Each week in our Ask the Tax Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers on charitable donations, including one on whether a taxpayer can deduct a GoFundMe contribution. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. GoFundMe contribution

Question: I contributed $250 to a GoFundMe account set up for a family who lost their house in a fire. Can I deduct the contribution on my tax return?

Joy Taylor: Unfortunately, no. Donations that a taxpayer makes to individuals aren't deductible. This same rule also generally applies to gifts made through personal fundraising websites that are earmarked for one person or a small group, such as a family who lost a home or a person who needs help paying medical expenses.

2. Tax changes for 2026

Question: I generally claim the standard deduction when I file my Form 1040. I heard that next year I can deduct my charitable gifts even if I don't itemize on Schedule A. Is this true?

Joy Taylor: Yes, but there is a limit. Last year's "One Big Beautiful Bill" (OBBB) lets nonitemizers deduct charitable cash contributions. If you claim standard deductions, you can write off up to $1,000 of your cash gifts to charitable organizations, starting with 2026 returns filed in 2027. The amount is $2,000 for joint filers. This write-off is permanent and doesn’t phase out for upper-income taxpayers.

Gifts to donor-advised funds and private nonoperating foundations are excluded. "Cash donations" means gifts by cash, check, debit card, credit card, payroll deduction, electronic funds transfer, online payment service, or the transfer of a gift card redeemable for cash.

Note that there is another change to charitable deductions, starting with 2026 returns filed next year. Charitable deductions claimed by itemizers on Schedule A get a bit of a haircut. The Schedule A charitable write-off is deductible only to the extent that total charitable donations exceed 0.5% of adjusted gross income (AGI). This is similar to the rules for deducting medical expenses, in which total eligible medical costs are deductible only to the extent they exceed 7.5% of AGI.

3. QCD and charitable gift annuity

Question: I'm planning to make a $50,000 donation to my alma mater through a charitable gift annuity this year. Is this eligible for a qualified charitable distribution (QCD)?

Joy Taylor: It depends. People age 70½ and older can transfer up to $111,000 in 2026 from a traditional IRA directly to charity. QCDs can be done only from an IRA, either one that you own or an inherited IRA. You can’t do them from a 401(k).

QCDs are nontaxable and aren't included in your adjusted gross income (AGI). And they can count toward your required minimum distribution (RMD), thus reducing the taxable amount of the RMD, provided you do the QCD before withdrawing your full RMD for the year. Note that you can't deduct a QCD as a charitable contribution on Schedule A.

As a general rule, in a QCD, the money must generally go to a Section 501(c)(3) organization. The 2022 SECURE 2.0 legislation provided an easing to this. It allows IRA owners to do a one-time (not annual) QCD of up to $55,000 for 2026 through a charitable gift annuity, charitable remainder unitrust or a charitable remainder annuity trust. Many private colleges with charitable gift annuity programs tout the QCD option. If you already did this in 2023, 2024 or 2025, you can’t do it again.

4. Verifying a charity's status

Question: I am thinking of donating to a charity this year to help victims of a natural disaster in my state. But I want to avoid scams. How do I know whether a charity is legitimate?

Joy Taylor: Make sure that you donate to an IRS-recognized Section 501(c)(3) tax-exempt organization. The IRS's website has a tax-exempt organization search tool. You can use the tool to check the organization's eligibility to receive tax-deductible contributions. You can also review some information about the organization's tax-exempt status and tax filings with the IRS.

It is wise to watch out for bogus charities and solicitors. They crop up after big disasters. They want to steal your money and get you to divulge personal and financial information.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: QCDs and Tax Planning
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Tax Questions on the Charitable Deduction

Today is the day you sell the apartment building you've owned for 20 years.

• You fixed the toilets
• You took the 2 a.m. calls about a burst pipe and a tenant locked out in the rain
• You handled the showings yourself
• You chased down rent when it didn't show up the first time

The sale closes. The proceeds land with a qualified intermediary. Now someone hands you a shiny brochure for something called a Delaware statutory trust (DST) and tells you it can be your replacement property.

Before you look at the yield, the sponsor, or the real estate, you need to know one thing: What are you actually buying?

A DST is not a fund, not a real estate investment trust (REIT) and not a partnership. The trust owns either a single property or a portfolio of properties. You buy a fractional beneficial interest in that trust. It's real estate. You just don't run it anymore.

The DST interest is a security, but when it's properly structured, the IRS will treat you as if you own the real estate directly, at least for tax purposes. That's what lets it serve as replacement property in a 1031 exchange.

The framework comes from IRS Revenue Ruling 2004-86. That doesn't make every DST automatically eligible. The trust and your exchange still must follow the rules.

What your $1 million buys

Take a $100 million multifamily property with no debt. Invest $1 million, and you own a 1% beneficial interest in the trust. It's simple enough.

Now put a $50 million mortgage on that same property. It's still worth $100 million, but the equity underneath it just dropped to $50 million. Your $1 million now buys 2% of that equity, and you're also allocated about 2% of the mortgage, roughly $1 million of debt, for tax purposes.

Add it up: Your $1 million investment plus $1 million of allocated debt gives you about $2 million of replacement-property value.

You don't sign for that mortgage. You don't personally guarantee it. The debt is nonrecourse to you, so if the property fails, the lender's claim generally runs only against the property itself, not your bank account, not your other real estate, not your retirement savings.

But don't mistake nonrecourse for harmless. Interest expense still eats into cash flow. Loan terms still shape when the sponsor can sell. If the property loses value, your equity takes the hit before the lender does.

How the exchange works

Your exchange funds move from the qualified intermediary straight into the DST. You identify the DST interest as replacement property and close inside the same windows that apply to any deferred exchange.

The IRS explains that replacement property generally must be identified within 45 days and closed within 180 days, or by your tax filing deadline if that comes first, extensions included.

The tax is deferred, not erased. Take cash out, or replace less property value or debt, and part of the gain might become taxable.

How the income gets to you

The property collects rent. It pays its bills: operating expenses, debt service, reserves. What's left might be distributed to you, usually every month, like a landlord's check without the phone call that used to come with it.

If the DST pays a 5% annual distribution, a $1 million investment would receive $50,000 a year, if the distribution is paid as projected. That 5% is a target rate, not a guarantee, and not the same thing as total return.

You'll also get tax reporting for your share of the property's income, expenses and depreciation. What lands in your account and what you report to the IRS won't always be the same number.

What you gain

No more toilets. No more 2 a.m. phone calls. No more showings, no chasing rent, no standing in a hardware store aisle on a Friday evening because a tenant just called. A sponsor and a professional asset manager run the building now, not you.

Your $1 million also buys a stake in a $100 million property, the kind you probably couldn't purchase or manage on your own. You don't have to scramble to find your own replacement property inside a 45-day window either. The property is already bought, financed and running. You just have to identify it and close, often in days, not weeks.

Spread across more than one DST, that same $1 million can put you into different property types and different parts of the country, instead of riding on the one building you used to own.

You give up control

The sponsor decides who leases the space, how it's financed, what goes into reserves and when the building finally sells. You don't get a vote. That is not a footnote. That's the deal. You traded the decisions for freedom from having to make them.

That lack of control goes beyond voting. The sponsor's options are limited, too. If the building needs a new roof or the loan comes due at the worst possible time, there might be less room to maneuver than there would be in a property you own directly.

How you get out

A DST interest is illiquid. There's no market on which you list it on a Tuesday and sell it by Friday. A secondary sale, if you can find one, might come at a real discount. Most investors get their money back only when the sponsor sells the property — on the sponsor's timeline, not yours.

When that sale happens, you get your share of the proceeds. The gain you deferred can become taxable unless you 1031-exchange it into another qualifying property.

What a DST is in plain English

Go back to today. The building is sold, the toilets and the 2 a.m. calls behind you. In its place: a fractional beneficial interest in a trust that owns real estate, carries its own debt and might pay you income while someone else runs it.

That doesn't tell you whether this particular DST is good, bad or suitable. It tells you what you're buying. Whether a DST fits you is a separate decision, but you shouldn't judge the sales pitch until you understand the mechanics.

If you're planning a 1031 exchange and want help comparing the structure, leverage and exit terms, a fee-only DST adviser can help you evaluate available options without commission incentives.

Related Content

• DST Inventory Just Hit a Record $3.9 Billion: What 1031 Exchange Investors Should Do Next
• DST Exit Strategies: An Expert Guide to What Happens When the Trust Sells
• The 1031 Exchange 45-Day Trap: How to Avoid Mistakes When You're Racing the Clock
• Is a Delaware Statutory Trust Right for You? 5 Questions to Ask Before You Invest
• A 1031 Exchange May Look Great for You on Paper, But It's Not Just About Taxes

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Trusts are a common estate planning tool, and with trillions of dollars expected to change hands as wealth moves from one generation to the next now and in the coming years, various trust types and the tax rules surrounding them are getting more attention.

But that might not be a good thing if the IRS is taking a second look.

In a current high-profile case, the tax agency is challenging how one family used an irrevocable trust strategy to pass wealth to their children.

Although the dispute involves a specialized trust arrangement, its potential broader lesson is worth watching for anyone using high-value trusts in their estate plan. Here's more to know.

IRS challenges irrevocable trust strategy

The current case involves Nashville residents, the Elcans. The IRS is seeking more than $736 million (roughly $614 million in gift taxes and $122 million in penalties), arguing that the couple's use of three irrevocable trusts didn't qualify for the intended tax treatment.

A little background according to court filings:

• In 2018, Mrs. Elcan set up three grantor-retained annuity trusts (GRATs) to pass wealth to the couple's three children. The two-year irrevocable trusts were funded with marketable securities and closely held business and partnership interests.
• As is typical with GRATs, the trusts made fixed annual payments back to the grantor, while investment growth above a set benchmark passed to the children tax-free.
• The strategy yielded roughly $200 million tax-free for their heirs across two of the trusts.

The trust agreements also contained a "substitution power" that allowed the grantor to swap personal property into the trusts to retrieve original trust assets of equal value. The grantor reportedly used that power to pull investments out of the trusts and replace them with promissory notes — essentially IOUs promising to pay the trusts back with interest.

The trusts used the promissory notes to satisfy the required annual payments, effectively canceling amounts the grantor owed the GRATs.

After auditing the arrangement, the IRS issued a notice of deficiency demanding over $730 million in gift taxes and penalties.

According to court filings, the agency argues that using the personal promissory notes to satisfy the GRAT’s required annuity payments didn't comply with the rules governing qualified annuity interests.

• Specifically, the IRS contends that the arrangement violates Section 2702 of the Internal Revenue Code and Treasury regulations that prohibit GRATs from issuing notes to satisfy annuity payments.
• The agency argues that swapping personal IOUs into the trust and then returning them to cover the required payment was essentially an indirect step transaction designed to bypass the rule.

If that position prevails, the IRS could treat the entire $687.5 million initially transferred to the GRATs as a taxable gift.

Note: The federal gift tax generally applies when someone gives wealth to another person without receiving equal value in return. Certain estate planning strategies can help limit how much of a wealth transfer is treated as a taxable gift when a trust is created.

However, the taxpayers maintain they followed the letter of the law because the trust didn't issue new debt to pay the annuities. Rather, they argue, the existing notes were already trust assets that were legally returned to satisfy the payment obligations.

*The case is Elcan v. Commissioner (Tax Court Docket No. 3405-25). The Tax Court hasn't yet ruled on the taxpayer's motion for summary judgment.

What is a grantor retained annuity trust and how does it work?

A grantor retained annuity trust is an irrevocable trust designed to transfer future investment growth to beneficiaries while allowing the grantor to receive annual payments from the trust for a set period.

The strategy generally works like this:

• A grantor transfers assets to a GRAT and reserves the right to receive annuity payments during the trust term.
• The IRS uses a monthly interest rate (the Section 7520 rate or "hurdle rate") to calculate the present value of the grantor's retained annuity payments.
• If the trust's assets grow faster than the hurdle rate, the excess appreciation can generally pass to the trust beneficiaries at the end of the trust term tax-free, depending on how the GRAT is structured.

But…if the assets don't appreciate as expected, there may be little or nothing left to pass to beneficiaries after the required payments are made, and the grantor receives their principal back through the annuity payments.

In this case, if the U.S. Tax Court agrees with the IRS, the tax treatment of the original transfers could change, potentially making the full value transferred to the GRATs subject to federal gift tax.

A ruling for the IRS could also clarify how similar GRAT arrangements are treated going forward and potentially affect other taxpayers who have used similar strategies.

Trusts and estate planning: Bottom line

The Elcan case (still pending), is a reminder that details matter when using a trust or other potentially high-value estate planning strategies. How trust assets are moved, exchanged, or substituted over time can attract IRS attention.

In this instance, the Tax Court's eventual ruling could provide more guidance on grantor trusts and substitution transactions.

Regardless, always review estate plans periodically and have an estate-planning attorney and tax professional review significant transactions in advance.

Related

• Which Trust Type is Best for Your Heirs?
• Gift Tax Exclusion for 2026
• How Much of Your Inheritance Actually Gets Taxed?
• Capital Gains Tax ETF Strategy Catches Treasury's Attention

When Mike and Liz retired at age 63, they were looking forward to finally having an easy tax return. No more working meant no more worrying whether their company withheld enough taxes on their incentive plan payouts and stock vesting.

They'd hit their "retirement number" and had almost $2 million saved, much of it within traditional IRAs and 401(k)s. Required minimum distributions (RMDs) from these accounts were still more than a decade away.

Their initial plan was to live off their savings as well as withdrawals from their brokerage accounts until they took their Social Security benefits at the maximum amount at age 70.

So, when Mike and Liz came into my office for our quarterly meeting, they were quite surprised when I suggested that they make a sizable, taxable Roth conversion from their traditional IRA.

Liz asked, "Why would we voluntarily pay more taxes right now when our income is finally so low?"

I answered, "Because this may be the lowest tax rate you see for the rest of your retirement. It could be a once-in-a-lifetime planning opportunity."

Mike and Liz are in their "golden tax planning window" — the time between when you retire and when your RMDs start at 73 (or 75).

This is when the tax planning focus should shift from, "How do I enjoy a low tax rate today?" to, "How do I use this low-tax-year opportunity to create a strategy that could lower my lifetime taxes?'

What is the golden tax planning window?

The golden tax planning window is usually the period between when you stop receiving a paycheck and when you start receiving significant taxable retirement income.

For many retirees, this starts the year they retire and ends when they start taking Social Security, collecting a pension, or reach RMD age.

Not everyone has the same window, and you can't time it around your age alone. Some retirees might only have one or two years before a taxable income source kicks in. Others might have five to 10 years.

And if you have a large pension, deferred compensation payouts, passive income from owning a business or renting a property, or significant capital gains, you might not get a golden window at all.

Why Roth conversions are often recommended

While they were working, Mike and Liz were focused on lowering their current year's taxes through contributions to traditional IRAs and 401(k)s.

Entering retirement, they heard of Roth conversions but initially dismissed them because of two thoughts they had that many of their fellow retirees share:

• "I can't Roth convert. I don't have any income."
• "My account balances are so large. The conversion tax bill would be huge."

Yes, once you stop working, you may no longer have the taxable compensation needed to make a regular Roth IRA contribution. But you can still convert traditional IRA money to a Roth IRA, without earned income or contribution limits.

And Roth conversions don't involve the entire account. You can choose the amount you'd like to convert — from one penny up to the maximum amount within the account that's eligible to convert.

Which is why I believe the golden rule of Roth conversions is:

Choose the right year and the right amount of Roth conversions.

Roth conversions are often recommended when the tax rate you expect to pay on a conversion today is lower than the projected tax rate on traditional retirement account withdrawals in the future.

Your golden window helps you identify the right years to make the conversion and the right amount to convert in each of those years.

How to identify your golden tax planning window

Once you stop working, your monthly paycheck disappears. Your annual bonuses or stock compensation goes away.

That drop in income often creates an opening in the lower tax brackets to convert money from your traditional retirement accounts into a Roth IRA at a low tax rate.

You have the opportunity to report income from your traditional retirement accounts, during this time frame, at a current rate that may be lower than your projected future withdrawal tax rates.

This opportunity doesn't last forever. As your expected retirement income sources like pensions and Social Security start, your tax planning window starts to close.

If you're still in a relatively low tax bracket when you reach RMD age, this often signals the end of your golden tax planning window. The added taxable income from RMDs can often make more of your Social Security taxable, creating a higher tax cost than expected.

Another life transition that often signals the end of the golden tax planning window is the death of a spouse.

When the first person dies, the surviving spouse moves from the wider "married filing jointly" tax brackets to the much narrower "single filer" tax brackets. But the household's annual taxable income doesn't usually get cut in half like the brackets and standard deductions do.

Within the narrower single filer category, the widow's income can more easily reach the higher tax brackets, creating a tax hit called the "widow's penalty." While unpleasant to think about, this change in tax situation should be a key piece of proactive planning.

Finding the right Roth conversion amount

Once I'd explained to Mike and Liz the scale of the opportunity in front of them, they agreed that they should take advantage of their golden window.

"Let's do it! Should we convert our whole nest egg right now?" asked Mike.

"Not yet," I told them. "We need to look at each part of your retirement planning first, not just your tax picture."

Taxes are an important part of your retirement planning — but they are just a part of the whole picture. You need to coordinate your decisions on how much to spend in retirement, how to take Social Security and pensions, how to plan your taxes, how to invest and how to set up your estate plan.

I call the process of coordinating your retirement decisions your Retirement Master Plan. I share how to follow this process in five simple steps in my book Retire Today.

For Mike and Liz, we decided together when each of them would take Social Security. Then we mapped out their future tax situations in each year of their expected 30-year retirement.

Once they could see their projected tax rates each year, they could find the years when their tax rates were expected to be higher and lower.

For them, their marginal tax rates were projected to increase when they started their RMDs. They saw the rates projecting lower in the years before they were both claiming Social Security.

They were then able to determine how much to target for Roth conversions, when to do them and how best to pay the tax withholding for each year.

How to take advantage of your golden tax planning window

Mike and Liz spent decades planning how much they could put into their retirement accounts every month.

When they hit retirement, they thought the hard work had ended.

Thankfully, they discovered in time that the beginning of retirement is often the beginning of a golden tax planning window.

It's the time to think ahead and decide how you can intentionally pay taxes, through Roth conversions, to potentially manage your projected lifetime tax liability.

When you hit retirement, don't just push off your tax decisions until RMD time.

Project your taxes now and at each big change in your financial situation, such as starting Social Security, starting a pension and starting your RMDs.

Find out whether your golden tax planning window is open, how long it may stay open and how much of it you could use for Roth conversions each year — before that opportunity closes.

Related Content

• 8 Retirement Tax Strategies Your CPA Won't Tell You
• I'm a Financial Planner: If You're Converting to a Roth IRA, Don't Do It Like This
• Claiming Social Security Soon? 5 Smart Moves to Make Before You File
• Retiring in the Next 12 Months? Answer These 3 Questions Before Your Paycheck Stops
• 5 RMD Mistakes That Could Cost You Big-Time: Even Seasoned Retirees Slip Up

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In the coming years, older generations — primarily baby boomers — are expected to pass tens of trillions of dollars to their heirs in what's colloquially known as the "Great Wealth Transfer." But cash and stock portfolios aren't the only assets changing hands.

A recent Kiplinger survey found that real estate accounts for about one-third of everything parents expect to leave behind.*

Yet, as houses are passed to the next generation, a surprising amount of uncertainty surrounds what happens next. The same study revealed that 43% of parents and 33% of heirs are left guessing about potential tax bills.

