Personal Income Tax Planning has morphed since 2017, when the Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law. One of TCJA’s intended functions was to reduce the number of taxpayers who itemize deductions on their 1040 Personal Income Tax Forms. Primarily, that goal was implemented through a large increase in the Standard Deduction, coupled with a new $10,000 limit imposed on State and Local Tax (SALT) deductions.
Initially, TCJA’s changes seemed to make Tax Planning less important, as only about 10% of taxpayers now itemize tax deductions. As TCJA became more transparent, and as other legislation was passed by Congress, it became clear that Tax Planning was not an endangered species. Far from it.
Tax Return preparation may be done by the individual taxpayer, but many Americans relinquish their annual obligation to tax professionals. We (as CFPsâ) are not qualified to prepare tax returns, but as part of Comprehensive Personal Financial Planning, we do involve our clients in Tax Planning. The primary goal of Tax Planning has not changed. Everyone wants to pay the least tax legally owed, and we are frequently asked for assistance.
Charitable Giving under current law is a complex subject. We know that Americans are the most generous people on Earth, and particularly so during the Holiday Season. For decades, many Americans believed that most charitable giving was largely predicated on tax savings. The Reagan years disproved that theory, as giving went up after tax rates were reduced. The goal of giving does not seem to be tax savings, but the true generosity of people.
In recent years, several innovative tax provisions have been worked into the Tax Code. Our favorites are those that save tax money for people over and above the Standard Deduction. Congress addressed this situation by allowing some contributions to avoid being counted in Total Income. Qualified Charitable Distributions (QCDs) for taxpayers over age 70-1/2 did precisely that by remitting contributions directly from an IRA to the qualified charity.
A similar process is about to be available to taxpayers of any age. Beginning in 2026, any taxpayer may make charitable contributions from brokerage accounts, without those funds being included in Total Income. Although limited to $1,000 per individual ($2.000 for Married Filing Jointly), tax savings are in excess of the Standard Deduction. Charities must be qualified by the IRS for taxpayers to be afforded the savings.
Next week, we will discuss Donor Advised Funds (DOF), their role in Personal Tax Planning, and the likely upcoming passage of a tax-saving technique for many Americans using the DOF.
July 4, 2025, saw the signing of OBBBA (One Big Beautiful Bill Act) into law, and with that signature, Trump Accounts were born. Every baby born to American citizens between January 1, 2025, and December 31, 2028, is eligible for these novel “head start” investment accounts. President Trump believes that our newest generation should receive a “nudge” to stimulate an interest in investing for the future. I applaud his efforts, and especially so when coupled with the (so far) 30 states which have implemented financial literacy into their school curriculums. Special thanks to Florida Governor Ron DeSantis for getting that ball rolling.
While no newborn baby can actually receive his/her $1,000 “seed” deposit into a Trump Account until July 4, 2026, every parent should be aware of the opportunity to give their infant a financial head start. Terms of these accounts are being finalized as we write, but the rules will be strict. Investments are in mandated equity funds, access in limited, and outcomes are not guaranteed. Parents will be able to add to the child’s Trump Account. The technical name of these accounts is Invest America Accounts.
As with any Federal program that is novel and unprecedented, reactions among the public are mixed. Many people believe that a small child receiving “free” money from the government establishes a pattern of expectation that can last a lifetime. Others suggest that a financial “head start” will stimulate interest in finance and investing, resulting in a nation of savers. I suspect there will be a range of individual reactions.
Michael and Susan Dell, billionaire founders of Dell Technologies, recently pledged another layer of Trump Account funds for many American children. This portion of the program is for children as old as 10, and targets 25 million children residing in low-income ZIP Codes. Dells’ program begins with a $6.25 Billion (9 zeroes) donation from their vast wealth to the U.S. Treasury, which will administer the program.
Timing of the program is integrated with Trump Account development. Administration of the program will be guided by the original Invest America portion of OBBBA. Naturally, the Dells will receive a tax deduction for their generous donation. This will likely disturb a group of Americans, but my advice to them is simple, “Get over it.” The program is, in my estimation, worthy of at least a test cycle.
From what we know at this point, Trump Account funds cannot be accessed until the child owner reaches age 18. At that point, there will be options for utilizing balances, which will be rolled into Traditional IRA accounts. Once there, IRA rules will apply, including an opportunity to convert any or all of the funds to Roth IRAs, which provide various opportunities as young Americans begin adulthood.
