As the current tax laws change, many retirees and those approaching retirement are reevaluating their long-term strategies. Tax rates are projected to rise for many households, and now may be an opportune moment to explore how today’s tax landscape could influence future decisions.
Planning for future tax changes is not about predicting every detail. It’s about understanding the potential impact and taking thoughtful steps now to manage that risk later. A proactive approach can help support greater flexibility in retirement and potentially reduce tax burdens over time.
Why Tax Planning Matters More in Retirement
Many people assume their tax situation will improve once they stop working. However, that’s not always the case. Retirees often face taxable income from multiple sources—Social Security, traditional retirement accounts, pensions, and investment earnings.
If tax rates increase in the coming years, these income streams could be taxed more heavily than anticipated. By planning for future tax changes early, you can create a financial strategy that adjusts to different tax environments rather than reacts to them.
Even if rates remain stable, income-based thresholds tied to Medicare premiums, Social Security taxation, or capital gains can create unexpected costs. Effective tax planning can help you avoid crossing those thresholds unnecessarily.
Tax Diversification: Preparing for an Uncertain Future
Just as you diversify investments to manage risk, you can diversify your tax exposure. This approach involves spreading retirement savings across different account types, including:
- Tax-deferred accounts like traditional IRAs and 401(k)s
- Tax-free accounts such as Roth IRAs and Roth 401(k)s
- Taxable investment accounts
Tax diversification allows you to be more strategic about how and when you withdraw funds, especially if tax laws change. Planning for future tax changes with a diversified strategy gives you more options in both high-tax and low-tax environments.
For example, in higher-tax years, you might draw more from Roth accounts. In lower-tax years, you could tap into tax-deferred accounts or realize capital gains.
Considerations for Roth Conversions and Timing
Many individuals are exploring Roth conversions as part of their strategy. Converting assets from a traditional IRA to a Roth IRA means paying taxes on the amount converted now, but qualified withdrawals in retirement are tax-free.
Given current tax rates, planning for future tax changes through partial Roth conversions may be a useful strategy to help manage lifetime tax liability. This can also reduce future Required Minimum Distributions (RMDs), which could otherwise increase taxable income later in retirement.
It’s important to coordinate Roth conversions with your broader tax picture to avoid moving into higher brackets or triggering other income-related costs.
Managing Capital Gains and Tax-Loss Harvesting
Beyond retirement accounts, taxable investment accounts offer additional planning opportunities. Planning for future tax changes may include:
- Potential for capital gains when rates are favorable
- Using tax-loss harvesting to offset gains in higher-income years
- Rebalancing portfolios in a tax-efficient manner
For retirees, coordinating withdrawals from investment accounts with other income sources can help keep annual income within target thresholds.
Estate Planning and Gifting Strategies
The estate and gift tax exemption is also set to revert to lower levels after 2025. Individuals and families with significant assets may benefit from reviewing their estate plans now, while the higher exemption remains in place.
Planning for future tax changes could include:
- Accelerated gifting strategies
- Reviewing trust structures
- Reassessing beneficiary designations
Even if your estate is not currently taxable, rising asset values or changing laws could affect your legacy plan. A periodic review can help ensure your goals are still supported under different future scenarios.
Building a Forward-Focused Plan
There’s no need to make rushed decisions, but ignoring tax law changes may leave you with fewer options later. Planning for future tax changes is ultimately about making intentional decisions today that keep your strategy adaptable for what lies ahead.
At BA Schrock, we work with clients to create retirement planning built around your life and long-term goals. That includes evaluating potential tax law shifts and aligning your strategy accordingly. Every decision—from where you save to how you draw income—can be structured to reflect both current realities and future possibilities.
Let’s talk about how planning for future tax changes now can support your long-term financial confidence. Schedule your 15-minute introduction call today. We look forward to hearing from you!