On the surface, inheriting a home comes with significant tax advantages designed to protect against capital gains tax — most notably, the "stepped-up basis" rule. Securing that protection often requires an accurate baseline value, whether through a date-of-death valuation or a retrospective appraisal.

By understanding how tax authorities calculate true property value, where the hidden pitfalls lie and discussing the future with your family, you can safeguard both your financial legacy and their peace of mind.

*Note: Conducted by Morning Consult on behalf of Kiplinger, this survey included more than 5,100 adults age 25 and older. All adult child respondents had at least one living parent, and all parent respondents had at least one child age 18 or older.

How the IRS values an inherited home

When passing a house to the next generation, a home's tax basis typically resets to the property's fair market value (FMV) as of the owner's date of death.

Because the baseline "steps up" to this new standard, heirs who sell the home shortly after inheriting it usually owe little to no federal capital gains tax.

However, whether heirs sell immediately, rent the property or wait years to sell, documenting the home's date-of-death value is essential to claim the stepped-up basis on future tax returns. (If an estate has a federal tax return, executors might be allowed to value the house six months after the date of death).

Unfortunately, when reporting a property's value on tax returns or estate disclosures, families can make the mistake of using one of two incorrect methods:

1. Property tax assessments. Local assessors determine values for property tax purposes, often using automated algorithms, valuation caps, or (at worst) outdated information. Because these figures are usually significantly lower than actual market value, using them might shrink your home's taxable baseline — exposing your heirs to unnecessary capital gains tax rates if they eventually sell.
2. Comparative market analyses (CMAs). A real estate agent's opinion or online estimate offers a helpful starting point for listing a home, but it lacks the formal, standardized methodology that federal tax law requires. As a result, the figure provided might not withstand IRS scrutiny.

To establish an official stepped-up basis for a property you plan to hold, rent or keep long-term, the general IRS "gold standard" requires a formal, qualified appraisal conducted by a licensed or certified real estate appraiser who specializes in retroactive "date-of-death" valuations.

What should an inherited home appraisal look like?

From the IRS point of view, a perfect appraisal occurs on the day of death. In reality, estate administration, probate and the natural grieving process mean months — or years — can elapse before anyone addresses the tax baseline.

That's where a retrospective (or retroactive) appraisal comes in.

Qualified appraisers can evaluate the home today and use historical market data, past comparable sales and public records to determine what the property was worth on a specific past date.

For the IRS to accept the report, the valuation must meet specific criteria:

• Professional credentials. A qualified appraiser with a recognized professional designation and verifiable real estate experience. The valuation must also adhere to the core principles and substance of the Uniform Standards of Professional Appraisal Practice (USPAP®).
• Detailed scope. The report should include specific important information, such as the exact valuation date, localized market comparisons leading up to that date and an analysis of the home's physical condition at the time.
• As-is condition. Reflects whether the property was pristine, outdated or in need of repair. Ideally, the home should not be renovated, repaired or staged before the appraiser documents its baseline state to ensure an accurate date-of-death valuation.

Formal inherited home appraisals typically range from $500 to $1,500 and might vary depending on such factors as area, size or property complexity, according to industry cost guides. Compared with potential tax liabilities and penalties, this can be a modest investment in protecting your estate (more on those later).

Quick sales of inherited homes

Do you always need a retrospective appraisal? No.

For heirs selling an inherited property within a six- to 12-month window in an open-market, arm’s-length transaction, the IRS and the U.S. tax court frequently accept the actual closing price as strong evidence of the date-of-death fair market value.

• This might make a separate date-of-death appraisal unnecessary for federal tax reporting, provided that local market conditions remained stable and no material alterations were made to the property during that time.
• If your heirs must file an estate tax return, tax experts generally recommend obtaining a formal retrospective appraisal to establish a stepped-up basis.
• A formal appraisal is often required to complete local probate court inventories. It could also serve as vital, objective documentation to protect the heirs if the IRS audits the tax basis or if beneficiaries dispute the asset's value.

Related: The Estate Tax Exemption Amount for 2026

The cost of an improper valuation

If the IRS audits an estate or personal tax return and finds an unverified or inflated property basis (resulting in a tax underpayment exceeding $5,000), the financial consequences for heirs can be steep.

Beyond paying back the original capital gains tax, the IRS imposes accuracy-related penalties:

• A 20% substantial valuation misstatement penalty. Applied to the tax underpayment if the reported basis is 150% or more of the actual FMV.
• A 40% gross valuation misstatement penalty. Doubled if the claimed basis is 200% or more of the true market value.
• A 20% consistency penalty. Applied automatically if a larger estate files a federal estate tax return, and an heir claims a higher basis on their individual tax return than what the estate declared.
• Compounding interest. Applied retroactively to both back taxes and penalties from the original tax filing due date.

Note on stacking: The IRS does not stack these three penalties on top of each other for the same pool of money; usually, the federal tax agency applies the single highest applicable rate (capped at 40% for a gross misstatement) plus the compounding interest.

Starting the conversation today

Discussing estate plans can feel daunting. The Kiplinger survey shows that talking about inheritance ranks among the most uncomfortable topics for both parents and heirs — more than politics and even end-of-life wishes.

But approaching the conversation thoughtfully today might help remove confusion during what will likely be an emotionally tumultuous time.

Here are a few steps to take now to ease the process of passing down an inherited home:

• Identify a certified appraiser. If your heirs plan to keep or rent the home, research reputable, state-certified appraisal firms in your area so your heirs have a trusted professional to call when the time comes.
• Organize household records. Maintain a designated folder with home improvement receipts, closing documents and property deeds. Remind heirs to keep records of appraisal fees and closing costs. These documents might help prove the home's tax basis (repairs generally do not add to the basis).
• Clarify the taxes. Many heirs incorrectly assume inheriting a house triggers an immediate, overwhelming tax bill. Explaining how the stepped-up basis works — and how you're setting them up to use it — can help them understand the financial picture more clearly.

By taking these small steps today, you do far more than shield your children from tax headaches and audit risks — you give them space to process their grief without the weight of financial uncertainty.

Estate planning is ultimately an act of care, and properly protecting your home’s value ensures your legacy remains the true gift you intended it to be.

This article does not cover state income tax and is for educational purposes only. The content does not constitute financial, legal, or tax advice. Talk to a trusted tax professional when necessary.

Read More

• About 40% of Heirs Say They Can’t Afford an Inherited Home
• How Inheritance Actually Gets Taxed: From Stepped-Up Basis to IRA Rules
• States That Won't Tax Your Death

Most investors put all their energy into picking the right investment. Almost none of them stop to calculate what they actually keep after the government takes its cut.

That's the mistake. A 15% return isn't a 15% return if you hand half of it back in taxes. The number that matters is the net-net, meaning what actually lands in your account after every layer of tax, and almost nobody runs it on their own portfolio.

I've spent two decades in private markets, and the biggest shift I watch investors go through isn't learning a new strategy. It's changing what number they look at. Once you start thinking in after-tax terms, a lot of things you were taught to chase stop making sense, and a lot of things you were taught to ignore start to make perfect sense.

This article isn't a set of moves to go execute. It's a way of thinking. The tax treatment built into different investments isn't a loophole or an aggressive play; it's a set of legal, widely used mechanisms most investors were simply never taught to look for.

The value isn't in memorizing them. It's in changing the lens through which you evaluate every opportunity.

The number nobody calculates

When you own a public stock or fund and it returns 15%, and you're a high earner, a large share of that gain can be taxed away, potentially cutting your realized return close to half depending on your income tax bracket, your state and how long you held it. You did the work of earning 15%.

You kept far less, and you probably never did the arithmetic to see it.

Now imagine the same headline return inside a structure built to be tax efficient. If some of that return arrives as long-term capital gains instead of ordinary income, or is offset by deductions that flow through to you, or comes back as return of capital rather than a taxable gain, the amount you actually keep can be dramatically higher, even when the gross return is identical.

Here's the part most people miss. Improving your after-tax return this way doesn't require taking on more investment risk. Normally, reaching for a higher return means accepting more risk — that's the basic trade every investor makes.

Tax efficiency is different. It improves what you keep by changing how the return is taxed, not by changing what you own. For someone in a high bracket, that difference can be worth the equivalent of a meaningful chunk of additional net return, without adding a single unit of risk to the underlying position.

That's the whole mindset shift. Stop asking only, "What will this return?" and start asking, "What will I keep, and how hard will I have to work to keep it?"

Short-term thinking gets taxed like a job

Think back to when fix-and-flips were the thing everyone was doing. People bragged constantly about clearing five or six figures on a single flip. What almost none of them mentioned was the tax bill or the labor.

A property you buy and sell inside a year is a short-term gain, taxed at ordinary income rates, which for a high earner can run north of 50% once you include federal and state taxes.

So, take the person bragging about a $100,000 flip and cut it roughly in half for taxes. Then divide what's left by the genuinely enormous number of hours they poured into demo, permits, contractors, financing and showings.

I used to joke that I wouldn't work that hard for two bucks an hour after taxes, and I wasn't really joking.

That's short-term thinking, and the tax code punishes it on purpose. Short holds mean frequent taxable events at the worst rates. The whole structure rewards churn and speed, and speed is exactly what gets you taxed like you're clocking in for a shift.

Long-term thinking flips the math. Assets held longer than a year can qualify for long-term capital gains treatment, which is meaningfully lower than ordinary income rates. Patience isn't just a temperament.

In the tax code, it's the difference between keeping most of your return and keeping half of it. The investor who holds for years and exits when it makes sense isn't just being disciplined — they're being taxed at a fundamentally better rate than the one flipping every few months.

Passive vs active, and why it matters more than people think

The flip example carries a second lesson that runs even deeper than the holding period. It's the difference between passive and active participation, meaning whether your money is working or you are.

An active investment is one where you supply the labor. You're the one managing the renovation, running the business, doing the work. Your return is real, but it's stapled to your hours, and it's often taxed at the least favorable rate on top of that.

You're essentially a highly paid employee of your own deal, and the government treats you like one.

A passive investment is one where you contribute capital and someone else runs the asset. You're not trading your hours for the return. And in the right structures, passive ownership is where a lot of the tax advantages actually live, because the assets that generate pass-through deductions and long-term gains tend to be ones you hold rather than ones you personally operate.

This is the shift I most want investors to sit with. Somewhere along the way, a lot of people absorbed the idea that a return only counts if they bled for it. That working harder is the same as investing better. It isn't.

The wealthiest investors I know spend very little of their own time on the assets producing their best after-tax returns. Their capital is doing the work, inside structures designed so the tax treatment works in their favor while they do something else with their life.

Whether any of that fits your situation depends on your own circumstances and the specific rules around passive activity, which is a conversation for a qualified adviser, but the mindset is available to anyone: Stop measuring an investment only by what it returns, and start measuring it by what it returns, after tax, per hour of your life it consumes.

Different assets, different tax character

Once you're thinking this way, you start to notice that no two asset types are taxed alike, and that the mix itself is worth paying attention to.

Some private assets, energy and manufacturing among them, can generate depreciation deductions, meaning the tax code lets the business deduct a large share of an asset's cost in its early years. In the right structure, that deduction can flow through to the investors rather than staying at the entity level.

Real estate carries its own version through cost segregation and bonus depreciation, which can create paper losses. Other assets deliver most of their return as long-term capital gains, and some distributions come back as return of capital, meaning your own contributed capital is handed back to you rather than a taxable gain.

You don't need to master any of that. The point is only that a thoughtful portfolio has a blended tax character, and that character is something most investors never look at because no one ever told them it was a variable they could think about.

Whether any specific deduction or treatment is usable by you depends on rules such as passive activity limitations and your own tax position, which is exactly why this merits a conversation with a professional.

How to have this conversation, and what to do if you can't

None of this works as a solo project. The real move isn't to go chase any of these structures yourself — it's to be able to have an intelligent conversation about them with someone qualified to guide you.

So, here's the conversation to have with your adviser:

• Ask them what your portfolio's after-tax return actually is, not the gross number on the statement
• Ask whether the tax character of your holdings is something they actively think about, or something they've never raised with you
• Ask how short-term vs long-term treatment is showing up in your returns, and whether any of your capital could be working passively in more tax-efficient structures instead of grinding through taxable events

Then pay attention to how they respond. An adviser who's fluent in this will meet you with real answers and better questions. An adviser who's never thought about it, or who waves it off as a detail, has just told you something important about the ceiling of the advice you're getting.

And if you don't have an adviser who can talk about any of this, that's not a dead end — it's a signal to find one. The right professional exists — they just tend to work with investors who know to ask.

Look for advisers who work with private markets and alternative assets specifically, who talk about after-tax outcomes without being prompted, and who are comfortable coordinating with your CPA or tax attorney rather than treating tax as someone else's department.

You are allowed to interview several. You are allowed to leave one who can't have this conversation. The cost of staying with an adviser who only thinks in gross returns is paid, quietly, every April.

Stop evaluating your portfolio on gross return alone. Run the net-net, the number you actually keep after every layer of tax and every hour of your own labor, because that's the number that pays for your life.

Private markets carry real tax mechanisms that can move that number, often without adding risk and without demanding your time. Whether any of them make sense for you depends entirely on your own circumstances, and that determination should always be made with qualified tax and legal counsel.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When celebrating a major moment — a big birthday, graduation, marriage — no one wants to consider the financial implications.

But it could be a costly mistake not to take some time to figure out how each life milestone could impact your life savings.

I'm not suggesting leaving the party early. But afterward, find out what, if anything, you should do as a result of having a teenager, getting married or turning another year older.

Here are 11 significant life events and financial considerations for each, coming to you from the vantage point of an experienced senior wealth adviser at Carnegie Private Wealth.

1. When your child turns 13

There's no need to throw cold water on your new teen's celebration but having a 13-year-old means that your Child and Dependent Care Credit expires on the big day.

You'll need to adjust your tax withholdings, stop using pretax Dependent Care Flexible Spending Account (DCFSA) funds for that child's care (any expenses incurred on or after the 13th birthday are ineligible) and prepare for higher out-of-pocket costs for such things as after-school care and summer camp.

Thirteen is when your child becomes eligible for teen-specific bank accounts, which is convenient, since it's also when they can start earning independent income. That's an opportunity to drive home the money lessons you've been teaching up to now.

Money in a piggy bank isn't earning interest. Money in a real bank can. If you want to get serious about saving, consider a brokerage account for your teen.

2. Graduating from high school/turning 18

This is when parents can transfer full control of custodial accounts to their (now adult) child.

At 18, you have the legal right to sign independent financial contracts, open standard bank accounts and apply for credit cards without a co-signer.

Your 18-year-old should already understand the value of saving and the slippery slope credit card debt can be. Does your young adult understand how credit cards affect their credit and the importance of paying off the balance each month?

Before they head to the bank to apply for what might look like "easy money," impress upon them what an 18% to 22% interest rate means — and that building a good credit history is going to make life a lot easier.

3. Graduating from college/starting a first job

You'll need a budget that includes an emergency fund. Saving for long-term goals is important, too, but don't lose sight of the immediate future. A flat tire, a visit to urgent care, reduced work hours or a layoff are all reasons to keep some of your savings readily accessible.

Continue building a solid credit history. If you took out student loans, paying them back should be a priority.

4. Getting married

First, have honest discussions about your current financial standing. Discuss attitudes toward debt. It's very important to sign a prenup.

Becoming a two-income household means it's time to update your budget.

• Maximize your savings
• Decide if you'll have a joint account or separate
• Determine who's paying the bills
• Start a financial organizational system so passwords and account information are safely stored but accessible to you both

Either of you should be able to step in and handle the other's financial "job" if necessary.

5. Having a baby

Along with sleepless nights, you're about to encounter sticker shock over the price of diapers, formula, baby food and everything else little humans require.

But you'll be so enamored with your baby, you'll hardly notice. Now's the time to:

• Open a 529 college savings plan
• Add Junior to your health insurance
• Consider buying life and disability insurance
• Update your will — or get one, if you haven't yet

6. Buying a first house

Time for another new budget. While you're building equity as you pay down your mortgage, you'll also want more cash on hand for the inevitable home repair — because when the HVAC goes out, there's no landlord to call.

Set aside money for maintenance and repairs so an expensive surprise doesn't have to go on a credit card.

7. Turning 50

In my experience, that's when people really start to get serious about firming up retirement planning. It's a good time to evaluate: Do I have enough? And if I don't have enough, what do I need to do to catch up? There's still plenty of time.

8. Turning 65

The Medicare birthday is a big one. You can stop worrying so much about the health insurance burden and shift your thinking to long-term care. Talk to your financial adviser about where to invest the money, you're suddenly not having to spend on health insurance premiums.

9. Turning 75

Depending on when you were born, you might already be taking required minimum distributions (RMDs) from tax-deferred retirement accounts. RMDs generally begin at 73, but the starting age rises to 75 for people born in 1960 or later.

The government eventually requires you to start taking money out of most tax-deferred retirement accounts, and those withdrawals generally count as taxable income.

Talk with your financial and tax professionals about what you're required to withdraw and what to do with money you don't need for living expenses. If charitable giving is important to you, ask whether qualified charitable distributions make sense.

Between 75 and 80 is also when seniors — and their adult children — need to think about quality of life. Community is important as we age. I believe what keeps people excited about life is having friends and something to look forward to.

Loneliness and isolation are devastating to health and well-being. If you don't have people you enjoy spending time with, all the money you set aside for retirement is going to waste.

• Try a new hobby
• Get outside
• Make time for old friends and cultivate new ones

Your longevity depends on it.

10. When you become a grandparent

If you're able to help pay for a grandchild's education, a 529 plan is often a great place to start. The money can grow tax-free, and withdrawals are generally tax-free when used for qualified education expenses.

Before you start writing checks, think about your family as a whole. If one adult child has children and another doesn't, consider whether your giving creates an imbalance you didn't intend. Fair doesn't always have to mean equal, but it should be intentional.

11. Death of parents/inheritance

Receiving an inheritance can be emotional as well as financially complicated, so resist the urge to make major decisions immediately. Start by understanding exactly what you inherited — cash, taxable investments, retirement accounts, real estate or other assets — because different assets come with different tax rules.

You'll want to work with a CPA and your financial adviser before selling, moving or withdrawing inherited assets.

For example, inherited property generally receives a new cost basis based on its fair market value at the owner's death, while many non-spouse beneficiaries of inherited retirement accounts must empty those accounts within 10 years and might have distribution requirements along the way.

Before spending an inheritance, consider how it could strengthen your own financial future.

Life's milestones are worth celebrating. Just remember that once the bubbly is gone and the cake is eaten, a little financial planning can help you focus on what matters and make the most of what comes next.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Social Security needs more money, and some Congressional lawmakers want high earners to help provide it.

Sens. Elizabeth Warren, D-Mass., and Bernie Moreno, R-Ohio, are calling for the elimination of the Social Security payroll tax cap. The proposal would require people with higher wages to pay Social Security taxes on more of what they earn.

But changing the Social Security tax cap would be more complicated than simply asking high earners to pay more taxes. Key questions Congress would have to address include how to change the cap and whether additional taxes would increase Social Security benefits for high earners.

The clock is ticking. Without major changes, the Social Security retirement and survivor trust fund is projected to run short of money as soon as 2032, according to the latest Social Security Trustees' report. That could result in an across-the-board 22% reduction in benefits. Here's more to know.

How the Social Security tax limit works

If you receive a regular paycheck, you’re likely familiar with the 6.2% Social Security tax that helps fund retirement and disability benefits for millions in the U.S., since it can shrink your take-home pay. (Self-employed workers also pay Social Security tax on their earnings.)

But you might not know that, depending on your income, the Social Security payroll tax doesn't necessarily apply to all your wages. This is known as the Social Security tax cap or tax limit.