As the Trump Account program is refined and eventually implemented (including the Dells’ portion), I will be watching for other billionaire donors to jump into the process. The are several Americans with sufficient wealth to consider donations of this nature, and the publicity may be desirable for some of them. This could get big. Fast.
Predictions of the success or failure of Invest America are difficult at best, but I believe there is ample opportunity to improve the financial lives of America’s future adult residents. On July 4, 2026, we will be able to witness the rollout of the program.
IRS is creating a new Tax Form for account management. It will be called Form 4547. Figure it out.
Hazarding a guess, I would expect only a tiny percentage of Americans remember the Taxpayer Relief Act of 1997 (TRA), a tax-friendly package we were handed under then-President Bill Clinton. In fact, throughout decades as a Certified Financial Planner® and talk radio host, I have suggested that most members of Congress (and likely Clinton himself) didn’t bother to read the details, or they would not have voted it into law. It’s that good. For us.
Two main TRA provisions have captured my attention; a capital gains tax exclusion on sale of primary residences (up to $250k per person and $500k for married couples filing jointly), and creation of the Roth IRA. Though modified over the years, the fundamentals of TRA remain largely intact. A year after inception of the Roth IRA, taxpayers acquired limited ability to perform Roth IRA Conversions from Traditional IRAs.
Controversy has surrounded Roth IRAs and Roth Conversions ever since 1997. Most original analyses concluded that under a stable tax system, there was no real difference in outcome, meaning that after-tax retirement income from the IRA would be equal. We understand the folly of assuming a stable future tax rate, so we must be realistic when considering Roth Conversion options.
Fervent Roth Conversion proponents presume that future income tax rates will have to be higher, as the burgeoning National Debt must be serviced. Meanwhile, I have spent 2+ decades arguing against that assumption. Not because it was illogical (it wasn’t), but because for decades I paid attention to every tax proposal in Congress having chance of becoming law. In Washington, D.C., there has been much more interest in lowering individual tax rates, while offering fewer tax deductions. This flew in the face of the “common wisdom.”
So far, I have been proven correct.
Last week, a new taxing concept was introduced by President Trump. He has shown a remarkable ability to shepherd concepts through Congress, so it bears consideration. His proposal is based on his own controversial tariff system, which is currently awaiting Supreme Court legal affirmation.
President Trump’s plan is to phase out income taxes altogether, replacing government revenue through tariff income. This was our system from the nation’s founding up to 1913, when a very small income tax was passed. Times change.
Suppose for a moment that President Trump’s proposal gets implemented, and income taxes began to get phased out. Converted Roth IRA funds would have been penalized by taxing them in the year of the conversion. I see no potential for claw back of our tax payments, so Roth Conversion taxes paid would be gone forever.
New and changing concepts add to already complex financial concepts.
As 2025 nears an end, taxpayers, savers, and investors are beginning to receive data for the 2026 Tax Year. We have recently been explaining changes to contribution limits that will take effect on January 1, 2026. Today’s topic is Individual Retirement Accounts, or IRAs. Since their inception in 1974, IRAs have become ubiquitous in American Society, and now represent a substantial national asset, estimated to include at least $18 trillion (12 zeroes).
Popular tenets of IRAs include current tax deductibility for the Traditional IRA and lifetime tax-free growth for Roth IRAs. Many people split their annual contributions between both, leading to more flexible retirement income. Limits are per Individual (the reason for the “I” in IRA.)
For decades, we have complained about low annual contribution limits to IRAs, which are a fraction of limits for contributions to company-sponsored Retirement Plans, such as 401(k)s. Our complaining has never produced results at the national level, but at a minimum, we appreciate any and all raised limits as they happen. We encourage our clients, listeners, readers, and friends to increase their planned contributions for 2026, maxing out if possible.
For Traditional (tax-deductible) 2026 IRA contributions, as well as non-deductible Roth contributions, an increase of $500 is granted, making the maximum $7,500. Contributions may be split between Traditional and Roth, but the annual limit applies in the aggregate. IRA owners who will be age 50 or over on December 31, 2026, have “catch-up” contributions available as well. These are being increased by $100 to $1,100 annually.
Eligibility to contribute to any IRA is limited to the amount of earned income the account owner reports during the tax year. Married couples are allowed to use the income earned by a spouse. There are very strict income limitations for direct contributions to a Roth IRA, but no such limits apply to a Traditional IRA. Instead, there is a limitation as to what proportion of IRA contributions may be deducted on the Individual’s Form 1040 Individual Income Tax Return.
