Broker Check

TAX SALE ENDS 2026

January 23, 2024

“When you retire, you leave behind many things – the daily grind, commuting, maybe your old home – but one thing you keep is a tax bill. In fact, income taxes can be your single largest expense in retirement.” This is a direct quote from the Financial Industry Regulatory Authority’s website (FINRA). I repeat taxes can be your single largest expense in retirement. This is a reality many people do not recognize. We are striving to help our clients minimize this single largest expense. In this article, we discuss why the next two years present a significant opportunity for tax management.

The Tax Cuts and Jobs Act of 2017 lowered federal income tax rates for many Americans. The graphic below shows how the 15% bracket was reduced to 12%, 25% to 22%, 28% to 24%, and so on.

The Tax Cuts and Jobs Act of 2017 lowered federal income tax rates for many Americans. The graphic below shows how the 15% bracket was reduced to 12%, 25% to 22%, 28% to 24%, and so on.
Millions of Americans have enjoyed tax savings because of this. Tax rates are currently at historical lows. However, the sale on taxes ends in 2026. The Tax Cuts and Jobs Act will sunset at the end of 2025. This means, barring an act of Congress, tax rates will revert to what they were before the Tax Cuts and Jobs Act as shown in the following graphic.

Not only are tax rates set to increase in 2026, but our research also shows that tax rates could go significantly higher over the next 10-20 years as the US National Debt is over $33 trillion and US Debt as a Percent of GDP is well over 100%. There are other ways to solve these problems other than raising taxes, but I will ask you, do you think tax rates will go up in the future? If so, consider taking advantage of tax rates while they are on sale.

There are many ways to take advantage of these historically low tax rates, and the effectiveness of each strategy will depend on your specific situation. It could mean taking a portion of your pre-tax assets like IRAs and 401k plans that defer taxes into the future at potentially higher tax rates and moving them into tax-advantaged accounts like Roth IRAs that will never be taxed. This is commonly known as a Roth IRA conversion. Of course, you would have to pay tax on the converted amount now, but you would enjoy tax-free growth.

Benjamin Franklin's quote, "Nothing is certain but death and taxes," still holds true today. Everyone has to pay taxes on their money at some point, so why not take advantage of tax rates while they are on sale? We encourage you to talk to your financial planner about how tax management can fit into your overall financial plan.

FINRA Link:

https://www.finra.org/investors/learn-to-invest/types-investments/retirement/managing-retirement-income/taxation-retirement-income#:~:text=You%20have%20to%20pay%20income,you%20have%20left%20to%20spend.