For 2026, Social Security taxes apply to the first $184,500 you earn.

• Employees pay 6.2% on those wages, while employers pay another 6.2%.
• Once your wages reach $184,500, you stop paying the Social Security portion of the payroll tax for the rest of the year.

A worker earning $200,000 and a worker earning $1 million both pay Social Security taxes on $184,500 of wages. The worker earning $1 million doesn't pay the 6.2% Social Security tax on the remaining $815,500.

That tax limit also affects future benefits. The Social Security Administration uses your earnings history to calculate your Social Security benefit, but that calculation doesn't include earnings above the tax limit.

Essentially, the current Social Security payroll tax system caps both how much high earners pay into Social Security and how much those earnings can increase their future benefits.

The question now is: What would happen if Congress lifted that ceiling?

Proposal to eliminate the Social Security tax cap

Warren and Moreno want to eliminate the current tax limit, which would subject wages above $184,500 to the 6.2% employee Social Security tax if enacted at the current rate.

They say the change would ask the highest earners to contribute to Social Security at the same rate as other workers.

"This is a no-brainer: The wealthiest Americans, who have benefited the most from America's opportunities, should contribute the same percentage of their income as a factory worker in Chillicothe, Ohio, or a teacher in Worcester, Mass," Moreno stated in a release regarding the proposal.

• For a worker earning $1 million, that would make another $815,500 of wages subject to the Social Security tax.
• At the current 6.2% rate, that's about $50,561 more in Social Security taxes for the employee.
• The employer would generally owe another $50,561.

Warren and Moreno say the additional revenue could help protect Social Security benefits without raising the payroll tax rate for most workers (i.e., those whose wages remain below the taxable maximum).

"That one reform alone would impact about 6% of all households, the highest-earning Americans, and would protect Social Security benefits for at least two decades," Warren said in a Senate Finance Committee hearing in August.

Eliminating the Social Security tax limit would bring in substantial additional revenue, but how much it would improve the program's finances would depend, in part, on what happens to benefits for high earners.

For example, using its 2025 Trustees Report assumptions, the Social Security Administration modeled what would happen if the tax cap were removed. In one version, high earners would pay Social Security taxes on all their wages but wouldn't receive extra benefits based on the additional taxes they paid. That would close about 67% of Social Security's long-term funding gap.

But what if those extra taxes also counted toward future benefits?

• High earners would get larger Social Security checks in retirement.
• That would mean more money coming into Social Security now, but also more money going back out later.
• Under that approach, the change would close about 48% of the long-term funding gap.

In other words, the more benefits high earners get from their extra taxes, the less the tax increase would help Social Security's finances.

• The Tax Policy Center estimates that taxing all wages for Social Security would bring in about $2.5 trillion over 10 years (2026 through 2036), affecting about 6% of U.S. households.
• The Tax Foundation estimates that the change could bring in about $3.2 trillion over roughly 10 years, from 2027 through 2036. But after factoring in possible economic changes, it estimates the gain would be closer to $1.5 trillion.

*The estimates use different assumptions about how people and businesses might respond to higher payroll taxes and whether high earners would get bigger Social Security benefits in return for paying more.

Either way, the analyses show that eliminating the tax cap could bring more money into Social Security. But such a measure wouldn't be enough to fix the program's long-term money problems on its own.

Impact on high earners?

For most workers, eliminating the Social Security tax cap wouldn't change their paychecks. The proposed change would affect workers who earn more than the 2026 tax limit of $184,500.

At the current 6.2% tax rate, here's what such a tax change might look like for high earners:

• $200,000 salary: About $961 more in Social Security taxes each year
• $500,000 salary: About $19,561 more each year
• $1 million salary: About $50,561 more each year

Employers also pay a 6.2% Social Security tax, so their payroll taxes would also increase on those additional wages.

Note: Such a change would apply to wages, not all income. For example, capital gains and dividends generally aren't subject to the Social Security payroll tax. Two people with the same total income could see different impacts depending on how they earn their money. The above examples are for educational purposes only and are not based on existing law.

The proposal raises another important question: Would high earners get more Social Security benefits because they're paying taxes on more of their wages?

That matters because it could reduce how much the tax change helps Social Security. Giving high earners higher benefits would mean more money going back out of the program later.

The Social Security Administration estimates that eliminating the tax cap without giving high earners extra benefits would close about 67% of the program's projected long-term funding gap. If those newly taxed earnings also counted toward future benefits, the improvement would be about 48%.

Social Security solvency: Bottom line

For now, the Warren-Moreno approach remains a proposal. While eliminating the taxable maximum isn't a novel idea, the latest push is noteworthy since Social Security's financial outlook is top of mind for many lawmakers, workers and retirees.

Whether Congress takes this idea further, or pursues other proposals such as a flat-rate Social Security cost-of-living adjustment (COLA) or adding a new tax on net investment income above $400,000 in addition to eliminating the Social Security tax cap remains to be seen.

In the meantime, the SSA is expected to announce the 2027 Social Security tax limit in mid-October. That number will determine how much of a worker's wages are subject to the 6.2% Social Security tax next year. Stay tuned.

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Fifteen years ago, Ray and Diane Kessler's investment manager recommended a chip company she was following. They bought 125 shares of Nvidia for about $1,500, mostly to be agreeable, and then forgot about it. Two stock splits later, they hold 5,000 shares worth roughly $1 million. Their cost basis is still $1,500.

Ray is 65 and Diane is 63. Both are working and earning well, but they plan to retire soon. They live in California, and they are uneasy about how much of their portfolio rides on one stock. So they asked their adviser how to diversify out of it without losing a third of the value in capital gains tax.

She told them what most advisers would. A large gain can be trimmed at the edges, harvested against losses or spread across tax years, but each leaves you still owning the gain. Only two things eliminate it: Hold the asset until you die, so your heirs inherit it with a stepped-up basis, or give the asset to charity.

Neither one fit. Waiting decades for the step-up meant holding one undiversified position, and giving away a million dollars was not an option. So: Sell, pay the tax, reinvest the rest.

What nobody asked was how long the Kesslers were likely to live.

The IRS thinks you're average

There is a third option. You transfer the shares into an irrevocable trust, called a charitable remainder unitrust (CRUT), and the trust sells them. Because the trust is tax-exempt, no capital gains tax is due on the sale, so the whole amount stays invested and diversified at once.

The trust then pays you a set percentage of its value, recalculated each year, for life, for both lives or for a term of years. Whatever remains goes to the charity you named, and you take an income tax deduction up front for the calculated value of that future gift.

The IRS determines that gift value on the day of funding, using actuarial tables built from census data, currently Table 2010CM. Those tables describe the general population.

But the people who fund these trusts, like the Kesslers, are affluent, insured and longer-lived than average. Insurance companies know this and price annuities off a separate annuitant table.

The IRS assumes you will live as long as the average American. If you live longer than that, the trust runs longer than the deduction was calculated for, and every extra year compounds.

Why the mismatch pays

Both the deduction and your maximum payout are fixed on the day of funding. The trust runs on your actual life.

If the Kesslers sell, they realize a $998,500 gain and pay 33.1% in combined federal and California tax, leaving $669,496 to reinvest. In a CRUT, the full $1 million stays invested. At a 6% payout, that is $60,000 in the first year against $40,170 from an equal draw on the reinvested proceeds.

The trust doesn't make the tax disappear. The payments are taxable, and in year one both paths deliver similar after-tax spending money. What differs is that the tax is spread across decades while a larger base compounds.

Better than what, exactly?

A trust isn't good or bad on its own, only better or worse than what you would otherwise have done. There are three realistic alternatives:

• Sell and reinvest. Pay the tax now, rebuild in a diversified portfolio.
• Hold and leave it. Keep the stock, live on other money, pass it to the children with a stepped-up basis.
• Hold and live on it. Keep the stock and draw the same 6% from it.

In research published in the August 2026 Journal of Financial Planning, I tested a trust against all three, simulating 10,000 market futures and running the same family down both paths in each one. A "win" means the family finished that future with more spendable wealth, in today's dollars, from the trust. So a 66% win rate doesn't mean 66% more money. It means the trust came out ahead in about two thirds of the futures tested.

What longevity does to the numbers

The third alternative is the hardest for the trust to beat: It pays identical income and still passes a stepped-up estate to the children. Under IRS life expectancy, a couple aged 63 and 65 beats it with a trust 28.2% of the time.

However, give that couple seven more years and the number is 96.4%.

No other variable came close. The deduction was locked at the start on an average life. The years the trust actually ran were not.

Where this doesn't work

All of this assumes you have no charitable motive and are measuring nothing but dollars. If you do want to give, any asset at any basis will do.

For everyone else, basis moves the answer more than longevity does. The trust beats all three alternatives when basis is under roughly 11% of current value and loses to all three above 25%. Long life improves those odds without reversing them. The Kesslers sit at 0.15%.

Across 500 randomly drawn household situations, varying age, basis, payout and home state, the trust was the better choice in about a third of them. That is not a coin you have to call blind. Every one of those variables is knowable before anything is signed.

The up-front deduction is what most people ask about first, and it matters least. Tax legislation in 2026 added a 0.5%-of-AGI floor and capped top-bracket filers at 35 cents per dollar. Over a long trust, the tax on the payments takes back much of what the deduction gives.

Outcome

The Kesslers funded a two-life trust in November, with the full million still invested. Buy an annuity and the insurer prices your health. Fund a CRUT and the government prices it off a table that assumes you are average. Few advisers will raise it on their own, because it is filed under charity. Ask.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Roth conversions get a lot of enthusiastic press, and most of it is deserved. Moving money from a traditional IRA into a Roth can reshape your tax picture for decades and ease the required minimum distribution burden later in retirement.

But somewhere along the way, "conversions can be smart" curdled into "conversions are always smart," and that's where I start to worry.

A Roth conversion is a tool, not a virtue. There are specific situations where they're the wrong move — and sometimes an expensive one. Knowing when to hold off is just as valuable as knowing when to act.

Here are five times a Roth conversion usually doesn't make sense.

1. You're in a high-income year

The entire logic of a conversion rests on paying tax now, at today's rate, to avoid tax later. That only works in your favor if today's rate is lower than the rate you expect to face down the road.

Convert during a peak earning year, when your income is already pushing the top of a bracket, and you're doing the opposite: Paying tax at one of the highest rates you'll ever see.

If you're still working and at the height of your career, or you had an unusually large income event this year, that's generally the worst possible time to stack a conversion on top.

The better move is often to wait for a lower-income year, which for many people arrives after they stop working but before required minimum distributions begin at age 73.

2. You'd have to use the IRA itself to pay the tax

This one is a quiet deal-breaker that people miss. A conversion works far better when you can pay the resulting tax bill from outside funds in a taxable brokerage or savings account.

If the only way to cover the tax is to pull extra from the IRA you're converting, you erode the whole benefit. You're shrinking the amount that actually makes it into the Roth, and if you are under 59½, the portion withheld for taxes could itself trigger a penalty.

Picture converting $100,000 and needing roughly a quarter of it to pay the tax. If that quarter comes out of the IRA rather than a separate account, only three-quarters of the money reaches the Roth, and you've lost years of potential growth that qualified Roth withdrawals would have delivered tax-free.

When there's no outside cash to pay the tax, a conversion frequently doesn't make sense. The answer is to wait until you have the liquidity to do it right, or to convert a smaller amount you can actually afford to cover.

3. You expect your tax rate to fall in retirement

Not everyone faces higher taxes later. Plenty of people will drop into a lower bracket once the paychecks stop, especially if they don't have enormous traditional balances generating large future RMDs.

If you genuinely expect your retirement tax rate to be lower than it is today, converting now means voluntarily paying a higher rate to avoid a lower one. That is backward. The conversion crowd sometimes assumes everyone's taxes are headed up, but that is an assumption, not a fact, and it deserves to be tested against your actual projected income.

For some people, simply taking ordinary distributions in retirement at a modest rate beats prepaying tax today. The only way to know is to project your retirement income honestly, including Social Security and any pension, rather than assuming the worst about future rates.

4. The money will pass to heirs who get a step-up anyway

Estate considerations can flip the entire calculation. Consider someone late in life with a serious health situation, whose assets are likely to pass to heirs before long.

Traditional IRA dollars left to heirs are taxed as those heirs withdraw them, which is a real consideration. But other assets, like appreciated stock in a taxable account, generally receive a step-up in cost basis at death, which can wipe out the embedded capital gains for the heirs.

In a case like that, spending energy and tax dollars converting a traditional IRA may make less sense than simply leaving the accounts as they are and letting the estate planning rules do the work.

This is exactly the kind of situation where a reflexive "always convert" instinct can cost a family money rather than save it. It is worth coordinating with an estate planning attorney before acting.

5. State taxes erase the federal benefit

Federal brackets get all the attention, but your state often wants a cut of a conversion, too. If you live in a high-tax state today and realistically plan to retire somewhere with low or no income tax, converting now can mean paying state tax you could have sidestepped entirely by simply waiting until after you move.

The federal math might look fine in isolation, but once you layer your current state's tax on top of the conversion, the case can fall apart.

The decision and your geography are tied together, and analyzing the conversion without your specific state in the picture can lead you somewhere you wouldn't choose if you saw the full bill.

The pattern worth noticing

Look at these five situations and a theme emerges. A Roth conversion isn't good or bad on its own. It's good or bad relative to your specific circumstances:

• Your current bracket vs your expected future bracket
• Whether you have outside cash to pay the tax
• Your estate plans
• Your state

Strip away those specifics and "always convert" is just a slogan. What makes the slogan dangerous is that it sounds responsible. It carries the glow of disciplined, forward-thinking planning, which is exactly why people follow it without checking whether it fits their own numbers.

I'm not arguing against conversions. Used in the right years, with the tax paid from the right place, they remain one of the more useful planning tools available to people heading into retirement.

I am arguing against treating them as automatic. The same move that helps one person in a low-income gap year can hurt another who is at peak earnings, short on outside cash or about to relocate to a no-tax state.

Before you convert, the honest question isn't "Should everyone do this?" It's "Does this make sense for me, this year, given everything else?"

Sometimes the answer is an enthusiastic yes. Sometimes the most valuable thing a conversion analysis produces is the decision to wait.

Both are wins, and knowing the difference is what separates a real strategy from a popular one.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for five years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Related Content

• Do You Know Why a Roth Conversion Isn't Right for Everybody? Test Your Knowledge With This Quiz
• Why a Roth Conversion Is Wrong for Most People But Often Right for Pension Holders
• Timing Is Everything for Roth Conversions: An Expert's Guide to the Right Strategy
• How to Coordinate Claiming Social Security With Your Tax Bracket
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week in our Ask the Tax Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers on investments, including one on the definition of qualified dividends. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Qualified dividends

Question: I know that qualified dividends are taxed at the same rate as long-term capital gains. But what are qualified dividends?

Joy Taylor: Qualified dividends are dividends paid by U.S. corporations and certain foreign corporations. And there is a holding period rule. The taxpayer must own the stock for over 60 days during a 121-day period that began 60 days before the ex-dividend date. Note that dividends received from investments in real estate investment trusts, or REITs, generally aren't treated as qualified dividends.

A foreign corporation must meet one of three requirements for its dividends to be treated as qualified dividends. It must be incorporated in a U.S. possession. It must be eligible for benefits under a tax treaty with the U.S. that has an exchange-of-information section. Or its stock must be readily tradable in the U.S.

Qualified dividends are taxed at long-term capital gains rates of 0%, 15% or 20% (plus the 3.8% net investment income tax for upper-income individuals). Dividends that are not qualified dividends are subject to tax at the regular income tax rates for ordinary income.

2. Sale of a rental home

Question: I am married and own a rental home, which I bought for investment. I plan to sell later this year. Do I qualify for the $500,000 capital gains exclusion when I sell?

Joy Taylor: Unfortunately, no. The gain exclusion you are referring to applies only to sales of principal residences, meaning you live in the home.

Generally, if you have owned and lived in your main home for at least two out of the five years before the sale date, up to $250,000 ($500,000 for joint filers) of your gain when you sell the home is tax-free. Any gain above the $250,000/$500,000 exclusion amount is taxed at long-term capital gains rates of 0%, 15% or 20%, depending on the amount of your taxable income, plus the 3.8% net investment income tax for people with higher incomes.

Since you hold rental property, the gain or loss when you sell is generally characterized as a capital gain or loss. If the property was held for more than one year, it's a long-term capital gain or loss, and if held for one year or less, it's a short-term capital gain or loss.

The gain or loss is the difference between the amount realized on the sale and your tax basis in the property.

The capital gain will generally be taxed at 0%, 15% or 20%, plus the 3.8% net investment income tax for people with higher incomes. However, a special rule applies to gain on the sale of rental property for which you took depreciation deductions. When depreciable real property held for more than one year is sold at a gain, the federal tax law requires that previously deducted depreciation be recaptured into income and taxed at a top rate of 25%. This is known as unrecaptured Section 1250 gain, the number of its federal tax code section.

3. Net investment income tax

Question: When I filed my 2025 Form 1040, I had to pay the net investment income tax for the first time. What is this?

Joy Taylor: The 3.8% net investment income (NII) tax was enacted more than 10 years ago under the Affordable Care Act. It applies to single filers with modified adjusted gross income (AGI) over $200,000, joint filers with modified AGI over $250,000, and married people filing separately with modified AGI above $125,000. For this purpose, modified AGI is defined as AGI plus tax-free foreign-earned income.

The NII tax, which is added to the regular income tax, is due on the lesser of NII or the excess of modified AGI over the $200,000/$250,000/$125,000 thresholds. Investment income of trusts and estates can also be hit with the 3.8% NII tax if their 2026 AGI exceeds $16,000 and they have undistributed net investment income.

NII includes what is commonly thought of as investment income: Dividends, capital gains, taxable interest, annuities, royalties and passive rental income. Trade or business income derived through a passive activity is also NII, provided that the business income isn’t otherwise subject to self-employment tax.

Unlike many of the federal income tax breaks and income phaseout levels, the individual income levels for the 3.8% NII tax aren’t indexed to inflation each year. The $125,000, $200,000 and $250,000 modified AGI thresholds have stayed stagnant since the tax first took effect in 2013, despite the high growth in wages, income, and gains from sales of real estate and other investment assets. As a result, more filers are paying this tax each year.

4. Mutual funds

Question: I invest in a taxable mutual fund. Each year, the fund sends me Form 1099-DIV, reporting capital gains distributions, which I include on my Form 1040. When I sell my mutual fund shares, I will have to pay capital gains tax on the appreciation in my shares from the purchase date to the sale date. Isn't this double taxation?

Joy Taylor: When the fund sells stock within your portfolio, you are taxed on your share of the capital gains from that sale, but the fund manager then reinvests those gains to buy more shares in the fund for you, thus increasing your tax basis in your fund shares. So when you sell your mutual fund shares, you might have capital gains, but you have a higher tax basis because of the previously reinvested capital gains. Thus, your capital gain when you sell your fund shares is lower.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Estimated Tax Payments and Withholding
• Ask the Editor: Questions on Selling a Home
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Tax Rules for Landlords

For Generation X, those born from 1965 to 1980, retirement looks vastly different from what it did for many of their parents and grandparents.

As traditional pensions phased out, more responsibility for saving and investing shifted to individual workers. Instead of relying on one predictable source of retirement income, many have had to piece together their own retirement nest eggs across 401(k)s, IRAs, Roth accounts, health savings accounts (HSAs) and other investments.

For the generation nestled between baby boomers and Millennials, saving for retirement isn’t the only priority.

