one of these. So huge planning opportunity. This comes up quite a bit in our practice and with the families that we work with, so if you’re listening and you’re trying to think about, “Hey, I want to retire before 60, what might be possible?” This change is going to impact you directly. It’s going to make things a little harder, probably make things a little bit more important that we plan for them and understand them because there’s less room for air, but still, the opportunity is going to be there.

They made some other changes where you think about the way the healthcare plans work on the ACA is they’re categorized by the amount of coverage that you get. So they go, say, start at bronze, which have the highest deductible plan, then they go to silver and gold and so on and so forth. And one of the changes, depending on the plan, there was this added uniqueness to where, well, is this a high deductible plan? Does this qualify for an HSA? If you’re listening there and you’re starting thinking about, “Well, how do I manage my income? How do I make it lower?”

Well, an HSA is a wonderful way to lower your income for a particular year, because what you put in that HSA account knocks off your income. So they did make it a lot easier for individuals now where all bronze level plans are HSA eligible, which is a big deal, especially in this Northeast Ohio area. There were a number of plans that people wanted to get on but they weren’t HSA eligible, and then that threw a wrinkle in things and made the decision a little bit more complex, so that’s a welcome change, at least for the individuals and the families that we work with here locally.

But healthcare pre-65, big change. Adding a little bit more complexity, adding a little bit more planning, but all in all, still has an opportunity. So if you’re listening and you’re thinking about retirement, you’re not going to be 65, this is going to be a conversation that’s going to be on the docket with the planner that you work with, for sure.

Walter Storholt:

Yeah, great point. I still think the perfect healthcare plan, especially for people on the younger spectrum, is just a truly catastrophic plan. Low premiums but high deductible, but a manageable deductible, but in that middle ground where, hey, if I get cancer, I’m not going to go into the poor house. I’ve got that top.

Tyler Emrick:

Sure, got that coverage.

Walter Storholt:

I’ve got that ceiling. Adding an HSA onto that sounds like a perfect way to then self-insure and self-save for any issues that do come up, but then you might go three, four years with nothing. You let that build up and when you have the year where something happens, you use it, but-

Tyler Emrick:

Oh, you hit the nail on the head.

Walter Storholt:

For some reason, we haven’t quite gotten to that perfect mix, but-

Tyler Emrick:

No, we have it. Hey, come on, they like to keep us employed, right? They got to make it complicated. But you have options I think is the big thing, right, Walt? You have options, like making sure you’re talking to professionals-

Walter Storholt:

At least rolling in some other moving parts we can adjust to, right?

Tyler Emrick:

Yep, absolutely. So I think we’re about ready to bring it home here on the last one, so the last big one. So we talked about healthcare, we talked about gifting. You might be going, “All right, hey, that’s maybe not extremely applicable to me,” so now we’re going to hit one that should be applicable to just about everybody here listening or watching today, and this is your strategy around Roth conversions. So if you’re listening, just to back up a little bit, a Roth conversion simply put is where you take money that’s in a pre-tax retirement account and you move it to a Roth account because you want to pay taxes on it on that move. Now, there’s a whole host of reasons as to why you might want to do that, but we’re more going to talk about today the actual strategy behind it and some of the considerations.

So one of the big changes with the bill was the new senior deduction that we talked about before, so this would be for individuals that are over 65, you’re picking up an extra $6,000 deduction on your tax return. Now, this is an above-the-line deduction, so again, you get it whether you take an itemized or you take the standard, which is great, but one little caveat that’s snuck in there is that it is actually the amount that you get is going to be subject to your income. So the income number that they’re looking at is this modified adjusted gross income, so again, a little bit of a calculation that’s involved there, but once your modified adjusted gross income gets to a certain point, you actually start to give up some of that extra deduction. So for a single individual, that starts at 75,000 and is fully phased out at 175,000 of modified AGI, and for those individuals listening that filed jointly, that starts at $150,000 and goes up to 250,000 where it is completely phased out. The reduction-

Walter Storholt:

This isn’t the cliff like the healthcare one, but still a phase out period.