When saving taxes and strengthening retirement savings, take advantage of all the good news you can find. Maxing out contributions is a good start, but one largely ignored benefit comes from making contributions early in the year for which they are designated. Early contributions receive up to an extra year for tax-deferred (or tax-free) growth.
During this time of updating and implementing Retirement Plan changes, review your Beneficiary Designations for accuracy and changes in your family status. Both Primary and Contingent (Secondary) beneficiaries should be specified in writing in your documentation.
As suggested in last week’s Blog, the 2025 government shutdown has ended after a record 43-day inconvenience. During the associated information blackout, pertinent essential tax planning data went unreported, delaying our ability to assist clients and listeners in decision-making aimed at minimizing taxes, both for this year and next.
With the re-opening, we are seeing some data that can now be discussed with greater certainty. Today’s analysis centers on 2026 Company-Sponsored Retirement Plan Contributions, as higher limits were finally released. Depending on the nature of the Employer, these Plans span a range of what we call the “4” Accounts. The 401(k) is most common and well known, so for purposes of this Blog, just know that what applies to the 401(k) also applies to 403(b), 457, and similar Plans.
Contribution limits for Participants in 401(k) Plans have been increased to $24,500 for 2026, up $1,000. This represents an increase of 4.26% for all account-owner participants. Employees who will reach age 50 or more by year-end 2026 are also allowed to make “catch-up” contributions of up to $8,000, an increase of 6.67% from 2025. Special provisions are made for Participants ages 60 through 63 at year-end. This group is able to contribute up to an unchanged $11,250 as their catch-up contributions.
We should note that employees earning more than $145,000 annually from their Sponsoring Employer will be required to make all catch-up contributions Roth-style, meaning these amounts must be contributed using after-tax funds. This is not an optimum method of contributing for long-term tax-free growth, and those funds might be better placed in a Roth IRA.
Employee contributions to 401(k) Plans must be made through salary deferrals and must be made in the year intended. Taxpayers should implement payroll changes for January 1, 2026, as soon as possible to max out contributions. We generally recommend spreading Plan deferrals throughout the year, so begin planning now for maximizing personal benefits.
Employer contributions to 401(k) Plans are optional and vary among employers. There are no special arrangements for individuals to make, except for Participants who are unable to max out their own contributions. For these people, we suggest they contribute enough through their salary deferrals to realize the entirety of any Employer matching funds.
Self-employed savers who utilize a Personal 401(k) Plan have the same limits for Employee Deferrals.
Complexity abounds in Retirement Account planning. We can help.
Finalization of the One Big Beautiful Bill Act (OBBBA) on Independence Day (2025) created a rare opportunity for Tax Planning, as next year’s rules were laid out in advance. Generally, Congress delays several important decisions until late December, leaving financial planners and tax professionals scrambling to assist clients with their optimal path to reducing taxes. Score one for taxpayers everywhere, for now anyway.
Then some other stuff happened. Excessively fractious politics in Washington, D.C. resulted in a partial government shutdown. While that is nothing new, the duration of this conflict has already surpassed the old 35-day record. As of this writing, there is finally a glimmer of hope for a solution, as the Senate broke the filibuster during a long weekend session. That should pave the way for final votes in both the Senate and the House. President Trump has indicated that he would be willing to sign this Bill if passed.
Failure of elected officials to reach a budgetary compromise has left the country with decision paralysis. Data releases, which generally drive action in Congress, have been deferred, resulting in long postponements to necessary planning announcements. While we do have definitive items such as the (paltry 2.8%) January 1 Social Security COLA, as well as 2026 Income Tax Brackets, we have yet to be informed about many pertinent details. As financial advisors, our apparent “head start” on 2025/26 tax planning has been suspended.
The irony is not lost on us.
Glaring omissions from relevant information include 2026 contribution limits to company-sponsored Retirement Accounts, encompassing 401(k), 403(b), 457, and others. Most Plan participants would like to adjust their salary deferral contributions beginning January 1, and new rules for highly compensated employees will affect tax deductibility due to changes in the “catch-up contribution.”
IRA owners are also awaiting 2026 contribution limits, but have more flexibility, due to contribution dates that extend through tax filing day of the following year. Even so, we’d like to know in advance what those limits will be, so that we can plan for tax withholding and/or Quarterly Tax Deposits (Forms 1040-ES).
Significant announcements will be available shortly after the shutdown ends, which will hopefully be soon. As 2026 provisions are announced, we will report them in this Blog.