According to the Pew Research Center, 54% of adults ages 40 to 49 and 45% of those ages 50 to 59 fall into the "sandwich generation," meaning they have a living parent age 65 or older and either a minor child or an adult child they are financially supporting or have supported.

Managing that dual financial obligation moves retirement planning out of standard blueprint territory and into a situation in which you're essentially building a custom plan. That plan must balance caregiving expenses with your own future savings and navigate income limits, IRS rules and other potential trade-offs.

Knowing which tax credits, deductions, and strategies might apply can help. Here are seven worth thinking about.

Retirement savings tax breaks and strategies for Gen Xers

The following strategies are presented for educational purposes only. Every person's financial situation is different. It's good to consult a trusted tax professional or financial adviser who knows your circumstances, particularly if you're unsure or have questions about the best tax strategies for you.

1. Caring for an aging parent? You might be able to claim them as a dependent

If you’re helping support an aging parent, you already know how quickly caregiving costs can add up. What you might not know is that some caregivers might be able to claim a parent as a dependent.

Generally, to claim a parent as a dependent on your return, the parent must meet several IRS requirements (including gross income below $5,300 for 2026), and you must provide more than half of their total support.

Other requirements apply, particularly when siblings share expenses or caregiving responsibilities.

If your parent qualifies as your dependent, certain medical expenses you pay on their behalf might also be eligible for the medical expense deduction if you itemize and meet the applicable IRS requirements.

2. Don’t overlook the Child and Dependent Care Credit

If you’re helping support an aging parent while also paying for childcare, those expenses can put added pressure on your budget.

The Child and Dependent Care Credit can help eligible taxpayers offset some of those costs. This non-refundable tax credit is designed to offset a portion of the costs associated with childcare for dependents while the parent or guardian is working, looking for work or attending school.

• For tax year 2026 (returns you typically file in early 2027), the credit allows for a maximum of $3,000 in qualifying expenses for care related to one qualifying individual.
• If your household has two or more qualifying individuals, this cap increases to $6,000.
• The credit is applied at a maximum rate of 50%, but the exact percentage depends on your adjusted gross income (AGI).

For a Gen X household already balancing caregiving costs with retirement savings, exploring the specifics of this credit to see if you can benefit might be worthwhile.

3. Put your health savings account (HSA) tax advantages to work

An HSA might start as a way to pay for medical bills, but it can also play a role in longer-term planning. For eligible taxpayers, HSAs offer a combination of tax advantages that can make them useful well beyond current healthcare expenses.

Contributions can be deductible, money in the account can grow tax-free, and withdrawals for qualified medical expenses are tax-free.

• For 2026, the HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage.
• Eligibility requires an HSA-qualified high-deductible health plan (HDHP), although 2026 rules also provide for certain bronze and catastrophic plans to be treated as HSA-compatible.

For example, someone who makes the full $8,750 family contribution and can deduct the entire amount while in the 24% federal marginal tax bracket could reduce federal income tax by approximately $2,100.

That combination can make an HSA another piece of the retirement puzzle, particularly for Gen Xers who expect health care costs to remain an integral part of their financial picture later in life. But keep in mind that HSAs aren't right for everyone.

4. Once you get a 401(k) match, ask where the next dollar goes

Getting your full employer retirement plan match is an important part of retirement saving, but what happens after that? The answer isn’t necessarily to put every additional dollar into the same account.

• For 2026, employees can contribute up to $24,500 to a 401(k), 403(b), governmental 457 plan, or federal Thrift Savings Plan.
• Workers age 50 and older can contribute an additional $8,000, while those who turn 60 through 63 during 2026 have a higher "super catch-up" limit of $11,250.

Once you’ve met your match, there’s another question worth asking: ‘Where should my next dollar go?’

A traditional 401(k), Roth account, HSA and taxable investment account each have different tax implications, so the right choice can depend on your income, tax bracket, employer plan and expectations for your future retirement income.

The advantage of an à la carte approach is the flexibility to choose the pieces that make the most sense for your situation. You don’t have to put everything in one place. You can build a plan that works for you.

5. Your retirement savings could earn you a Saver's Credit tax break

Saving for retirement can help you build a nest egg, and for some taxpayers, the contribution itself can also qualify for a tax credit.

The Saver’s Credit, officially called the Retirement Savings Contributions Credit, is available to certain taxpayers who contribute to an IRA or employer-sponsored retirement plan.

• For 2026, the credit can be worth 10%, 20%, or 50% of eligible contributions, depending on adjusted gross income and filing status.
• Up to $2,000 of contributions per person can be used to calculate the credit, making the maximum credit $1,000 for an individual or $2,000 for a married couple filing jointly.

For 2026, the credit is available to taxpayers with an AGI below $40,250 for single filers, $60,375 for heads of household, and $80,500 for married couples filing jointly.

The credit is nonrefundable, meaning it can reduce the federal income tax you owe, but you won’t receive a refund for any amount that exceeds your tax liability.

If you’re already contributing to a retirement account, check whether you might qualify for the credit. Just keep in mind that beginning with contributions for 2027, the Saver’s Credit will be replaced by the Saver’s Match.

6. Make the most of your charitable giving in 2026

Charitable giving can offer tax benefits, but the rules depend on how you give.

Beginning in 2026, taxpayers who take the standard deduction can also deduct up to $1,000 in qualifying cash contributions to eligible organizations, or $2,000 for married couples filing jointly, subject to the applicable rules.

For taxpayers who itemize deductions, 2026 also brings a new 0.5% of AGI floor for charitable deductions.

For people making larger charitable gifts, more specialized strategies, such as charitable gift annuities, might also be worth exploring.

A charitable gift annuity can provide a stream of income in exchange for a charitable contribution, although the tax treatment depends on the gift's structure and the donor’s circumstances.

How you give might be as important as how much you give.

7. Retirement isn't just what you save; it’s what you get to keep

Your retirement account balance tells only part of the story. What matters is how much of it you ultimately get to keep.

A dollar in a traditional retirement account can have a different after-tax value from a dollar in a Roth account or a taxable investment account.

Traditional retirement accounts provide a tax benefit today in exchange for paying ordinary income taxes on withdrawals later. Roth accounts work differently. Given that contributions are made with after-tax dollars, qualified withdrawals are generally tax-free.

For Gen Xers who are still years from retirement, that difference matters. You don’t need to predict exactly what tax rates will look like decades from now. You just don’t want all your future retirement income sitting in the same tax bucket.

Strategically saving and earmarking money across differently structured accounts can give you more control of your money in retirement. You might be able to choose where to draw income based on your circumstances and tax situation at the time, including how much taxable income to recognize each year.

That’s why tax planning shouldn’t stop once you’ve decided how much to save. It should be part of the retirement plan itself.

Related

• Gen X, Boomers, Millennials, or Gen Z: Which Generation Pays the Most Taxes?
• New 2026 Tax Change Could Mean More for Your IRA and 401(k) Savings
• A Bunch of IRS Tax Deductions and Credits You Need to Know
• 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)

Every year, millions of taxpayers look at the latest federal income-tax brackets and rates to see where their income falls and how much they might owe the IRS. For the longest time, there have been seven brackets, each with its own marginal tax rate.

But what if there were twice as many brackets?

That’s the crux of a recent proposal from the Roosevelt Institute. Tax policy fellow Samarth Gupta looks at the growing gap between the richest Americans and everyone else and asks whether the U.S. tax code should do more to close it. Gupta's proposition: Double the current number of federal tax brackets to 14.

Under his analysis, that would mean adding seven new brackets for the nation’s highest earners. Why? Here’s more to know.

The case for more tax brackets

The federal tax system is currently divided into seven income tax brackets, with marginal rates ranging from 10% to 37%. But taxpayers don't pay the top rate on all of their income. Instead, different portions of taxable income fall into different brackets and are taxed at their corresponding rates.

For 2026, single filers are taxed at the top 37% rate only on taxable income above $640,600. For married couples filing jointly, the 37% rate applies to taxable income above $768,700.

However, once a single taxpayer’s taxable income exceeds $640,600, for example, every additional dollar is taxed at the same 37% marginal rate, whether that person earns $700,000 or several million dollars.

That’s what spurs the argument for adding more brackets at the top: As income rises beyond the current 37% threshold, the tax rate doesn’t increase.

Note: Gupta's paper builds its 14-bracket model off the base 2024/2025 tax bracket thresholds. In Gupta’s proposed schedule, the existing 37% top bracket threshold starts at $626,351 for single filers and $751,600 for joint filers.

Adding additional brackets could create more steps at higher income levels, so taxpayers with substantially higher incomes would face higher marginal rates on dollars earned above those thresholds.

It's worth noting here that the notion of more federal tax brackets isn't new. As Gupta explains in his paper, the federal tax code has had more than seven brackets in the past.

• In 1916, for example, there were 14 brackets, and the number eventually reached 56.
• From 1916 through 1986, the U.S. averaged more than 27 federal income-tax brackets a year.
• The bipartisan Tax Reform Act of 1986 (signed into law by then president Ronald Reagan) essentially reduced the number of individual income tax brackets from 15 to 2 and lowered the top individual marginal tax rate from 50% to 28%.

More brackets aren't unprecedented in the U.S. tax system, but what's different about this proposal is placing the additional brackets at the top of the income scale.

14-tax bracket proposal: Who would see higher rates?

Gupta suggests keeping the existing seven brackets and adding seven more, beginning at $900,000 of taxable income for single filers. In both versions described in the paper, the additional brackets would apply only to very high levels of taxable income, so most taxpayers wouldn't be affected.

• One version would raise the marginal rate gradually from 38% at $900,000 to 50% at $10 million. (Under that scenario, the additional rates would be 40% at $1.4 million, 42% at $2 million and 44% at $3 million, with higher rates continuing from there.)
• A second version would start with a 40% marginal rate at $900,000 and eventually reach 70% at $10 million. (The rates would rise to 50% at $3 million, 55% at $4.5 million, and 62% at $6.8 million.)

Note: These are illustrative scenarios, not legislatively proposed changes to the tax code. No bill currently before Congress would create these specific brackets and rates.

Gupta's analysis uses IRS data to show that incomes vary dramatically even among the nation’s highest earners, from hundreds of thousands of dollars a year to tens of millions. Yet once taxpayers reach the top bracket, the marginal tax rate stays at 37%, even as their incomes climb into the millions. Hence the suggestion that more brackets would let tax rates rise as income increases.

Could more brackets mean more revenue?

According to Gupta, adding more federal tax brackets wouldn't necessarily make filing a tax return more complicated. (Much of the complexity taxpayers deal with during tax season comes from the many tax deductions, credits, exclusions, phaseouts and other IRS rules that determine taxable income.)

But higher marginal rates can affect how taxpayers manage their finances. The analysis notes that with more brackets, some taxpayers could shift earnings into capital gains or other forms of compensation that might receive different tax treatment.

As a result, adding more tax brackets wouldn't, by itself, solve the income inequality problem in the United States. Gupta argues that changes to individual tax rates must be paired with broader reforms involving capital gains taxes, corporate taxes and other parts of the tax code.

• Gupta also presents the 14-bracket approach as one way to generate additional revenue as the federal government faces growing fiscal pressure.
• With the U.S. national debt hitting $40 trillion, he argues that adding targeted tax-rate steps at the top could raise revenue without increasing taxes on middle-income taxpayers.

However, the analysis doesn't offer a single dollar figure for how much revenue the 14-bracket proposal could raise. The total would depend on the final tax rates, income thresholds and how top earners respond.

The seven tax brackets: Bottom line

It's true that none of this changes anyone’s tax bill. The proposal is a policy recommendation, not a legislative proposal. But it raises interesting questions as lawmakers grapple with rising wealth inequality, national debt, and affordability concerns.

For now, the seven existing federal tax brackets and marginal rates will apply to your 2026 taxes. Remember: Moving into a higher bracket doesn't mean all your income is taxed at that rate. Only the portion that falls within that bracket is taxed at the higher rate.

Some good news? Federal brackets are adjusted annually for inflation, and the IRS will announce the new 2027 thresholds soon. Stay tuned.

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Inheriting an investment portfolio can feel like receiving a windfall. The tricky part is that the dollar value you see on the account statement isn't necessarily the amount you'll get to keep.

"A million dollars of inherited assets is not necessarily a million dollars of equivalent economic value," says David Simkowitz, founder and CEO of SimkowitzCo. "The type of account, tax basis, embedded tax liability and future income taxation all matter."

Taxes can take a bite out of sale proceeds. Inherited retirement accounts might come with distribution requirements that incur penalties if they're missed. The investments themselves could carry high fees or risks that don't make sense for your situation. Sorting it all out might require paying for tax, legal or financial advice.

Understanding these hidden costs of inheriting an investment portfolio before you start making changes can go a long way toward preserving more of the wealth you've received.

The tax bill might come later

Inheriting property generally isn't a taxable event, but that doesn't mean it's tax-free forever.

"For most individuals, it's not the inheritance that triggers a tax bill but the sale or distribution" of the assets you inherited, says Erin Wood, senior vice president of advanced planning at AssetMark.

There's plenty of confusion around that distinction. A 2026 Morning Consult survey commissioned by Kiplinger found that one-third of adult children are unsure if they'd owe taxes on an inheritance.

The actual tax consequences will depend on what you inherited and the type of account it was held in. Many taxable investments receive a step-up in cost basis to the fair market value on the date of death. The cost basis is the starting value the IRS uses to determine your gain or loss when you sell an asset.

With a stepped-up basis, "any unrealized capital gains accumulated during the decedent's lifetime are generally wiped away," says Tara Thompson Popernik, executive vice president of wealth planning at LPL Financial.

But make sure the correct basis is reflected in your brokerage account records before you sell. Popernik recalls one beneficiary who failed to correct the cost properly before selling and received a tax form reflecting significant gains that required help from a CPA to correct.

Income-producing investments can create other surprises. For example, interest earned on taxable bonds you inherit is generally taxable income. If you previously only earned W-2 income, you "may now need to make estimated tax payments to cover the earnings from an inherited portfolio," Popernik says.

Other assets present their own tax wrinkles. Wood points to non-qualified annuities, where accumulated income may pass directly to the beneficiary rather than disappearing through a stepped-up basis. She also notes that state inheritance taxes can apply.

Retirement accounts can carry costly deadlines

Inherited retirement accounts are a different animal entirely. Traditional IRAs, for example, can contain money that hasn't yet been taxed. Many nonspouse beneficiaries are required to fully distribute an inherited IRA within 10 years of inheriting. Along the way, required minimum distributions (RMDs) might also apply.

"Missing an RMD on an inherited IRA is sometimes the biggest surprise, particularly because of the associated penalty," says Justyn Volesko, partner and co-head of the Cerity Partners Family Office.

You could face a 25% excise tax on the amount that should have been withdrawn, although that can drop to 10% if the shortfall is corrected promptly enough.

The moral of the story isn't that you should race to empty all inherited retirement accounts. Rather, you want to be aware of which rules and deadlines apply so you can act accordingly.

Fees and professional costs can add up

Unfortunately, taxes and penalties aren't the only expenses that can quietly eat into your inheritance. The investments themselves may also be expensive.

"I have seen inherited portfolios in mutual funds with high expense ratios that are easy to miss," Volesko says. The adviser managing the portfolio might also be charging a fee.

Then there are the costs of sorting out the inheritance itself. You could end up paying for legal or tax advice, investment management or even estate valuation work. Those bills can sting, but trying to avoid every professional fee can also backfire.

"I would distinguish between a professional cost and a professional value," Simkowitz says. "Paying for coordinated tax, legal and financial advice can sometimes prevent a beneficiary from making a much more expensive mistake."

Make sure the professionals you work with aren't operating in isolation. "An inheritance should be treated as a coordinated planning event, not simply an asset-transfer event," Simkowitz says.

Doing nothing can cost you, too

This last hidden cost might be the sneakiest of all: The cost of holding onto a portfolio designed for someone else.

There can be an inclination to keep an inherited portfolio intact to honor the person who bequeathed it to you, "but keeping a portfolio unchanged is itself an investment decision," Simkowitz says.

The person you're inheriting from may have had a different timeline, risk tolerance or financial goals. "A portfolio designed for an older investor who prioritized income may not be appropriate for a younger beneficiary focused on long-term growth," Popernik says.

The portfolio might also have concentrated stock positions, especially if your benefactor spent decades building a business or accumulating shares of a single company. "What represented wealth creation for one generation can represent unnecessary concentration risk for the next," Simkowitz says.

This doesn't mean you need to sell Grandma's favorite stock on day one, but each holding should be evaluated based on its own merits.

"I would encourage beneficiaries not to ask only, 'What did I inherit?' but also, 'Why do I still own it?' " Simkowitz says.

More Trillion Dollar Talk

• The Best Stocks to Gift Your Grandchildren
• Critical Questions to Ask a Financial Adviser About an Inherited Stock Portfolio
• I'm a Retirement Editor, But My Parents' Estate Tripped Me Up with a Snake, a Gun and a Mystery Box

For decades, the 60/40 portfolio has been one of the most familiar approaches to investing: Roughly 60% in stocks for growth and 40% in bonds for income and stability.

There's a reason that framework has lasted. Stocks and bonds remain important building blocks for many investors.

But today, investors have more choices than they did a generation ago.

High-net-worth investors, family offices and advisers increasingly have access to private credit, real estate, private equity, infrastructure and direct energy investments that can provide exposure to assets and economic drivers outside the traditional public markets.

That doesn't mean the 60/40 portfolio has stopped working.

It means investors now have the opportunity to ask a broader question: What other assets may complement it?

Diversification: What drives the investment?

Owning multiple funds doesn't always mean a portfolio is truly diversified.

Stocks and bonds can respond to many of the same forces, including interest rates, inflation, economic expectations and broader market sentiment. In 2022, for example, investors were reminded that stocks and bonds can decline at the same time.

That's why I believe diversification should be viewed not simply in terms of how many investments someone owns, but in terms of what actually drives their value.

Alternative investments can introduce different sources of potential return.

Real estate may be driven by rents and property values. Private credit may be driven by contractual interest payments. Infrastructure may benefit from long-term demand for essential services.

Direct oil and gas investments can be tied to something different again: The development, production and sale of energy.

Where direct oil and gas can fit

I've spent most of my career in oil and gas, and one of the things I believe investors should understand is how different direct energy ownership can be from simply purchasing shares of a publicly traded energy company.

A public oil and gas stock is still a stock. Its price can be influenced by the broader market, investor sentiment, analyst expectations, interest rates and company-specific events.

A direct oil and gas investment can provide exposure much closer to the underlying assets themselves.

Depending on the structure, investor capital may be used to acquire acreage, drill and complete wells, bring production online and develop reserves.

That distinction matters.

When an operator deploys capital into drilling, the goal is to turn dollars invested today into producing energy assets tomorrow.

A successful well can potentially create several layers of value, including current or future oil and natural gas production, potential monthly cash flow, additional proved or undeveloped reserves, potential value from continued development and potential value if producing assets are ultimately sold or otherwise monetized.

That's one reason I believe direct energy deserves a place in the broader diversification conversation.

Instead of investing solely in financial instruments, investors can potentially participate in the development of tangible assets producing commodities the global economy uses every day.

Capital goes to work in the ground

This is an important distinction in the way I think about oil and gas investing.

When we raise capital for a drilling program, the objective is not simply to hold acreage and hope it appreciates.

The capital has a job. It can be deployed to drill wells, complete wells and move assets from undeveloped potential toward production. Each stage can potentially add information and value to the asset.

Before a well is drilled, much of its value may be based on geology, engineering and nearby production. Once it is drilled and completed, the operator has additional data. Once it begins producing, there is another layer of information: Actual production performance.