Tyler Emrick:

It is, correct, so it’s gradual. It’s about a 6% reduction for each level, or more income that you have, it’s going to pull out about 6% or deduct 6% from the actual deduction itself. So when you think about a Roth conversion strategy, one of the first things we have to do is we have, one, we have to identify, well, how high do we want to take your income? Certainly, we got to get you enough to spend, but we might want to take your income higher because we pay favorable tax treatment or maybe we’re trying to plan for a big tax hit down the road. Maybe it’s for estate planning, and there’s a whole host of reasons why you might want to take more income than what you’re actually spending. These Roth conversions are how we potentially utilize that and fill up your income.

Now, there used to be a big limit that we would pay attention to for all individuals over 65 that were on Medicare, and that is the infamous IRMA limit to where if your income gets too high, you start paying more for your part B premiums, and that limit was fairly high. Now we have a second limit that we need to pay attention to, so those individuals where your income target might have been up to the IRMA limit, which was around 212 for married, filing jointly individuals, now you have to decide, well, do I still want to take conversions and take my income up that high? Because we will start to lose that extra deduction, that 6,000 a piece for being over 65, because that starts at 150. So I do think that this year is going to be a big year to reevaluate that income planning and how aggressive you get with your Roth conversions.

Before, we would fill up the 22% tax bracket for a lot of families and go up to that IRMA limit because tax rates were set to go up to 25%. Well, 22 would go to 25, so on and so forth. So we looked at it as a, hey, you’re paying 3% less than what we’re expected to come 2026. So with the new tax legislation pushing out, well, making permanent really the lower tax rates, now you’re not going to go to the 25% bracket, but there still could be a number of reasons as to why we would want to do a conversion within the 22. But we got this little extra caveat now to say, well, hey, how do we set that income target now? Do we want it to maybe be 150,000 of modified AGI for those couples that are both over 65, filing jointly, or do we want to go slightly higher knowing that we’re going to give up a little bit of that bonus deduction?

So pretty unique. I think one of the biggest opportunities from a planning standpoint for retirees is managing your income. How high do you want to take your income? How do you reposition your assets? Roth conversions are a big piece of that puzzle, and this new senior deduction throws a little bit of an extra wrinkle in there that says, hey, you might really want to rethink and adjust how high you’re taking your income, and just making sure that, well, hey, we have some new priorities here. How does that impact your specific situation?

Walter Storholt:

My understanding, let me make sure I’ve got this all right today, you have pre Big Beautiful Bill Act always put emphasis on managing income in retirement with the general goal being let’s make your income as low as it needs to be in a lot of cases so that you can take advantage of all of these moving parts and benefits and deductions. There’s always a-

Tyler Emrick:

Like with the subsidies, right? If you were pre 65, you had to manage your income low, we’re not doing Roth conversions. We want to keep your income low to potentially maximize those subsidies.

Walter Storholt:

Right.

Tyler Emrick:

You’re absolutely right.

Walter Storholt:

And so for also taking advantage of this new $6,000 deduction, another compelling reason to try and keep your income below certain thresholds.

Tyler Emrick:

Correct. Absolutely, because-

Walter Storholt:

There’s more reasons than ever before to have that be a focus of your planning.

Tyler Emrick:

Absolutely, right? And for a lot of families, it’s going to change that income target. Maybe it’ll bring it down a little bit than what it was before, maybe it won’t depending on your situation, but it absolutely throws another wrinkle into the fact that, hey, as you think about how you get your money and how you distribute from your retirement accounts, we need to be mindful of, well, how much are we taking it out? When are we taking it out? And which account should we be using? Because that’s not an insignificant amount of a deduction. You’re filing joint, that’s $12,000. Married, filing jointly, what is that? Just under three grand of tax savings by getting this deduction? It’s pretty sizable, so we want to be mindful of it and making sure that we don’t lose it by making wrong decisions, or, hey, if we lose it, we want to know why and still feel comfortable with why we’re giving it up.