From the data released so far, 2026 does not appear to be shaping up to be an unusually taxpayer-friendly year. OBBBA prevented the expiration of the Tax Cuts and Jobs Act of 2017 (TCJA), and for that, we can all breathe easier. However, as the old expression goes, The Devil is in the details.” As we learn more details, you’ll be the next to know.
Since the days of President Ronald Reagan, the IRS has been directed to index the U.S. Tax Code to eliminate an insidious problem called bracket creep. For many years, inflationary increases in wages and salaries caused some taxpayers to cross into higher tax brackets, which were stagnant year after year. President Reagan noticed this phenomenon and worked with Congress to index tax brackets for inflation, preventing bracket creep.
What is the inflation rate for any given year? That question is assigned to the Bureau of Labor Statistics (BLS), part of the Treasury Department. Their annual Cost-of-Living Adjustment (COLA) estimate is used to adjust wages for millions of Americans, unionized or not. Accuracy is paramount for maintaining our daily living standards. Very few people believe we are well served by the BLS, because in the act of living day-to-day, we see prices of necessities rise faster than government reports admit. Many luxury goods rise even faster.
I have long argued for one single rate of inflation (and COLA) for each 12-month period. However, the IRS applies differing rates to various elements of the Tax Code, sometimes even within the same application. Inconsistent application of COLAs presents opportunity for unequal treatment of taxpayers.
This can be seen in the 2026 Tax Bracket adjustments. The lowest 2 brackets are being increased by about 4%, meaning that lower-income Americans can earn 4% more income without being penalized by creeping into a higher tax bracket. However, upper brackets are increasing only about 2.3%. For these people, a 4% increase in income can move them into a higher bracket. This kind of manipulation is generally designed to shift the tax burden to higher-income taxpayers. Shameful.
Not all COLA adjustments have been released yet, partly due to the current government shutdown. As numbers are finalized, we will report and comment in upcoming Blogs. We already mentioned the new tax bracket changes.
Significant changes for 2026 include a new process for deducting State and Local Taxes, or SALT, which had been limited since 2018 to $10,000 annually. For 2026, the SALT limit has been raised to $40,000, although the additional amount gets phased out at higher income levels. The net result affects very few taxpayers and does not address inflation for the rest of us.
Thanks to passage of the OBBBA, year-end 2025 tax planning is easier this year than most. Too often, Congress delays finalization of taxation rules until they are scrambling to catch their planes for the Holiday break. This leaves planners in a last-minute rush to do their best for clients.
We already know that Social Security recipients will receive a paltry 2.8% increase in monthly benefits, and that Medicare Parts B and D will cut into that increase. Hopefully, better news will be available in the near future.
In recent years, data security, identity protection, and asset preservation topics have played a prominent role in society. Unfortunately, these problems prevail due to the relentless pursuit of our assets by an ever-increasing number of “Bad Guys” lurking in the shadowy corners of the Internet. One of the goals of this Blog is to educate our readers in the art of staying safe at minimal cost and disruption of daily routines.
A couple of years ago, I first reported on a little-known Credit Rating Bureau called Innovis, having learned of its existence from Jacksonville’s “Consumer Warrier,” Clark Howard. Clark is familiar to many local talk radio listeners, and he is recently back on the topic with new information. I thank Clark for his updated information and suggestions.
Just when you thought we had the credit freeze topic covered, there are additional agencies we need to contact for our individual and collective complete safety and security. The “big three” (Experian, Equifax, and TransUnion), plus Innovis, account for 95% of online protections. I desire 100% safety, both for me and for all of you. Several smaller and lesser-known agencies are now active, and some deserve our personal attention. Consolidation in the credit reporting industry has created a few important agencies out of a hoard of small (and generally less influential) outfits, heretofore mostly unknown.
A list of new credit freeze suggestions includes LexisNexis, Clarity Services, ChexSystems, and if you have not already done your freeze at Innovis, include that in the new list. All of these are easily reached through a simple Internet search, and once there, instructions are available online to complete your credit protection journey.
It is important to note that the credit freeze process applies to individuals, rather than couples or households. For each freeze you implement, be sure to separately cover both spouses, if married. You will want to have available copies of your driver’s license(s).
As our mothers pounded into our heads over decades, “An ounce of prevention is worth a pound of cure.” These online tasks are tedious and ever-changing, but each one adds to the probability of you (and your spouse) remaining safe from the prying eyes of Internet thieves. Being thorough requires a comprehensive credit freeze process, to include Experian, Equifax, TransUnion, Innovis, LexisNexis, Clarity Services, and ChexSystems. Don’t be the next victim of identity theft.