That production history can help engineers evaluate reserves and can give lenders, potential buyers and other market participants more information with which to assess the asset. In other words, drilling can be a value-creation process, not simply an expense.

That's the model I find particularly compelling: Putting capital to work with the objective of creating producing assets and building value through development.

Energy demand isn't theoretical

There's also a fundamental reason oil and gas remains relevant. The world continues to require enormous amounts of energy.

Transportation, manufacturing, agriculture, petrochemicals, electricity generation, data centers and countless parts of the modern economy depend on reliable energy supplies.

At the same time, oil and gas production is naturally depleting. Existing wells decline, which means new capital and new drilling are continually required simply to replace lost production. That creates an interesting dynamic for investors.

Energy is both an essential commodity and a capital-intensive business. The industry needs investment to find, develop and produce the resources the economy continues to consume.

For investors who understand the risks and have the appropriate time horizon, participating directly in that development can provide exposure to a very different part of the economy than a traditional stock-and-bond portfolio.

The tax treatment can be meaningful

Direct oil and gas can also offer potential tax characteristics that are different from many traditional investments.

Depending on the structure of the investment and an investor's individual tax circumstances, certain drilling and development expenses may qualify for deductions, including potential intangible drilling cost deductions.

Producing oil and gas properties may also qualify for depletion deductions over time. For certain high-income investors, these potential tax benefits can materially affect the overall economics of an investment.

I don't believe anyone should make an investment solely for a tax deduction. The underlying assets, operator, development plan and economics must make sense first.

But when a fundamentally attractive investment also offers potential tax advantages, those benefits can become an important part of the overall investment consideration.

Because the rules can be complex and investor circumstances vary, individuals should always consult their own tax professionals regarding how those provisions may apply.

Start with the asset

When evaluating an oil and gas opportunity, I've always preferred to start with the asset rather than the spreadsheet.

Projections matter, but they're only as good as the assumptions behind them.

I want to know what exists in the ground and what we know about the surrounding area. I ask if there is existing production, if nearby wells have successfully produced from the same formations, what the geology tells us, what the development plan looks like, and what the capital will be used for. I also want to know how experienced the operator is at drilling, producing and selling oil and gas.

These types of questions tell me far more than an attractive projected return by itself.

In our business, the objective is to acquire and develop assets where we believe operational execution can create additional value.

That means deploying capital into drilling and development, gathering real production data, building reserves and continually evaluating the best way to maximize the value of those assets.

The operator matters

Oil and gas isn't a passive business from the operator's perspective. Execution, drilling decisions, completion design, cost control, land and title work, production operations, commodity marketing and timing: These all matter.

That's why I believe investors evaluating direct energy should spend as much time evaluating the operator as they do evaluating the projected economics.

An experienced operator should be able to explain where investor capital is going, what milestones are expected, what can create additional value and how the assets may ultimately be monetized.

The investment isn't just in a commodity. It's also an investment in the operator's ability to execute a development strategy.

Private investments require patient capital

Direct oil and gas investments are generally private investments, which means they should be viewed differently from publicly traded securities.

An investor may not be able to sell an interest with the click of a button. Timing and patience are important.

Patient capital can allow an operator to execute a multi-stage development strategy: Acquire the asset, drill wells, establish production, build reserves and pursue opportunities to create additional value over time.

For investors who have sufficient liquidity elsewhere in their portfolios, that longer-term approach may fit well alongside more liquid public-market investments.

Is 60/40 enough?

For many investors, it may be.

There's nothing inherently wrong with keeping a portfolio simple.

But for investors with significant assets, longer investment horizons and the ability to accept the risks and illiquidity associated with private investments, alternatives can broaden the opportunity set.

I don't view direct oil and gas as a replacement for stocks or bonds. I view it as something fundamentally different. Stocks provide ownership in companies. Bonds provide contractual debt exposure.

Direct oil and gas can provide qualified investors with the opportunity to participate in the acquisition, drilling, development and production of real energy assets.

That is an important distinction.

The question shouldn't be whether every investor needs alternatives.

The better question is whether adding assets driven by different fundamentals can make sense within the investor's overall strategy.

For the right investor, I believe direct energy deserves to be part of that conversation. At the end of the day, diversification isn't about making a portfolio more complicated.

It's about putting capital into assets that have a clear purpose, a clear economic rationale and the potential to create value in different ways.

Related Content

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• Scared About Climate Change? Change the Way You Invest
• Earth Day Thoughts: The Clean Energy Transition Hits Warp Speed Amid Geopolitical Unrest
• How Global Geopolitics Shape Oil and Gas Investing: What Investors Need to Keep in Mind
• What the Oil Market Is Telling Us Right Now About Energy and Gas Prices

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For many retirees, few acronyms generate more anxiety than IRMAA.

Countless articles, videos and financial discussions warn retirees to stay below the next Medicare premium threshold. But what if avoiding an IRMAA surcharge causes you to pay more over the course of retirement?

In many cases, that's what can happen when annual tax planning takes priority over lifetime tax planning.

The income-related monthly adjustment amount (IRMAA) is the Medicare surcharge higher-income beneficiaries might pay for Medicare Part B and Part D coverage.

Because IRMAA is based on your modified adjusted gross income (MAGI) from two years earlier, many retirees become intensely focused on staying below the next surcharge threshold.

That focus is understandable — but it can also be expensive.

Many retirees reject Roth conversion strategies or other tax-planning opportunities solely because they might temporarily increase Medicare premiums. In some cases, avoiding an IRMAA surcharge can ultimately result in paying significantly more in lifetime taxes.

• The better question isn't: "How can I avoid IRMAA this year?"
• Instead, ask: "How can I minimize the total taxes and costs my family is likely to pay over the course of retirement?"

Those are two very different objectives.

Think beyond this year's tax return

Traditional tax planning often centers on reducing this year's tax liability.

Lifetime tax planning takes a broader view by evaluating how today's decisions affect taxes, retirement income and wealth in the next 20 to 30 years.

That distinction matters because strategies that intentionally increase taxable income today — such as Roth conversions — can sometimes reduce taxes substantially later.

Depending on the circumstances, converting part of a traditional IRA to a Roth IRA could:

• Reduce future required minimum distributions (RMDs)
• Lower taxable income later in retirement
• Reduce the taxation of Social Security benefits
• Provide additional tax-free assets for future spending
• Improve tax flexibility throughout retirement
• Reduce taxes for a surviving spouse
• Leave heirs with more tax-efficient inheritances

None of those benefits can be evaluated by looking at only one tax year.

Focus on the right goal

Key takeaway: IRMAA is an important planning variable — but it should rarely outweigh a well-supported strategy that meaningfully reduces lifetime taxes.

Understanding the tax valley

Many retirees experience a period after they stop working but before claiming Social Security and before required minimum distributions begin.

During these years, taxable income might be temporarily lower than it will be later in retirement.

Financial planners often refer to this as a tax valley — a window that might present an opportunity to recognize income at relatively favorable tax rates.

Consider a hypothetical married couple, both age 63, with $2 million in traditional IRAs.

Because they recently retired, they temporarily find themselves in the 24% federal income tax bracket. Their retirement income plan projects substantially higher taxable income once Social Security benefits begin and required minimum distributions become mandatory.

Suppose they convert $150,000 per year to Roth IRAs over several years. The conversions increase their taxable income enough to trigger higher Medicare premiums through IRMAA.

At first glance, paying higher Medicare premiums seems undesirable.

However, those same Roth conversions might significantly reduce future required minimum distributions, lower future taxable income, reduce taxes for a surviving spouse, create greater tax flexibility later in retirement and leave heirs with more tax-efficient assets.

If a temporary Medicare surcharge of several thousand dollars helps reduce projected lifetime taxes by six figures, many retirees would likely consider that an attractive trade-off.

The numbers — not the premium increase alone — should drive the decision.

IRMAA is one variable — not the objective

Retirement planning requires balancing many competing financial factors:

• Federal income taxes
• State income taxes
• Social Security taxation
• Required minimum distributions
• Medicare premiums
• Estate planning
• Legacy goals

Each deserves consideration, but the mistake is allowing any one of those to dominate the entire planning process.

IRMAA should be viewed the same way investors evaluate transaction costs or capital gains taxes. It is a legitimate expense to consider — but not necessarily a reason to abandon an otherwise beneficial strategy.

Waiting can be expensive

Many retirees assume paying less tax today automatically leads to paying less tax overall.

Unfortunately, that assumption often proves incorrect.

Traditional IRAs continue growing tax deferred. Larger account balances frequently produce larger required minimum distributions, which could:

• Push retirees into higher tax brackets.
• Increase the taxable portion of Social Security benefits.
• Trigger higher Medicare premiums later in retirement.
• Increase tax burdens after the death of a spouse, when the surviving spouse begins filing as a single taxpayer.
• Leave beneficiaries inheriting taxable retirement accounts that generally must be distributed within 10 years under current law.

Ironically, retirees who spend years trying to avoid modest IRMAA surcharges today might pay larger Medicare surcharges later because their required minimum distributions have become substantially larger.

Every recommendation should begin with a projection

No two retirees have identical circumstances.

The appropriate Roth conversion strategy depends on numerous variables, including expected investment returns, future tax rates, longevity, charitable giving goals, pension income, state taxes, estate-planning objectives and anticipated spending needs.

For that reason, sophisticated retirement planning relies on long-term projections rather than general rules.

Stopping a Roth conversion because it crosses an IRMAA threshold might feel prudent, but without a lifetime analysis, it's impossible to know whether that decision improves a retiree's long-term financial outcome.

The goal isn't to win this year's tax return

The Internal Revenue Service calculates your taxes one year at a time — your retirement plan shouldn't.

The objective of retirement tax planning isn't minimizing taxes this year — nor is it minimizing Medicare premiums this year.

The objective is maximizing after-tax wealth throughout retirement while preserving flexibility for future spending, charitable giving and legacy planning.

Sometimes that means staying below an IRMAA threshold.

Other times, the math clearly supports accepting a temporary Medicare surcharge because doing so produces substantially larger long-term tax savings.

The answer depends on the analysis — not the acronym.

The Centers for Medicare & Medicaid Services (CMS) establishes IRMAA as an income-based adjustment to Medicare premiums, while IRS rules govern the taxation of Roth conversions in the year they occur.

Neither rule suggests retirees should automatically avoid Roth conversions because of a temporary increase in Medicare premiums. Instead, both reinforce the importance of evaluating tax decisions within the context of an overall retirement income strategy.

The most ideal retirement tax plans rarely optimize a single year — they optimize a lifetime.

Related Content

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• Today's 'Safe' Returns May Not Be Enough to Secure Your Retirement: Here's Why, According to a Financial Pro
• How to Use a Medicaid Asset Protection Trust to Help Shield Your Family From Long-Term Care Costs
• How to Help Prevent Taxes From Taking a Massive Bite Out of a Special Needs Trust
• The Illinois 'Cliff Tax': A Single Dollar Could Cost Families Hundreds of Thousands

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

One of the most important retirement planning questions is also one of the hardest to answer: How much can you withdraw from your portfolio each year without running out of money?

A commonly cited starting point is the 4% rule. It suggests withdrawing about 4% of a portfolio in the first year, then increasing that dollar amount for inflation.

Using this guideline:

• A $1 million portfolio might initially support about $40,000 in annual withdrawals
• A $1.5 million portfolio might support about $60,000
• A $2 million portfolio might support about $80,000

These figures are illustrations, not guarantees. A sustainable strategy depends on retirement length, returns, inflation, taxes, healthcare costs, other income, spending flexibility and legacy goals.

A financial adviser can help determine how these factors work together and how the strategy should change over time.

The 4% rule is only a starting point

The 4% rule is appealing because it is simple. Retirement is not. Markets fluctuate, healthcare expenses rise, tax laws evolve and spending changes.

An adviser can help determine whether 4% is reasonable for a particular household or whether a higher or lower starting amount may be more appropriate.

Why the right withdrawal rate is different for everyone

No single withdrawal rate works for every retiree.

Retirement length and investment allocation. Someone retiring at 60 may need a portfolio to last 35 or 40 years. The portfolio must also balance stability and growth. Investing too conservatively may make it difficult to keep pace with inflation, while investing too aggressively may create large losses at the wrong time. An adviser can model longevity assumptions and build an allocation suited to the retiree's needs.

Inflation and taxes. Inflation gradually reduces purchasing power. Taxes also affect how much of a withdrawal is available to spend. Traditional retirement account withdrawals are generally taxable, qualified Roth withdrawals may be tax-free, and taxable accounts may produce interest, dividends and capital gains.

The order in which accounts are used can affect tax brackets, Medicare premiums, Social Security taxation and required minimum distributions. An adviser can help coordinate withdrawals across account types and work with a tax professional when appropriate.

Other income, spending and legacy goals. Social Security, pensions, rental income and annuity payments can reduce the amount required from investments. Retirees who can reduce discretionary spending during difficult markets may have more flexibility.

Some retirees want to spend most of their assets; others want to preserve wealth for family or charities. An adviser can coordinate income and balance lifestyle needs with long-term security and legacy goals.

Why average returns don't tell the whole story

Even when these factors are considered, the timing of market returns can significantly affect retirement outcomes.

A calculator may assume a portfolio earns a steady average return each year. Real markets don't behave that way. Two retirees can earn the same average return over 20 years and still have very different results depending on when gains and losses occur.

The importance of sequence of returns risk

This timing risk is known as sequence of returns risk.

Consider two retirees with the same starting portfolio, withdrawals and average return. One experiences strong returns early. The other experiences a major decline shortly after retiring and stronger returns later.

The second retiree may end up with far less money because withdrawals during a downturn require selling more shares at depressed prices. Those shares are no longer available to participate in a recovery.

Assume a retiree begins with $1 million and plans to withdraw $40,000 annually. If the portfolio declines 20% before the withdrawal, its value falls to $800,000. After taking $40,000, about $760,000 remains. The portfolio would then need to gain more than 31% to return to $1 million.

This is why a withdrawal plan shouldn't operate independently from the investment strategy.

How an adviser can help manage retirement income risk

Sequence risk can't be eliminated, but it can be managed.

Maintain an appropriate cash reserve. Cash for near-term expenses may reduce the need to sell stocks during a downturn. An adviser can help determine how much to hold without weakening long-term growth.

Create flexible spending rules. A retiree may temporarily delay a major purchase, reduce travel or pause inflation increases. Establishing guidelines in advance can make these decisions easier.

Rebalance systematically. An adviser can restore the portfolio to its intended allocation and help prevent short-term headlines from driving investment decisions.

Coordinate Social Security and pensions. Delaying Social Security may increase future guaranteed income but require larger portfolio withdrawals in the near term. An adviser can compare the trade-offs involving taxes, longevity and survivor benefits.

Use a dynamic withdrawal strategy. A fixed withdrawal may not remain appropriate throughout retirement. Guardrails can allow spending to rise after strong performance and decline when the portfolio falls below predetermined levels.

Why ongoing advice matters

A retirement plan shouldn't be treated as a one-time calculation. Markets, spending, tax laws, health and family circumstances change.

An adviser can review withdrawal rates, rebalance investments, update projections, coordinate tax-sensitive distributions and provide an objective perspective during volatile markets.

The value of advice is not predicting every market move. It is helping retirees make disciplined decisions based on a coordinated plan rather than short-term emotion.

The bottom line

The 4% rule can be a useful starting point, but it isn't a personalized retirement income plan.

A sustainable strategy must account for retirement length, investment allocation, inflation, taxes, healthcare costs, other income, spending flexibility, legacy goals and sequence of returns risk.

A financial adviser can bring these issues together and help adjust the strategy as circumstances change. The goal isn't simply to withdraw the maximum amount possible today. It is to balance enjoying retirement now with maintaining financial security for the years ahead.

This article is intended for general educational purposes and does not constitute individualized investment, tax, legal or retirement advice.

Related Content

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• I'm a Financial Planner: These 4 Spending Mistakes Can Derail Your Retirement Plan
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Question: What if a smaller Social Security benefits increase for many retirees also meant a smaller federal tax bill for some?

That's one potential consequence of proposals floating to replace Social Security's current cost-of-living adjustment (COLA) with a flat-dollar increase. Instead of raising monthly benefits by a matching percentage for everyone, a flat-rate cost-of-living adjustment gives each recipient the same flat dollar amount.

Nonprofit organization AARP opposes such a change, arguing it would cut benefits for roughly 80% of retirees. The Committee for a Responsible Federal Budget says a flat COLA could help close Social Security's long-term financing gap.

Then there's the question of tax impact. A smaller increase means less money for retirees but may also result in a smaller tax bill for those who pay federal income tax on their benefits.

That doesn't make the flat COLA proposal a tax cut. But as lawmakers consider how to shore up Social Security, with the retirement trust fund projected to deplete its reserves in 2032, the effect on retirees' finances is more complicated than the benefit reduction alone. Here's more to know.

Flat-rate Social Security benefit?

Under the current Social Security system, the annual cost-of-living adjustment is a percentage based on inflation. The same percentage applies to each beneficiary's monthly benefit, so the dollar increase varies with the benefit amount.

However, under a flat-rate SS COLA, the inflation-adjusted annual increase would be converted into a dollar amount based on the benefit of someone around the 20th percentile of the benefit distribution. Every beneficiary would then receive that same dollar increase.

As a result, people with smaller benefits would receive a larger increase relative to their existing benefit, while people with larger benefits would receive a smaller increase.

The nonpartisan Committee for a Responsible Federal Budget (CRFB) says a flat-rate cost-of-living adjustment could improve Social Security's finances by directing more benefit growth toward lower-income retirees.

By setting the Social Security COLA at the level for beneficiaries around the 20th percentile, larger benefits would grow more slowly, while people with smaller benefits would receive a larger increase relative to their existing benefits.

However, some lower-income beneficiaries could still receive smaller benefits over time than they would under the current COLA. CRFB estimates the approach could close about half of Social Security's projected 75-year financing shortfall.

AARP opposes a flat-rate COLA. The organization, which advocates for the interests of millions of adults age 50 and older, argues the proposal would amount to a benefit cut for most beneficiaries because their benefits would grow more slowly than under the current system.

• Under the existing 2.8% COLA, the average retired worker reportedly received about a $58 monthly increase.
• Under the flat-rate approach, AARP estimates the increase would have been about $34.
• That's about a $24 monthly difference for the average retired worker in that year.

That may not seem like a lot, but Social Security benefits can often be paid for 15 to 20 years or more, and differences in annual increases compound over time.

Based on those estimates, a person who retired at 65 in 1998 could have received $77,900 less in cumulative benefits by age 93 under the flat-rate COLA proposal.

Smaller Social Security checks can mean less taxable income

A smaller Social Security increase would mean less money in a retiree’s pocket. But for some retirees, it could also mean a slightly smaller federal tax bill.

That’s because depending on income, up to 85% of Social Security benefits may be taxable. The IRS uses a "combined income" formula: adjusted gross income (excluding Social Security benefits) + tax-exempt interest + 50% of your annual Social Security benefits.

The income thresholds for Social Security taxation, however, haven't changed since they were established in 1983: $25,000 for single filers and $32,000 for married couples filing jointly.

As a result, roughly half of Social Security beneficiaries now pay federal income tax on some portion of their benefits. A flat-rate COLA could affect those retirees differently depending on their other income.

Someone who relies almost entirely on Social Security may already be below the tax thresholds. So a smaller COLA would mean less money to spend.

But someone receiving a pension, taking traditional IRA withdrawals, or earning other taxable income could see part of the lost benefit increase offset by a smaller tax bill.

For them, a smaller COLA reduces overall combined income, which can lower the percentage of Social Security benefits added to taxable income or keep them from crossing into a higher tax threshold.

