At the end of 2025, significant tax cuts are expiring that were passed under the Trump administration through the Tax Cuts and Jobs Act (TCJA), often called the Trump tax cuts. Unless a new law is passed to amend the tax code, tax rates in 2026 will return to what they were before the TCJA passed.
The TCJA tax cuts included a change in the standard deduction, which saved retirees from having to itemize their deductions; estate tax exemptions that saved people passing on their estates to heirs from paying high taxes; and changes in how charitable donations are taxed.
While everyone will feel some aspect of these expiring cuts, baby boomers who are planning to retire may find themselves facing the biggest tax repercussions. Tax experts explain what these expiring cuts mean for boomers closing in on their retirement.
Boomers Will Be Subject To Higher Tax Rates in 2026
The expiration of Trump-era tax cuts will likely have a significant impact on boomers who are planning to retire soon, according to Dana Ronald, CEO of Tax Crisis Institute. “As of now, the individual tax rates are at historically low levels under the TCJA. But once the legislation expires, boomers can expect to pay higher taxes in 2026 and beyond,” he said.
Retirees who rely on fixed incomes and have limited options to increase their income will feel this pinch the most. “Higher taxes mean less disposable income, greatly impacting their overall financial plan and retirement goals,” Ronald said.
Social Security Benefits May Face Threat
The expiration of tax cuts can also affect Social Security benefits for retirees, Ronald warned. “Under the TCJA, up to 85% of Social Security benefits are exempt from federal taxes. However, once the legislation expires, this exemption may also change, resulting in higher taxable income for boomers.”
To ameliorate these issues, Ronald suggested that baby boomers consider converting traditional IRAs to Roth IRAs, which are not subject to required minimum distributions and offer tax-free withdrawals. “This can help reduce taxable income in retirement and provide more control over when and how taxes are paid,” he said.
Another strategy is diversifying retirement income by utilizing tax-free sources such as health savings accounts (HSAs) or life insurance policies with cash value. This can help lower taxable income in retirement and provide additional financial stability.
Impact on Required Minimum Distributions Will Change
The expiration of lowered tax rates can also affect the taxability of required minimum distributions (RMDs) from retirement accounts, said Skyler Fernandes, financial expert at VU Venture Partners. “Retirees may need to adapt their RMD strategies to minimize the impact of higher tax rates on these mandatory distributions.”
Revised Estate Planning Considerations
Boomers should also assess how the changing tax landscape affects their estate planning, Fernandes said. “The return to higher tax rates could influence gifting strategies, inheritance planning and the timing of wealth transfers.”
A Shift in Retirement Income Sources
Retirees may need to revisit their retirement income mix, as well, Fernandes recommended. “Diversifying income sources, such as utilizing annuities or other tax-efficient investments, can help manage future tax liability and provide a steady stream of income in retirement.”
A Return to Itemized Deductions
The expiration of TCJA tax cuts for individuals will reduce the standard deduction Americans of any age can claim, which will force all taxpayers to reassess their spending habits and expenses, said Jake Hill, CEO of DebtHammer. However, this and several other changes will especially impact retiring boomers, who will be relying on fixed retirement incomes by the time TCJA expires in 2025.
“This standard deduction change simplified the tax-filing process for many, but boomers may find themselves having to revert back to itemizing deductions to maximize their tax breaks in 2025 and beyond,” he said.
Reduce Financial Security
The expiring tax cuts could act like a “tax time bomb” that could “devastate the financial security” that boomers may have thought they had, according to Jude Wilson, chief financial strategist for Centrus Financial Strategies. He recommended that retirees look for ways to make additional charitable contributions, maximize mortgage interest deductions or utilize other tax-advantaged strategies.
“If all your money is in tax-deferred accounts, the amount you see in your portfolio is NOT what you have to spend. With the right tax strategies in place, you can change your financial reality and legally pay less in taxes.”
Keep Making Retirement Contributions
It’s important to keep making retirement contributions to 401(k)s, IRAs, Roth IRAs and other retirement vehicles to reduce taxable income, Wilson said.
“Take inventory of your retirement accounts. Do you have 401K(s) from previous jobs that can be rolled over to an IRA and converted to a Roth IRA to lock in today’s low tax rates? This simple solution could shield you from possible tax increases in 2025.”
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