Walter Storholt:

It’s one of those examples where in your working years, it’s pretty simple, make as much money as you can. Not a whole lot of complication there, but in retirement, it’s just a whole different game that you’re then playing. If you’re truly trying to maximize everything and your flexibility and reach your goals, it’s no longer what’s the biggest amount of money I can withdraw every year? It’s a totally different conversation because there’s all sorts of efficiencies layered in in this way, and that’s the mindset that maybe I think takes some people a while to understand when they’re going through that transition because they’re not like you and I and having these conversations on a daily basis and understanding that. So if we can just spark a little bit of that thought process for folks approaching retirement, I think that’s a helpful thing.

Tyler Emrick:

Sure. Well, and it can get confusing, right? Sometimes I’m going to tell you, “Keep your income low.” Sometimes we’re going to tell you, “Take more.”

Walter Storholt:

No, not at all.

Tyler Emrick:

It’s literally going to be, it’s going to just depend on, well, hey, what are we taking advantage of? What’s your specific situation? That’s why it’s so important to know the individual or the family that we’re working with and understand, well, hey, what are you trying to accomplish? Where are you going? without knowing some of that stuff, it becomes more difficult to kind of, “Well, hey, how should we maybe be thinking about this, X, Y and Z?”

Walter Storholt:

Some of our engineer viewers and listeners will geek out on all these details.

Tyler Emrick:

We did a little granularity.

Walter Storholt:

For those of you who don’t fall into that category, we appreciate the level of detail. But yeah, that big takeaway, just change that mindset in retirement. Look for these opportunities. They’re out there, but it is a little complicated, so we’ve got to dig under the hood. Got to look at your specific situation and start navigating this road a little.

Tyler Emrick:

Not as complicated as fixing eggs, but certainly can get there.

Walter Storholt:

Perfect job bringing it all back around to the eggs. I love it. I love it. Yes, at least not for you. For your wife, that’s a little-

Tyler Emrick:

She’s got it. She’s got it down. Throw a little cottage cheese in there, I don’t know, but yeah.

Walter Storholt:

To be fair, you mentioned it, she’s weekend cooking. That’s different than school day and-

Tyler Emrick:

She has a little more time. Oh, thank you.

Walter Storholt:

A little more flexibility.

Tyler Emrick:

Yeah, I’ll take it. I’ll take it. But yeah, this morning was rough.

Walter Storholt:

Good stuff. Well, hey, if you’re looking to dive a little bit deeper under the hood of your financial plan, you want to get some more personalized advice, guidance, get somebody to walk through some of these things that we’re talking about today, and we’re just scratching that surface of one area or a couple of areas of financial planning. It obviously goes even deeper than this. This is the kind of comprehensive that Tyler, Kevin Kroskey, the rest of the team at True Wealth Design are doing on a daily basis with their clients. If you’d like to see if you’re a good fit to work with the team, it’s very easy to do that. Just go to truewealthdesign.com, click on the Let’s Talk button, and you can schedule a 20-minute discovery call, and again, that’s going to let you talk to an experienced advisor on the team and see if you’re a good fit to work with one another, and then take the conversation from there.

But it’s really easy to get started. You can click the link that’s in the description of today’s show, or just go straight to the website, truewealthdesign.com, and set up that time to visit.

Tyler, thanks for walking us through everything today. Really appreciate it.

Tyler Emrick:

Oh, no, absolutely. It was fun. We’ll catch you on the next one.

Walter Storholt:

We’ll see what you got for us next time around, right here on Retire Smarter. Thanks for joining us, everybody.

Speaker 4:

Information provided is for informational purposes only and does not constitute investment, tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.