The tax savings wouldn't fully offset the reduction in Social Security income, and the difference could vary considerably from one household to another.

Also worth noting: The tax picture has also changed for older adults due to the 2025 Trump tax law. For tax years 2025 through 2028, eligible taxpayers age 65 and older qualify for a "senior bonus deduction" of up to $6,000 per person, subject to income limits.

That deduction, which can be claimed whether you itemize or take the standard deduction, can also reduce overall taxable income for some retirees who receive taxable Social Security benefits.

Bottom line: Will Social Security remain solvent?

A flat-rate COLA is just one of the ideas being discussed as lawmakers look for ways to address Social Security’s long-term solvency. Other proposals seek to raise payroll taxes, change the retirement age, adjust benefits in other ways, or combine several approaches.

It’s also important to keep in mind that taxes on Social Security benefits provide revenue to the Social Security and Medicare trust funds. The Committee for a Responsible Federal Budget estimates that taxing benefits generated roughly $99 billion in 2025, making that revenue an increasingly important part of the programs’ future.

For now? Retirees are looking at a projected 3.4% to 3.6% COLA for 2027, with the official COLA announcement coming mid-October. Stay tuned.

Related

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• States That Still Tax Social Security in 2026
• Do You Stop Paying Taxes on Social Security at a Certain Age?
• How to Calculate Taxes on Social Security

As the 2026 midterm elections approach, President Donald Trump is promising Americans money directly from the federal government. So far, that includes a recent proposed $5,000 “dividend” for adults and $500 rebates for certain Affordable Care Act (ACA) enrollees.

Understandably, the promises are causing confusion about where the money is coming from, how certain the payments might be, and who may be in line to receive the funds.

So far, the administration has indicated that the ACA rebates are expected to begin in October.

The $5,000 dividend remains a campaign promise that would require congressional action and could cost more than $1 trillion. Here's more to know.

Trump's $5,000 dividend checks

Trump announced his latest payment proposal at a Republican midterm convention in Dallas, telling the crowd: “A dividend of at least $5,000 a person, not including high-income people, will be paid to almost everybody.”

Trump said the money would come primarily from tariff revenue and that the payments would be made if Republicans retain control of Congress in November.

With roughly 260 million adult Americans, $5,000 payments would cost about $1.3 trillion, not including administrative costs or any income-based exclusions.

Vice President JD Vance has since suggested that higher-income Americans wouldn't receive the money.

Trump has pointed to tariff revenue as a source for the dividend, but the available numbers don't come close to matching the potential cost.

• The federal government reportedly collected about $264 billion in customs duties in the most recent fiscal year, according to reporting on the administration's tariff receipts.
• That's far below the potential $1.3 trillion price tag.

Another complication: The administration is now refunding some of the tariff money it collected.

As Kiplinger has reported, the United States Supreme Court's February ruling against Trump's use of the International Emergency Economic Powers Act to impose broad tariffs has resulted in a massive refund process, with roughly $100 billion already paid out by the end of July. That means tariff revenue isn't necessarily a pot of available funds the administration can count on for future checks.

The promise also comes as the national debt has surpassed $39 trillion, making the math behind a $1 trillion-plus payout even more difficult.

The newly promised dividend would require Congress to approve the necessary legislation and funding. Trump hasn't provided a plan showing how the government would finance payments of that size. And the idea, which reportedly caught many even in his own party off guard, is already receiving blowback.

Also worth noting: The latest $5,000 Trump proposal follows two earlier similar ideas that never materialized: Trump's proposal for $2,000 tariff rebate checks and his DOGE dividend, which was supposed to return a portion of government savings to taxpayers.

$500 ACA rebate payments?

The ACA payments Trump announced on October 10 are different.

In an online video message, Trump announced that nearly 1 million ACA enrollees would receive $500 refunds. “Nearly one million hardworking Americans in 30 states will soon be getting refunds of $500 each, with a check sent to their home address,” Trump said.

The Trump administration says that nearly 1 million people in 30 states will receive refunds beginning in October, with the money coming from excess user fees paid by insurers that sell plans through HealthCare.gov.

(Those fees help pay for the federal exchange, including the website, call center, and enrollment assistance programs.)

• Insurers incorporate the fees into premiums, so consumers generally don't see a separate “user fee” on their bills.
• For 2025, the fee was 1.5% of premiums; for 2026, it was increased to 2.5%.
• The Biden administration set both rates roughly a year in advance, anticipating higher costs and lower enrollment after the enhanced ACA subsidies expired.

Trump says those fees were "massively overcharged" and that consumers should be refunded. But the explanation seems to be more nuanced.

Cynthia Cox, Kaiser Family Foundation's senior vice president and director of the Program on the ACA, told Reuters that the surplus doesn't necessarily mean consumers were overcharged. She said it also reflects the Trump administration's decision to reduce spending on programs like enrollment assistance while continuing to collect the fee. Cox added that she didn't know of any precedent for returning excess user fees directly to consumers.

The administration has reportedly identified people it says are eligible.

It seems that the refunds will primarily go to ACA Marketplace enrollees who earn more than 400% of the federal poverty level and therefore don't qualify for premium subsidies. Some people between 100% and 400% of the poverty level who didn't receive subsidies might be included.

ACA premiums 2027

The timing of both the $500 rebate and the $5,000 dividend is interesting. First, the upcoming November midterm elections and the fact that millions of ACA enrollees already face higher health insurance costs, with open enrollment season just around the corner.

The enhanced ACA premium tax credits, available as a result of legislation passed during the pandemic, expired at the end of last year after the Republican-led Congress didn't extend them.

The Kaiser Family Foundation found that the average monthly premium payment for Marketplace enrollees rose 58% in 2026, from $113 to $178, including people who did not receive premium tax credits.

Against that backdrop, if the administration has the legal authority to issue them, a one-time $500 rebate might potentially help some consumers. But it wouldn't address the broader increase in the cost of maintaining ACA coverage.

Meanwhile, many see Trump's announcement at the midterm Republican convention as a way to win votes in an upcoming election in which Democrats are widely expected to take back at least one chamber of Congress. Right now, the GOP controls the White House, the U.S. Senate, and the House of Representatives.

Who will actually get Trump checks?

The two latest Trump payment promises have very different paths to fruition.

As mentioned, the Trump administration says the $500 ACA rebate is expected to begin going out in October to a specific group of Marketplace enrollees in 30 states, using existing exchange fee collections. However, questions remain about whether the administration has the legal authority to make the payments.

The $5,000 dividend remains a much larger, more tenuous, and highly contingent campaign promise. Stay tuned.

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• Stimulus Checks: Which States Are Sending Money in 2026
• Property Tax Changes on the Ballot This November

Each week in our Ask the Tax Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers, including one on how long taxpayers should keep tax returns and other records. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. How long to keep tax returns

Question: I am a pack rat and have kept my old tax returns, tax records, financial statements and more for many years. When can I start throwing these out?

Joy Taylor: As a general rule, you should keep your tax returns and supporting documents for at least three years from the due date of your return. That’s generally how long the IRS has to question items on your return and to bill you for any additional tax. It’s also generally the timeframe to file an amended return to seek a refund. There are situations when the IRS can audit even older returns. The IRS can go back up to six years if your return omits more than 25% of income. If fraud is proven, there is no limit. Also, you may have to keep your state tax returns for longer than three years, depending on your state's rules.

But don’t automatically throw out all of your tax returns and records after three years. Look over old documents to see if you might need any parts of them in the future. And there are some records you can toss earlier than three years.

For more information, see "How long to keep tax returns and records?".

2. Investment management fees

Question: I know that if I own an investment portfolio that is managed by an investment management firm, I cannot deduct the management fees on Schedule A of my Form 1040. But what if I pay for an investment letter, say, Stanberry Research, to help me with option trading that I do? Is this cost deductible on Schedule A if I itemize?

Joy Taylor: No. Investment management fees and similar investment expenses, such as the subscription cost for an investment letter, are not deductible on Schedule A. These all fall in a category of miscellaneous deductions that Congress temporarily repealed in the 2017 Tax Cuts & Jobs Act and permanently repealed in last year's One Big Beautiful Bill.

3. One Big Beautiful Bill or Working Families Tax Cuts

Question: I keep hearing lawmakers talk about the working families tax cuts. What is this? Did Congress pass another big tax bill this year?

Joy Taylor: No, the last large tax law passed by Congress was last year's "One Big Beautiful Bill." In July 2025, Congress enacted legislation, the original short title of which was the "One Big Beautiful Bill Act." However, soon before the Senate voted on its version of the House-passed legislation, Democrats required that short title be struck from the bill. The full title of the law is "An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14." This doesn't roll off the tongue quite as easily as the One Big Beautiful Bill, and Congress, President Trump, tax experts and many media outlets, including Kiplinger, have referred to the law as the "One Big Beautiful Bill" for the past year.

Now, with the midterm elections taking place in November, we are seeing House and Senate Republicans, the IRS and other federal agencies and departments refer to the law as the "Working Families Tax Cuts." Republican lawmakers seem to think this sounds better than "One Big Beautiful Bill." Despite the recent attempt at rebranding through a name change, "Working Families Tax Cuts" and "One Big Beautiful Bill" refer to the same thing.

4. Inherited property

Question: I inherited a piece of real estate when my father died in 2010. I just sold the real estate. I didn't get an appraisal for the value of the property when my dad died. Can I now use the assessed value of the property from the real estate tax statement for the year my father passed away for the purpose of determining how much taxable gain I have on the sale?

Joy Taylor: Generally, for inherited property, you determine the stepped-up basis (to fair market value) on the date of the decedent's death. It's best to get an appraisal at the time the property is inherited.

Since you did not do this, maybe you can go back and look at the value of similar properties that were sold around the time of your father's death to help determine fair market value in 2010. Otherwise, you should be able to use the assessed value of the property from the 2010 real estate tax assessment, but normally, assessed values on those statements are a bit lower than what one can actually sell the property for.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Estimated Tax Payments and Withholding
• Ask the Editor: Questions on Selling a Home
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Tax Rules for Landlords

Paying off your mortgage is a huge milestone, but a high property tax bill can rain on your parade. And once you enter retirement on a fixed income, those recurring bills might steadily erode your monthly budget.

According to U.S. Census Bureau estimates, the average American household pays roughly $3,200 annually into real estate property taxes, with figures in higher-tax states easily climbing past $4,000 to $9,000.

The good news? You might not have to foot the full bill. State and local governments offer targeted property tax relief, particularly for homeowners aged 65 and older. For example, some older adult residents can stack local senior discounts on the Florida homestead exemption, removing up to $100,000 or more in taxable value from a home.

However, tax breaks like these are rarely automatic. You usually have to apply by local filing deadlines, and remember that programs vary by location.

To help you get started, here are five frequently overlooked property tax breaks worth exploring in 2026 — some of which might just offer a financial umbrella.

Property tax relief for seniors

Before diving into specific tax breaks, it helps to understand how senior property tax relief works.

Because real estate taxes are administered at state, county, and municipal levels, availability and eligibility requirements vary significantly based on where you live. Generally, these programs are available to homeowners, but in some states renters might qualify for property tax savings as well.

Most programs set baseline criteria around primary residency, household income, and/or age (often at 65, though some start earlier). But all older adult property tax relief programs generally require an application. So check your local tax assessor or state Department of Revenue website to see what you are eligible for in your area.

1. Circuit breaker tax credits

Just as an electrical circuit breaker prevents a power overload, an income-based tax credit stops rising property taxes from overloading your annual bill.

States offering circuit breaker programs generally cap property taxes at a specific percentage of your total household income. When the annual amount exceeds that threshold, the state issues a refund or credits the excess back to your property tax bill.

For example: The Massachusetts Senior Circuit Breaker Tax Credit allows eligible residents aged 65 and older to claim a refundable tax credit worth up to $2,820. This tax break triggers if a homeowner's property tax (plus half of their water and sewer bills) exceeds 10% of their total income.

Typically, circuit breaker programs are tailored to low- and moderate-income households. Once more, rules can be complex and often require adding back items that may be nontaxable in your state, like Social Security benefits.

So, if you don't qualify or your state's Department of Revenue or Taxation doesn't offer this program, don't worry; next, we'll take a look at a property tax break most states offer to seniors.

2. Senior property tax exemptions and freezes

Both property tax exemptions and freezes can give seniors relief in 2026. Although closely related in the benefits they provide, these two differ in how they reduce your property tax bill:

• Exemptions. Reduce your home's taxable value by subtracting a flat dollar amount or percentage before the local tax rate is applied. For example, Colorado's Senior Property Tax Exemption grants eligible homeowners 65 and older a 50% exemption on the first $200,000 of their home's actual value, reducing their home's taxable basis by up to $100,000.
• Freezes. Lock in either your home's assessed value or the final dollar amount of your property tax bill once you reach a qualifying age. For instance, New Jersey's "Senior Freeze" program establishes a base year when you enroll; the state then reimburses you via check for any future tax increases above that baseline.

Unlike circuit-breaker credits, exemptions and freezes don't always require low income levels (though higher incomes may limit total savings). But some jurisdictions restrict them further to veterans or people with disabilities. Review your local municipal assessor's office for application information.

3. Bundled municipal fee waivers

Your annual property tax bill may not just cover land and buildings — some localities also bundle flat municipal fees for local services like trash pickup, recycling, and sewer maintenance.

Through a bundled fee waiver, eligible seniors can opt out of or significantly discount these specific line items on their property taxes.

For example: The city of Fontana, California, offers a Senior Citizen Discount Program for residents aged 60 and older through Burrtec Waste Industries. Qualifying seniors can reduce their trash and recycling charges from the standard residential rate of $37.63 down to $30.10.

Because these programs are authorized at the state level but administered locally, eligibility, availability, and tax savings vary widely by jurisdiction. Like property tax circuit breakers, municipal fee waivers are usually income-tested and depend heavily on county or city regulations.

If a program is available in your area, you can check your local tax assessor’s office or municipal utility department for specific information on how to apply.

4. Partial land exclusions

Partial land exclusions divide your land into taxable and non-taxable portions.

So instead of assessing your entire parcel at a uniform value, the tax assessor removes part of your land's physical footprint or appraised value from the tax calculations. While the state authorizes land exclusions in its constitution, county officials implement them according to local tax rules.

For example: Guilford County, North Carolina, applies an Elderly or Disabled Homestead Exclusion that excludes the greater of $25,000 or 50% of the home's appraised value from taxes. This includes a land exclusion capped at up to one acre of contiguous property. Any remaining acres are taxed at the standard rate.

Partial land exclusions may help seniors age in place by shielding acreage from full taxation. However, because these tax relief programs can be tied to local income caps, passive revenue spikes like capital gains tax could count toward your household total and can disallow eligibility.

See your local tax assessor or county's website for your area's specific income thresholds and rules.

5. Property tax deferrals

A property tax deferral is technically a financing option. But it acts like a property tax "discount" by allowing cash-poor, equity-rich seniors to postpone paying their property taxes entirely.

Here's how it works:

• The state or local government pays your property tax bill directly to the municipality and places a low-interest tax lien on your home.
• The accumulated principal and interest become due only after you pass away, sell the property, or move out permanently.

For example: The Oregon Department of Revenue loans qualifying seniors the funds to pay their property taxes, anchoring the balance to a 6% simple (non-compounding) annual interest rate.

Although deferrals preserve immediate cash flow, any outstanding tax lien reduces the ultimate equity passed to your heirs. Also, strict age, income, and residency requirements generally apply. So it's best to consult a qualified tax professional before taking on any new liens on a property.

Read More

• Bill Proposes $10,000 Home Upgrade Tax Credit for Seniors
• 6 Steps to Appeal Your Property Tax Bill
• Most-Overlooked Tax Breaks for Retirees
• Property Tax Changes For Homeowners 65 and Older

Affordability has emerged as a defining issue in many states this election cycle, and Texas, where Gov. Greg Abbott is seeking a fourth term, is no exception.

Abbott has placed property-tax relief at the center of his campaign agenda, while his Democratic challenger, state Rep. Gina Hinojosa, is offering a different approach: a one-time $1,500 payment to every Texas household, funded with $17 billion from the state's "Rainy Day Fund."

Although Texas is a no-income-tax state, the proposals come as Texans contend with higher costs across major household expenses. Over the past decade, energy prices in Texas have reportedly gone up 65%, housing costs 44%, and food prices 41%, according to an analysis by The Texas Tribune.

Abbott and Hinojosa have responded with competing proposals to put money back in Texans' pockets.

Their plans, however, take different approaches: Abbott wants to reduce an ongoing tax burden for homeowners, while Hinojosa wants to make a one-time payment to Texas households. Here's more to know.

Texas Gov. Abbott property tax plan

Gov. Abbott has proposed eliminating school property taxes for homeowners and placing additional limits on property-tax growth.

His five-point property-tax plan calls for limits on local government spending, two-thirds voter approval for property-tax increases, and greater authority for voters to roll back taxes.

He also wants changes to property-appraisal rules and a lower annual cap on homestead appraisal growth from 10% to 3%. His plan would also extend appraisal limits to additional property types.

Abbott's campaign says its broader affordability agenda could reduce property taxes by up to 50% and save the average homeowner roughly $3,000 a year.

(Those figures are campaign estimates. The amount an individual homeowner would save would depend on the property and the legislation ultimately enacted.)

The proposal follows property-tax changes enacted during Abbott's current term.

• Last year, as Kiplinger reported, Texas increased the general homestead exemption to $140,000, with a $200,000 exemption for seniors and disabled homeowners. (Those changes took effect for tax assessments impacting the 2025–2026 tax cycles.)
• State officials also said the 2025 changes would significantly reduce school property taxes for homeowners.

It's worth noting that eliminating school property taxes would affect how Texas finances public education since school districts currently receive substantial revenue from property taxes.

• The Tax Policy Center recently reported that Texas school districts collected about $42 billion in property taxes in 2024, with roughly 45% to 50% coming from homesteads.
• The center estimated that eliminating school property taxes on homesteads could create an annual revenue gap approaching $20 billion, depending on how the policy is structured.

That estimate is one reason the proposal is about more than the property-tax bills homeowners pay. Such a measure would also raise important questions about how the Lone Star State would replace the revenue.

Hinojosa $1,500 cash rebate proposal

Rep. Hinojosa, who represents Austin in the Texas House, has proposed sending $1,500 to every Texas household, at an estimated total cost of $17 billion.

Her proposal would use money from the state's Economic Stabilization Fund, known as the Rainy Day Fund. Hinojosa's campaign calls the payment a "corruption tax refund." But the proposal would be a one-time distribution from state reserves, not a refund of a particular previously paid tax.

When Hinojosa announced the proposal earlier this summer, her campaign said the Rainy Day Fund stood at nearly $25 billion and that the $17 billion distribution would leave roughly $10 billion.

• The Comptroller's current 2026-27 revenue estimate projects a $27.43 billion Rainy Day Fund balance for fiscal 2026 and $28.48 billion for fiscal 2027.
• Those figures are projections and assume no additional legislative appropriations from the fund.

Hinojosa's campaign notes on its Money in Your Pocket website that Texas has accumulated enough money in the fund to return some to residents, citing experts who say the Rainy Day Fund needs only about a $10 billion balance to remain fiscally responsible.

However, policy analysts at Rice University's Baker Institute for Public Policy note that pulling $17 billion from the Rainy Day Fund would require a legislative supermajority to clear statutory floor limits, and warn that injecting cash into consumers' hands could temporarily heighten local inflation.

More on affordability in the Texas governor platforms

Both Abbott's and Hinojosa's affordability agendas go beyond taxes.