Before we go, I’ll remind everyone to sign up for the free home title protection service provided by most County Register of Deeds Offices. Call us if you have any questions. A little one-time effort beats a monthly expense in my book.
None of our suggestions today will cost you a red cent. Don’t delay.
October has a reputation for being a “bad month” to be in the market. Does this allegation hold up in practice?
For answers, I turned to Forbes’ description of the “October Effect,” which simply states that the stock market allegedly declines in October. Given some of October’s history, it is not surprising that investors respond negatively to the mention of our 10th month. Halloween and market crashes both present scary scenarios for many Americans.
First, we’ll look at some of October’s “greatest hits” on Wall Street. Many of the scariest declines in the market occurred in the month of October, including the “Panic of 1907,” the “Crash of 1929,” and one big event during my personal experience, “Black Monday in 1987,” on which day (the 19th of October) the S&P500 Index dropped 22.7%. 2007 also saw October begin the so-called “Financial Crisis,” which lasted about 18 months, during which the S&P500 Index dropped by about half. Households lost more than $16 trillion in Net Worth.
In each case, economic conditions caused the drops, not the calendar.
Those unsettling events left a lasting stain on the reputation of an otherwise beautiful month, when temperatures and humidity fall to stimulating levels, and Mother Nature puts on her annual color show throughout much of the country. They also contribute to a misguided Wall Street axiom that states, “Sell in May and Go Away.” Don’t tell July about that one, as July generally delivers gains.
Despite the common fears and past events in October’s history, the stock market, on average, rises (erratically) during the month. Among our historically positive market months, the average return in October is the smallest. For my part, I find any monthly market increase satisfactory, no matter how slight. Up is up, and October leads into the generally most profitable months. No one can predict when a year-end rally may begin, and anyone who misses the start squanders a chunk of the usual increase.
What many investors attribute to the “October Effect” is likely based on the “Big V,” for Volatility. Historically, October is the most volatile month of the year. Short-tempered investors are frequently frightened into making stupid moves (Forbes’ term), selling into volatility, and missing out on the upswings.
Today’s lesson is the same one we have touted for decades – get into the market in an intelligent manner, and remain invested, no matter how much it hurts some days. Assuming your investments are long-term (as they should be), the rewards last a lifetime.
In 2019, on the Van Wie Financial Hour radio program, we reported on a spreading phenomenon known as “FIRE,” short for “Financial Independence Retire Early.” In cult-like instructional guides, FIRE proponents attempt to entice people into a utopian world of carefree decades of cushy retired life, beginning in early or middle-age. To me, this is a component of a “Big Lie” Americans are being fed on a daily basis by money-grubbing “influencers.” Far too many of these “financial experts” are in their businesses for the simple reason that they sell expensive newsletters to unsuspecting people.
The FIRE movement tells people they can retire at age 35, 40, 50, or even 60. My study of information on FIRE from the zealots (who claim to have all the answers) reveals that a successfully retired FIRE candidate must go to WORK! We’re not talking about volunteering, but a real paid endeavor; even a “side hustle” or “gig work.” Apparently, when doing something you enjoy, it is not considered by FIRE to constitute work, much less a new career. Instead, it is supposed to provide some kind of self-fulfillment, justifying the cut in pay. Think of it as a paid hobby. Some, like me, call it working.
I have a better idea. My concept is called “DREC,” short for “Delay Retirement Extend Careers.” DREC offers a path toward the real financial goal of most people – true Financial Independence. It does this the old-fashioned way, by working longer, making more money, and enjoying life and family along the way. FIRE too often requires sacrificing a fulfilling family life.
Under DREC, a young worker who enjoys his or her occupation and career path should set a retirement goal of complete Financial Independence. Physical age is only relevant for insurance planning and Social Security claiming purposes. Many people work later into life these days – on purpose!
Not enjoying your current job? Change it now, and work until you are financially prepared to (completely) retire.
Wasting years, while skimping and saving pennies toward an unrealistic and artificial FIRE goal, makes for unhappy and unsuccessful lives. People will always require food, clothing, shelter, and a wide variety of expensive non-luxuries (including taxes). Financial Independence requires our nest eggs to be sufficient to cover a lifetime of expenses, hopefully including some non-essentials. You only live once, so have a good time.
DREC (Delay Retirement Extend Careers) will yield a significant improvement in your probability of achieving true Financial Independence. If your only goal is early retirement, chances are you’ll be working forever, only not by choice. FIRE may be trendy, but DREC is practical.