1. Required Minimum Distributions (RMDs) – Once you reach RMD age, you must begin taking money out of tax-deferred retirement accounts.  The government forces you to do this because when you do, it generally triggers income tax. Many investors are fortunate enough and have worked hard enough to save significant sums of money in 401(k)s, 403(b)s, IRAs, etc.  Unfortunately, they may have to take distributions from these accounts that exceed the amount of money they actually need or want to spend. This results in a larger tax bill than would otherwise be necessary if they were taking out a lower amount simply to meet their expenses.

2.Sunsetting of the Tax Cuts and Jobs Act (TCJA) – When the TCJA went into effect on January 1^st 2018, most provisions were set to sunset on December 31^st 2025. Unless Congress and the President agree to extend those provisions, many taxpayers will be facing higher income tax rates beginning in 2026. This Leaves investors with a potentially limited window to take advantage of these current, lower rates. It may make sense for some investors to take additional withdrawals from their tax deferred accounts and/or do Roth conversions in 2024 and 2025, before the TCJA sunsets.

3. “Widow’s/Widower’s Penalty” – The loss of a spouse is difficult on many levels. Unfortunately, the tax code makes the financial burden difficult to deal with as well. It is not uncommon for a surviving spouse to receive survivor benefits from Social Security and/ or the deceased spouse’s pension plan.  Obviously, the survivor also generally inherits the retirement accounts and other investments that the deceased spouse owned.  This means that often a surviving spouse is income is little changed after the death of the first spouse. However, the filing status of the survivor may often change from “Married Filing Jointly” to “Single”, thereby significantly increasing taxes owed as the result of the spouse’s death.

4. Leaving tax deferred accounts to children – Prior to the Secure Act of 2019, children inheriting large IRAs could “stretch” the withdrawals of those IRAS over their lifetimes. Because these beneficiaries were permitted to withdraw from these inherited IRAs over such a long period of time, the tax impact was low for many.  However, the Secure Act changed that rule (other than for surviving spouses).  Now, instead of withdrawing over their lifetimes, non-spouse beneficiaries are required to entirely deplete the inherited tax deferred account over 10 years. This can have a significant negative impact on beneficiary’s income tax, capital gains tax, net investment income tax, and Medicare premiums.

5. Many feel that taxes are more likely to rise in the coming years – We all read about our country’s ballooning debt, rising deficits, and solvency of programs such as Social Security and Medicare. While continued gridlock in Washington makes any short-term resolution unlikely, many believe that these issues will eventually be addressed. When they are, it is possible (some say likely), that any long-term fix will necessitate the increasing of federal revenues. This may lead to higher taxes in the future, making the implementation of effective tax strategies even more impactful.