For example:

• Gov. Abbott has proposed allowing developers to use home designs approved by at least three Texas cities without needing further approvals and enabling homeowners to build property additions.
• He has also suggested a $400 million roof fortification grant program, similar to an Alabama initiative, which his campaign has said could help lower homeowners' insurance costs.

Abbott wants to allow small businesses to offer health plans exempt from certain state insurance mandates, potentially expanding coverage for some uninsured Texans. He also proposes to cap monthly copayments for inhalers and epinephrine at $25 for state-regulated health plans.

Additionally, Abbott's "Keep Texas Affordable" initiative includes expanding competition in the electricity market by allowing consumers in Austin and San Antonio to choose retail electricity providers, which he claims could lower costs.

However, officials from Austin Energy and CPS Energy have reportedly expressed concerns that deregulating city-owned utilities might reduce municipal revenue and not ensure lower rates.

Meanwhile...Rep. Hinojosa has also called for a freeze on residential electricity rates until the state requires data centers and other high-load electricity users to pay for necessary infrastructure.

• Hinojosa proposes eliminating over $1 billion in state tax exemptions granted to data centers. She argues that tech giants should bear the full cost of their grid demands.
• In response to growing pressure over grid demands, Gov. Abbott recently directed the Public Utility Commission of Texas and the Electric Reliability Council of Texas (ERCOT) to review data center grid connections to ensure companies contribute to the power infrastructure.

Hinojosa also wants to restrict private-equity purchases of single-family homes. During the 2025 session, she introduced state legislation that would have prevented institutional investors from buying more than 10 single-family homes during a housing shortage.

On the high cost of groceries, Hinojosa has proposed banning so-called predatory surveillance pricing. The measure would prohibit retailers from using consumer data and algorithms to charge different prices based on what they know about customers.

Regarding healthcare, Hinojosa's campaign notes on its website that "Texas has the highest uninsured rate and the highest number of uninsured children in the country."

As a result, Hinojosa has proposed banning what she describes as bad-faith insurance denials and strengthening the state's rural hospital system.

Texas governor race: Bottom line

It's important to note that neither the property tax nor the cash rebate proposal is currently law, and Texans won't vote directly on Abbott's property-tax changes or Hinojosa's $1,500 payments on the November ballot.

So, the election results alone won't determine whether either tax measure eventually becomes a reality.

Instead, Texas voters will choose which candidate gets to champion these and other measures from the Governor's mansion for at least four years. Stay tuned.

Related

• No-Income-Tax States Ranked by 2026 Cost of Living
• Texas Tax Guide
• Polls Show People Hate Data Centers: Billions in Tax Breaks Are One Reason Why
• The 10 Cheapest Places to Live in Texas

Every year, thousands of employees and executives retire or leave a job with a 401(k) full of company stock and unknowingly pay far more in taxes than necessary.

The culprit is a lack of awareness around net unrealized appreciation (NUA), a little-known IRS provision that can convert a chunk of ordinary income tax into much cheaper long-term capital gains tax.

If you or your executives hold concentrated employer stock in a 401(k), profit-sharing plan or employee stock ownership plan (ESOP), understanding NUA could mean the difference between a seven-figure tax bill and meaningful savings.

What is NUA?

NUA is simply the growth in your company stock's value while it sat inside your retirement plan. To put it another way, it's the gap between what you (or your employer, via matches or stock bonuses) paid for the shares and what they're worth today.

Consider an executive who accumulated employer stock over a 20-year career with a cost basis of $200,000 and whose position is now worth $4.2 million. The $4 million difference is the NUA.

Under normal 401(k) rules, every dollar you eventually withdraw, including all that appreciation, gets taxed as ordinary income, which can run as high as 37% for top earners. On a $4 million distribution taxed entirely as ordinary income, that's roughly $1.5 million owed to the IRS.

NUA treatment changes that equation by letting you split the stock into two tax buckets: The $200,000 cost basis, taxed as ordinary income now, and the $4 million appreciation, taxed later at long-term capital gains rates (currently capped at 20% federally) whenever the shares are sold.

Why NUA is a big deal for executives

This distinction matters most for executives and long-tenured employees as they're the ones most likely to hold large, highly appreciated positions in employer stock after years of matches, ESOP allocations or stock bonus programs.

In this scenario, using NUA could shift roughly $4 million from a 37% ordinary income bracket down to a 20% capital gains bracket, a potential difference of more than $600,000 in taxes owed, simply by handling the distribution correctly.

There's an added bonus: The NUA portion, along with any gains after distribution, escapes the 10% early withdrawal penalty regardless of the employee's age, and it's exempt from the 3.8% Net Investment Income Tax as well.

The rules you can't skip

NUA isn't automatic. It only applies if very specific IRS requirements are met, and missing even one disqualifies the entire strategy. Use this checklist if you are considering it:

• A "triggering event" must occur first: Separation from the employer, reaching age 59½, disability or death.
• The entire vested balance across all of that employer's qualified plans must be distributed within a single calendar year, with no partial distributions carried into the next year.
• The company stock must be distributed "in-kind" as actual shares into a taxable brokerage account, never sold for cash first.
• If required minimum distributions were already taken in a prior year, NUA eligibility is lost. Taking only the current year's RMD is still allowed as long as the account is zeroed out by year-end.
• The stock must currently sit in a tax-deferred account, such as a traditional 401(k). It can't be in a Roth 401(k) or Roth IRA.

How the process actually works

Once eligibility is confirmed, the mechanics are straightforward but require careful sequencing.

• The employer stock gets distributed in-kind directly into a non-qualified brokerage account, triggering an immediate ordinary income tax bill on the $200,000 cost basis only.
• Meanwhile, any remaining 401(k) assets, such as mutual funds, cash or other holdings, can be rolled over tax-free into a traditional IRA or a new employer plan.
• From there, the $4 million NUA portion sits untaxed until the shares are actually sold, at which point it's taxed at long-term capital gains rates no matter how briefly the shares were held after distribution.
• Any additional appreciation that occurs after the distribution date is taxed separately, following normal short- or long-term capital gains rules based on the new holding period.

Common mistakes to avoid

The biggest and most irreversible mistake is rolling employer stock into an IRA by default, as this permanently forfeits NUA treatment on that entire $4 million gain. This is a common outcome when executives don't flag their intent in advance.

Other frequent missteps include taking RMDs in a prior year without realizing it disqualifies future NUA eligibility, selling shares inside the plan before distribution (converting NUA to cash disqualifies it), and failing to distribute the full account balance within one tax year.

Making the decision

NUA isn't right for everyone, but for an executive with a large basis-to-value gap, the math is compelling. It works best when the stock is highly appreciated relative to its basis, when the executive doesn't need immediate liquidity to cover the upfront ordinary income tax on the basis, and when long-term capital gains rates offer a real advantage over the executive's ordinary income bracket.

For those under 59½, the trade-off between the 10% early withdrawal penalty on the cost basis and the long-term tax savings on the multimillion-dollar gain needs careful modeling.

Given how irreversible and rules-driven this strategy is, any executive sitting on a concentrated, highly appreciated position of employer stock inside a 401(k) — especially those approaching retirement or a job change — should run the numbers with a financial adviser or tax professional well before their triggering event happens, not after.

Once the account is rolled into an IRA, the opportunity to save hundreds of thousands (or more) is gone for good.

Related Content

• Got Company Stock in Your 401(k)? You Should Know about NUD
• 4 Reasons to Roll Over Your 401(k) Into an IRA (And 4 Reasons Not To)
• How to Unlock the Value of Your Employee Stock Options (and Help Avoid Taking a Financial Hit)
• Yay! You've Been Awarded Stock! Boo, the Tax Hit Is Massive: How to Avoid the Mistakes High Earners Make Before They Even Realize It
• The Big Three IPOs: What Retirees Need to Know Now

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As the final quarter of 2026 approaches, you may be taking a closer look at your investment portfolio, weighing which losses are temporary setbacks and which positions no longer make sense to hold.

Thankfully, selling an underperforming investment can not only free up cash to put elsewhere but also offer a tax benefit.

When you sell an investment for less than you paid, the loss can offset capital gains from other investments, reducing the amount of profits subject to tax. And if your losses exceed your gains, federal tax rules allow you to use some of those losses to reduce your other taxable income. The key number to know? $3,000.

Knowing how the IRS nets your gains and losses before December 31 — and how unused losses can carry forward to future years — can potentially make a difference in your tax bill. Here's more to know about the capital loss deduction.

How the $3,000 capital loss carryover works

If your capital losses exceed your capital gains for the year, under IRS rules, you generally may deduct the lesser of your net capital loss or $3,000 against other income on your federal income tax return. For taxpayers who are married filing separately, the annual limit is generally $1,500.

Capital losses first offset capital gains, without the $3,000 limit.

For example, if you realize $10,000 of capital gains and $7,000 of capital losses in 2026, the losses generally offset $7,000 of the gains, leaving a $3,000 net capital gain.

If you instead have $10,000 of capital losses and $4,000 of capital gains, you have a $6,000 net capital loss. You can generally use $3,000 of that net loss to reduce other income on your 2026 federal return, and carry the remaining $3,000 forward.

*This is a fictional, simplified example for educational purposes only.

Unused capital losses generally carry forward indefinitely. In future years, they offset capital gains first; if losses still exceed gains, you can generally deduct up to $3,000 per year against other income ($1,500 if married filing separately) until the carryforward is used.

The carryover must be reported on future returns and is subject to the IRS’s netting and carryover rules.

The loss must be realized

It's important to note that an investment that has fallen in value isn't necessarily a tax loss yet.

Suppose you paid $20,000 for an investment and it is now worth $12,000. As long as you continue to hold that investment, you generally cannot claim the $8,000 decline as a capital loss on your tax return. The loss generally becomes realized when you sell the investment.

This is a fictional, simplified example solely for educational purposes.

That's the principle behind tax-loss harvesting. Investors may sell investments that have declined in value and use those realized losses to offset gains from other investments.

Whether to sell, however, is both an investment and a tax decision. A potential tax deduction doesn't necessarily make selling an otherwise appropriate investment worthwhile.

Selling at a loss doesn't always mean you can claim the loss

The IRS wash sale rule can affect investors who sell an investment at a loss and then buy a substantially identical security.

• Generally, if you sell a security for a loss and acquire substantially identical securities within the 30-day period before or after the sale, the loss may be disallowed for current tax purposes.
• That 30-day window on either side of the sale matters at year-end. Selling an investment at a loss in December and buying it back in January can still result in a wash sale.

The rules can also become more complicated when purchases are made across different accounts or through certain investment plans.

For more information, see our report: The Wash Sale Rule: 6 Things to Know.

Capital loss deduction: What to check before Dec. 31

If you've sold investments during 2026, look at the gains and losses you've realized before the year ends. From a tax perspective, the investments currently showing a gain or loss in your account aren't necessarily the same as the ones that appear on your federal return.

The key is to look at the full picture — not just the investment that is up or down, but what you've already realized this year and how a potential sale might affect your tax strategy.

Also, of course, always be sure to follow applicable IRS rules.

Note: Since this information is provided solely for educational purposes and everyone's financial situation is different, consult a trusted tax professional or financial advisor who can help with your specific circumstances.

Related

• State-by-State Capital Gains Tax Rates
• The Capital Gains Tax Exclusion for Homeowners
• Cut Your Losses With Tax Loss Harvesting in 2026
• Federal Capital Gains Tax Rates for 2026: What to Know

Tax preparation and tax planning are not the same thing. For retirees with pensions, the difference could be worth tens of thousands of dollars over the course of their retirement.

When you think about working with a CPA, you probably think about your tax return. And that makes sense — tax professionals help calculate what you owe, identify available deductions and credits and make sure your return is filed correctly.

But there is a big difference between preparing your taxes and planning your taxes. Tax preparation looks backward. Tax planning looks forward (I wrote a book on this called I Hate Taxes — request a free copy here).

That distinction becomes particularly important for retirees with pensions, substantial savings and multiple sources of retirement income. A pension can provide valuable lifetime income, but it also creates a tax-planning challenge that many retirees don't anticipate: Your retirement income could be higher than it was during some of your working years.

As the founder and CEO of Peak Retirement Planning and a CFP® Professional, I recommend that retirees look beyond their federal income tax bracket and consider how decisions affect Social Security taxation, Medicare premiums, capital gains, Roth accounts and estate planning.

Here are eight retirement tax strategies worth discussing with your financial planning team.

1. Don't automatically dismiss Roth conversions

A Roth conversion involves moving money from a traditional IRA or other tax-deferred account into a Roth IRA and paying income taxes on the converted amount today.

In exchange, qualified Roth withdrawals in retirement are generally tax-free, and Roth IRAs aren't subject to lifetime required minimum distributions (RMDs) for the original owner.

The conventional wisdom around taxes is often simple: Defer taxes as long as possible. But that isn't necessarily the best strategy for every retiree.

Consider someone who has a pension, Social Security and several million dollars in traditional retirement accounts. Their future taxable income could be substantial, as RMDs will eventually force money out of tax-deferred accounts, and pension and Social Security income continues arriving regardless of whether the retiree needs additional cash.

This can create a very different tax picture than the one they had while working. A Roth conversion could make sense when the tax cost today is lower than the expected lifetime tax cost of leaving the money in a traditional account.

However, the calculation should include more than the federal income tax bracket. Social Security taxation, Medicare's income-related monthly adjustment amount (IRMAA), state taxes, future RMDs and estate planning goals all affect the result.

The goal isn't necessarily to pay the lowest tax rate this year; it's to pay the lowest lifetime tax bill.

2. Put charitable giving on your tax-planning calendar

If charitable giving is part of your retirement plan, don't wait until tax season to think about it. Beginning in 2026, a new above-the-line charitable deduction allows eligible taxpayers who take the standard deduction to deduct up to $1,000 of qualifying charitable contributions for single filers and $2,000 for married couples filing jointly.

This creates another planning opportunity for retirees who don't itemize deductions.

But retirees with larger retirement accounts have another important tool: Qualified charitable distributions (QCDs). Once you reach age 70½, a QCD allows you to make a charitable contribution directly from an IRA.

The distribution may satisfy part or all of an RMD, subject to applicable limits, while generally keeping the transferred amount out of adjusted gross income.

That distinction matters. For a retiree with a pension, keeping taxable income under control could have ripple effects beyond the income tax return, as it can influence Medicare premiums and the taxation of Social Security.

Charitable retirees therefore shouldn't simply ask, "How much can I deduct?" They should ask, "Which account should the charitable gift come from, and when should I make it?"

3. Stop treating tax preparation as tax planning

Your CPA might prepare an excellent tax return, but that doesn't necessarily mean you're receiving comprehensive retirement tax planning.

Tax preparation is largely reactive — the tax year has ended, your income and transactions are known, and your professional calculates the resulting liability.

Tax planning is proactive. It asks questions such as:

• Should you make a Roth conversion this year?
• How much should you convert?
• Which account should fund your next withdrawal?
• How will an RMD affect your tax bracket?
• Could a large capital gain increase your Medicare premiums?
• Should you delay Social Security?
• How will your tax strategy change after one spouse dies?
• Where should assets be held for tax efficiency?

These decisions often need to happen months or years before the tax return is prepared.

Retirees shouldn't necessarily expect one professional to handle every aspect of the process. Instead, the CPA and financial adviser should communicate so that investment and tax decisions work together rather than operating in silos.

That collaboration can be especially valuable for retirees with pensions, because the interaction between guaranteed income, retirement accounts and government benefits can add a lot of complexity to your plan.

4. Build tax diversification into your retirement portfolio

Most investors understand investment diversification: Don't put all your money in one stock or one asset class.

The same concept applies to taxes. Retirees may potentially benefit from having assets spread among three different tax "buckets":

• Tax-deferred. Traditional IRAs, 401(k)s, 403(b)s and similar accounts
• Tax-free. Roth IRAs and other qualifying Roth assets
• Taxable. Brokerage and other non-retirement accounts

Having everything in tax-deferred accounts could create a problem later. When you need money, you have limited flexibility — withdrawals generally create taxable income, and RMDs will eventually force distributions whether you need the money or not. A Roth account provides another option.

Suppose tax rates are relatively high in a particular year. You could draw more heavily from Roth assets, assuming the withdrawals are qualified, rather than adding more taxable income.

In another year, when your taxable income is lower, drawing from a traditional IRA could be more attractive.

Tax diversification gives retirees choices, and in a retirement that could last 20 or 30 years, flexibility has real value.

5. Pay attention to the "three-legged stool" of retirement income

Pension retirees often have three major sources of income:

• A pension
• Social Security
• Withdrawals from retirement accounts

Individually, each might be beneficial, but together they can create a surprisingly large stream of taxable income. A retiree with a $70,000 pension, $50,000 of Social Security and significant IRA withdrawals could have considerably more taxable income than they expected when they first retired. The consequences extend beyond ordinary income taxes.

This increased income could cause up to 85% of Social Security benefits to be taxable and can also push long-term capital gains into higher brackets, eliminating opportunities to realize gains at the 0% rate.

Medicare Part B and Part D premiums increase through IRMAA, when income exceeds certain thresholds. That means an additional dollar of taxable income isn't necessarily just another dollar subject to income tax. It could also contribute to higher Medicare premiums.

For pension holders, this is one reason tax planning needs to look beyond the tax return.

6. Don't overlook the tax implications of pension decisions

Choosing between pension options is primarily an income-planning decision, but taxes deserve a seat at the table.

For example, someone might be deciding between a monthly pension benefit and a lump-sum distribution. The choice involves numerous factors, including longevity, investment risk, survivor benefits, liquidity and spending needs.

Taxes are only one piece of that decision, but they influence the long-term outcome. Survivor benefits deserve particular attention, as while you may be able to file jointly now and enjoy the more favorable tax brackets, one spouse passing away could result in a severe increase in your tax and IRMAA situation. Not to mention the potential to lose a Social Security benefit.

That combination creates what is commonly called the widow's penalty. A pension strategy that looks perfectly reasonable while both spouses are alive could create a very different tax picture for the surviving spouse.

In some situations, Roth conversions during the couple's joint-filing years could help reduce the future tax burden. The key is to model the decision before making an irrevocable pension election.

7. Make your investment strategy tax-efficient, not just return-efficient

Retirement investing isn't only about selecting investments that you believe will perform well. It's also about deciding where those investments should live.

For example, highly appreciated assets held in a taxable brokerage account create capital gains when sold. Meanwhile, mutual funds often distribute taxable capital gains even when you didn't sell the fund yourself, creating "phantom gains."

Those distributions might make tax planning more difficult because you don't necessarily control when the taxable income occurs. Tax-loss harvesting is another strategy worth considering. Selling an investment that has declined in value generates a capital loss that offsets capital gains, subject to applicable tax rules.

The proceeds could then potentially be reinvested in another investment while maintaining a similar overall portfolio strategy, provided you follow the wash-sale rules.

Asset location matters, too. Growth-oriented investments could be particularly attractive inside a Roth account because future qualified growth can be tax-free.

More conservative investments could potentially fit better in traditional accounts, while certain investments in taxable accounts often benefit from favorable capital gains treatment.

The best location depends on the entire portfolio, not simply the investment itself.

8. Don't let your pension create a retirement tax trap

Here's the overarching issue pension holders need to understand: A guaranteed income stream could make retirement taxes more complicated, not less.

Many retirees have relatively little taxable income, so they remain within the standard deduction or lower tax brackets. Pensioners with significant savings can have a different experience.

Their pension continues producing income. Social Security then becomes partially or largely taxable. Their retirement accounts continue growing. Eventually, RMDs begin. If they don't need those RMDs for living expenses, they often reinvest the money in a taxable account, creating another layer of potential capital gains and taxable investment income.

The result is a cycle in which one source of income affects another. That's why retirees with pensions and substantial assets should look at taxes as a long-term planning issue rather than an annual filing exercise.

The objective isn't to eliminate taxes. Instead, the goal is to coordinate the different pieces of a retirement plan so that you aren't unnecessarily creating taxable income, Medicare surcharges or avoidable tax bills later in life.

The bottom line

Retirement tax planning isn't about finding one magic strategy; it's about understanding how today's decisions affect the next 10, 20 or even 30 years.

• A Roth conversion could be beneficial in one situation and counterproductive in another
• A charitable gift could comprise cash, appreciated investments or an IRA, with different tax consequences
• A pension election could affect the surviving spouse's future tax burden
• And the way investments are allocated among taxable, tax-deferred and Roth accounts may influence how much flexibility you have later

Perhaps most importantly, tax preparation and tax planning should not be confused. Your tax return tells you what happened. A comprehensive retirement tax plan asks what you can do about what happens next.

For retirees with pensions and significant savings, that distinction could be one of the most valuable parts of their retirement strategy.

Now, for those who have a financial planner who says, "I am not a tax professional, go talk to your tax preparer": It may be time to find a new adviser. We believe retirees should work with what we call a "one-stop shop," where the CPA and financial planners work in the same office to ensure the above strategies get implemented.

Related Content

• Why a Roth Conversion Is Wrong for Most People But Often Right for Pension Holders
• 13 Things to Know About How Your Pension Affects Your Taxes in Retirement
• Many Retirees With a Pension and $1 Million-Plus Do These 7 Things (and Regret It Later)
• 10 Retirement Fixes You Can Implement Today to Strengthen Your Financial Plan
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When the world gets expensive, uncertain and volatile, the investors who win are the ones who move toward tangible assets and tax efficiency, not away from them.

Let me paint the picture.

• Oil is above $80 a barrel and volatile
• Gas is hovering around $4 a gallon nationwide (and above $6 in parts of California)
• The Strait of Hormuz, through which roughly 20% of the world's oil supply normally flows, has been contested and largely closed since early March — the International Energy Agency has called it the largest supply disruption in the history of the global oil market
• Moody's recession model is sitting at 49%
• Mortgage rates have climbed back above 6%

If your instinct right now is to freeze, to sit on your hands and wait for the smoke to clear, I understand the impulse. But I'd also argue that's exactly the wrong move.

Because buried inside this chaos is one of the most compelling arguments for tax-advantaged real estate investing that I've seen in my career.

Let me explain what I mean.

When everything else gets expensive, real estate gets interesting

Inflation is the silent killer of stock market portfolios. When oil prices spike, the cost of everything follows: Food, shipping, manufacturing and consumer goods. Corporate margins shrink. Consumer spending contracts. Stocks, which are priced on future earnings expectations, take the hit.

Real estate, on the other hand, has a fundamentally different relationship with inflation. Rental income tends to rise with inflation, because landlords adjust rents as costs increase. Property values tend to hold or appreciate because the replacement cost of building new construction rises with materials and energy prices. And the debt on the property, which is typically fixed-rate, becomes cheaper in real terms as the dollar loses purchasing power.

In other words, inflation erodes the value of what you owe while increasing the value of what you own. That's not a bad deal.

This dynamic doesn't guarantee positive returns in every scenario, of course. Rising mortgage rates can suppress transaction volume and put downward pressure on prices. But for investors who already own real estate, or who are exchanging into it using tax-advantaged strategies, the inflationary environment actually strengthens the fundamental case for staying in the game.

One crisis, three investors, three strategies

Let's look at how this energy crisis is affecting three very different investors and how each one is using the current environment to their advantage.

Nadia is a 58-year-old landlord who owns a small strip center in suburban Houston. She's been thinking about selling for years, but the capital gains tax bill has always stopped her cold. Now, with commercial property values still holding steady in her market but stock portfolios getting hammered, she's fielding calls from buyers who want to move money out of equities and into something tangible. Her property is suddenly more attractive to a wider pool of buyers than it has been in years.

Nadia's move: Sell now while buyer demand is strong, execute a 1031 exchange and roll the proceeds into a portfolio of Delaware statutory trusts. She defers the entire capital gains tax, exits active management and picks up monthly passive income from institutional-grade real estate, the kind of property that weathers inflationary storms better than a strip center with two vacant units.

She also captures bonus depreciation through DSTs that have undergone cost-segregation studies, creating paper losses that offset her passive income and reduce her current tax bill.

David is a 44-year-old software executive who sold $2 million in company stock when his restricted stock units (RSUs) vested in January. He was already sitting on a significant capital gain. Then the market cratered, and now he's watching his remaining portfolio shrink while staring at a six-figure tax bill on the shares he already sold.

David's move: Invest the capital gains from his stock sale into a Qualified Opportunity Fund within his 180-day window. He defers the tax on those gains through the end of 2026 and, more importantly, starts the 10-year clock toward completely tax-free appreciation on any growth within the QOZ investment.

His money moves from the stock market — which is at the mercy of oil prices, geopolitics and Federal Reserve press conferences — into tangible real estate in communities poised for long-term growth.

Ten years from now, if all goes well, the IRS doesn't see a dime of the new appreciation.

Patricia and Ray are both 67, and they're done. Done with tenants, done with maintenance, done with the stress of checking their brokerage account every morning to see what the latest Strait of Hormuz headline did to their retirement savings overnight. They own a rental duplex worth $800,000 and a stock portfolio that lost 15% of its value earlier in the year. They want simplicity, stability and income they can count on.

Their move: Sell the duplex via a 1031 exchange into DSTs for the real estate side, eliminating landlord duties while deferring the capital gains. For the stock portfolio, they harvest losses on their worst-performing positions to offset gains elsewhere and redirect a portion of any remaining gains into a QOZ fund.

The combination gives them passive income from the DSTs, tax-loss harvesting from the stock sell-off and a long-term growth vehicle in the QOZ. They've turned a crisis into a retirement plan.

Why timing matters more than usual

There are three reasons why this particular moment demands attention.

First, the Opportunity Zone clock is ticking. Deferred gains from earlier QOZ investments come due on December 31, 2026. If you're making a new QOZ investment today, you're still under the OZ 1.0 rules, which means the 10-year tax-free appreciation benefit is fully intact.

And with the OZ 2.0 maps being drawn, which began on July 1, investors who understand both programs will have a significant edge over those who don't.

Second, bonus depreciation is back at 100%, permanently, thanks to the One Big Beautiful Bill Act. For high earners investing in DSTs with cost-segregation studies, this creates the opportunity to offset passive income with accelerated first-year depreciation deductions. In an inflationary environment where every dollar of tax savings matters more, this benefit is amplified.

Third, the energy crisis itself is creating urgency among sellers and opportunity among buyers. Landlords who are spooked by rising costs and uncertain economic conditions are motivated to sell. Investors fleeing the stock market are looking for stable, income-producing alternatives.

The result is a marketplace where well-advised buyers using 1031 exchanges, DSTs and QOZ strategies can acquire quality assets at attractive valuations while deferring or eliminating taxes in the process.

The bigger picture

Every major economic disruption in modern history — the 1973 oil crisis, the 2008 financial collapse, the 2020 pandemic — has reshaped how investors think about risk, tangibility and tax efficiency. The 2026 energy crisis will be no different.

When the dust settles, the investors who moved toward real estate and deployed tax-advantaged strategies during the turbulence will have built portfolios that are more resilient, more diversified and more tax-efficient than those who waited for calm seas that may be years away or may never come.

The tools are all on the table: 1031 exchanges for tax-deferred repositioning, DSTs for passive income and bonus depreciation and Qualified Opportunity Zones for tax-free long-term growth.

Each one is powerful on its own. Used together, in the hands of an adviser who understands how the pieces fit, they become something close to a complete playbook for navigating exactly this kind of environment.

The crisis is real. But so is the opportunity. The only question is whether you're positioned to take advantage of it.

Related Content

• What a Delaware Statutory Trust Can Do for Your Kids That Your Will Can't
• DST Inventory Just Hit a Record $3.9 Billion: What 1031 Exchange Investors Should Do Next
• Your Stock Portfolio Just Got Hammered: Here's a Tax-Smart Way to Recover
• Don't Defer Retirement if You're a Landlord, Defer Taxes Instead
• I'm a Real Estate Investing Pro: This Is How to Use 1031 Exchanges to Scale Up Your Real Estate Empire

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When money or property changes hands after a loved one passes, the tax rules surrounding inheritance taxes and estate taxes can feel daunting.

Additionally, many people may have heard claims about owing IRS tax bills after an inheritance or intimidating phrases like "death taxes," which can blur the lines between myth and reality. In fact, a new survey conducted by Morning Consult for Kiplinger's Trillion Dollar Talk campaign found that a third of both older adults and adult children are unsure whether heirs will owe taxes on an inheritance, demonstrating the confusion around this topic.

As with all tax rules, knowing the facts is important. So why not test your knowledge with this short quiz to see if you can separate inheritance tax facts from fiction.

More Trillion Dollar Talk

• We Asked 5,000 Americans About Inheritance and the Great Wealth Transfer. Here's What We Learned
• Estate Tax v. Inheritance Tax: Who Actually Pays?
• States That Won't Tax Your Death
• What Happens With Taxes When You Inherit a House?

Your friend is running a race for a local charity. Do you make a donation?

A natural disaster has occurred. Do you want to donate to help out?

You're checking out at your local store and get a prompt asking if you want to round up for charity. Do you do it?

While many of us are basking in the hazy days of summer vs the cold reality of the months to come, the warm weather seems to bring a lot of "Giving Tuesdays." The asks for everything from swim teams to summer camps to walk-a-thons begin to add up, leaving me to ponder: "Am I giving enough?"

So, while the end of the year feels a long way away, this time of year is a good time to think about creating a giving plan for the rest of the year and identifying how you want to maximize the tax benefits for your gifts.

There are a few key components to unpack with this process. Some include:

• Is charitable giving important to your core values?
• What capacity do you have to give to charities?
• How much can you give to receive a tax benefit?

The causes

Every one of us, without too much trouble, could find, or be asked, to give to a charity every day. There are plenty of groups that need help (some we've never heard of) and plenty of people (some we've never met) looking to raise cash.

Psychologically, if I give to something in a reactionary way — maybe I got put on the spot to give — I'm most likely going to feel less connected to the outcome, and the feel-good nature of the gift will be fleeting.

So, how do conversations with my clients go? Especially with those who might have a significant capacity to give.

I always advise my clients who are charitably inclined to set an intentional giving plan. This means rather than scattering a few dollars here or there based on various fundraisers, pick one or two core causes that align with your personal values.

Local youth sports? Animal welfare? Your alma mater? A local house of worship? Take the time to see if these fit the legacy you want to leave. After determining the cause, spend the time to do the due diligence on the charitable options presented in that space.

Look at the mission and the impact measurements, as well as the financials of an organization so you feel more confident that your investment is going to be spent in a way that you feel good about and aligns with your own goals and values.

What's your giving capacity?

Once you've determined that you want to give to charity, it's important to look at your personal capacity to give.

Everyone has different demands on their bank account. If someone is in a position where they need to pay off high interest debt, build an emergency fund or saving for a large purchase or a college education, their capacity is going to look differently than someone who doesn't have any of those events looming, is fully funding their retirement plans and is in their peak earning years.

While charitable giving is initially driven by values and purpose, it's OK to also want to maximize the financial advantages associated with giving to nonprofit organizations.

By the numbers

It's important to address upfront that while giving your money to something you believe in can feel good, a dollar-for-dollar tax deduction is not guaranteed.

In truth, a deduction lowers your taxable income, rather than your final tax bill.

The next key thing to know is the level of deduction you are eligible for depends on whether you take the standard deduction or itemize.

The standard deduction for 2026 tax year is $16,100 for single filers and $32,200 for married couples filing jointly — leaving many Americans finding themselves in the standard-deduction camp.

For a long time, this meant that you wouldn't get any deduction for giving to charity. But, as a result of the One Big Beautiful Bill Act, passed on July 4, 2025, taxpayers utilizing the standard deduction will now be able to receive a deduction for charitable gifts up to $1,000 for single filers and $2,000 for married couples filing jointly.

For individuals who itemize, there is a new floor for deductions. The amount given to charity that is equivalent to the first 0.5% of adjusted gross income (AGI) is not deductible, and for taxpayers in the top tax bracket, the tax benefit of the charitable deductions is capped at 35% rather than 37%.

Meaning if you have $500,000 AGI and charitable contributions of $20,000, then the first $2,500 (0.5% of $500,000) is not deductible, but the remaining $17,500 is. But, because you're in the highest bracket, the benefit is capped at 35%. In this example, the gift produces about $6,125 of federal income tax savings.

For individuals who want to get more of a tax benefit, but don't give enough in a single year to make the most of these limits, there is an idea called "bunching." Instead of giving a small amount every year, they can bunch two or three years of giving into a single year.

As a reminder, in order for you to receive a charitable deduction for your donation, the charity you choose must be a registered 501(c)(3) organization. So, while giving money to a friend's GoFundMe page after they experience misfortune is kind, it's not tax-deductible.

Additionally, for gifts of $250 or more, taxpayers must receive a formal acknowledgment letter from the charity confirming the donation and making it clear that they didn't receive any goods or services in return for their largesse.

So, should you be giving more to charity? Well, many of us could probably give more.

But a better question — and one I always ask my clients — might be: Are you giving in a way that reflects your values and maximizes the impact you want to have?

When charitable giving is approached with intention rather than obligation, it becomes more than a tax deduction or a response to the latest fundraising appeal.

It becomes an expression of purpose, a reflection of personal values and an opportunity to create meaningful change for the causes and communities we care about most.

Having a plan in place for your charities and your taxes makes great sense — especially as peak giving season approaches.

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• 3 Reasons Young People are Filled With Financial Anxiety — and How to Help
• Tending to Your Estate Plan? Don't Forget to Give Your IRA Some Love

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As the saying goes, there are only two certainties in life: Death and taxes. But when it comes to estate planning, many Americans are reluctant to spend time thinking about either.

According to a new survey conducted by Morning Consult on behalf of Kiplinger, only about 56% of parents admitted to having a conversation with their children about inheritance. That number drops to just 39% when you ask adult children whether they've had a discussion about family plans for passing on money and assets.

The lack of engagement and understanding is also stark when it comes to estate taxes, according to the survey. Roughly 40% of both children and parents say they're "not sure" whether taxes will apply to any inheritance plans.

Considering the U.S. is already in the beginning stages of the Great Wealth Transfer, in which members of the massive baby boomer demographic reach the end of their lives, this kind of procrastination with estate planning comes with a real cost. By some estimates, the collective fortune to be passed to younger generations tops well over $100 trillion in value.

Naturally, you want to ensure that your financial legacy stays in the hands of your loved ones, and doesn't get consumed by the Internal Revenue Service. Perhaps you're making arrangements for your own estate. Maybe you're overdue for such a plan and don't know where to start.

Whatever the case might be, take a few minutes for an introduction to the most tax-efficient ways to leave investments to your children.

1. Hold appreciated investments until death

A lot of research shows that the best strategy for investing is to buy and hold stocks for very long periods rather than actively trading in and out of fads. When it comes to tax planning, one of the best strategies for the stocks that have appreciated over the long-term is to hold them until the day you die.

According to IRS rules, heirs are frequently eligible for a "step-up" in cost basis to the asset's fair market value at the date of death. That has the potential to entirely eliminate capital gains taxes on a stock's appreciation over the original owner's lifetime.

Considering long-term capital gains can be 15% or more of the profits on a stock sale, this strategy of handing down the stock itself can result in significant cost savings.

If you've invested wisely and have big winners, one of the most tax-efficient ways to leave investments to your children is to not liquidate shares or to pass on the stock as a gift while you're still alive. Just let your heirs inherit the stock and do the selling directly.

2. Make your 401(k) and IRA beneficiaries your heirs

For many families, one of the biggest legacies they'll leave is the retirement funds in a tax-deferred retirement account such as a 401(k). As the term implies, the taxes on this money were deferred when originally invested. When withdrawals are made, the IRS is due its share.

The challenge is that withdrawals from such an account are taxed as "ordinary income," so a big one-time windfall results in a big tax bill. For example, current tax brackets include a 24% tax rate on anything above $105,701 — and a hefty 32% rate on anything above $201,776.

Because this ordinary income category includes an employer's paycheck, an heir who makes a decent living might find themselves in a steep tax bracket even if the distribution from your estate is relatively modest.

This is where adding heirs directly to your account can help. The IRS generally allows 10 years for nonspouse beneficiaries to liquidate an account such as a 401(k). As such, they can withdraw the money in smaller chunks on their own terms to maximize tax savings.

While there's no way to avoid taxes entirely on an inherited 401(k) or traditional IRA, this longer runway allows heirs to avoid a big one-time tax hit from a single distribution.

3. Regular gifts under the tax threshold

If you want the warm feeling of delivering some cash into your child's hands so you can watch them enjoy it, there are also ways to pass on assets now without running afoul of the tax man. Parents can gradually transfer investments during their lifetimes using the federal annual gift tax exclusion.

The maximum annual tax-free gift as of 2026 IRS rules is $19,000. That's a nice chunk of change by itself, but you can also continue to provide that gift annually – and to as many different individuals as you see fit — to transfer significant wealth over time.

What's more, making annual gifts in this manner might reduce the size of a taxable estate after death.

As long as you don't cross the threshold in a given year, your heirs won't have to claim the cash on their tax returns. They also can put that money to immediate use to take a trip, put a down payment on a house or anything else — while you have the benefit of seeing them put your gift in action.

4. Irrevocable trusts

It's worth noting that most families won't face significant tax burdens by deploying the strategies above. However, if your estate is particularly large, a comprehensive irrevocable trust might be in order.

Irrevocable trusts are commonly used by higher-net-worth families to remove future appreciation from a taxable estate by permanently giving ownership of assets to a trust. That trust then manages those assets for the benefit of other people and can deliver the cash according to the grantor's instructions.

This is the big artillery when it comes to the most tax-efficient ways to leave investments to your children.

Trusts have numerous benefits, including protecting assets from creditors or lawsuits as well as taxes and allowing you a measure of control on how your heirs spend their inheritance long after you've passed away.

However, the word "irrevocable" is not to be taken lightly. Many estate planners call such a trust a one-way street because you can't change your mind to get the money back or about your directions.

That said, these trusts can sometimes span multiple generations and efficiently protect a hard-earned fortune from eroding, thanks to mismanagement or heavy taxes.

5. Financial planning is personal, so talk about it

The Morning Consult survey conducted for Kiplinger found that almost a third of all U.S. parents say they have no formal estate plan — including failing to document arrangements in a will. There are many reasons for this including the fact that some families don't have significant assets to pass on.

But it's also simply a matter of avoiding the topic.

Estate planning begins by taking stock of what you want to leave behind when you're gone. These financial goals will naturally be personal, based on your specific portfolio, as well as your family situation and your final wishes.

You have a sense of your situation; consider talking with a good estate planning attorney or tax adviser next. These professionals can be well worth their fees by providing tailor-made solutions in which various investing and tax strategies can be used in complementary ways.

Most important: Share your plans clearly with your heirs before it's too late.

Nobody likes to dwell on death or taxes, but they're realities for all of us. If you're confused about how to arrange your estate, the simplest way to begin is by talking about it.

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• Could You Handle a Sudden Windfall?

With a challenging economy and rising business failures and bankruptcies, the need for thoughtful asset protection planning is greater than ever.

Asset protection is a layered strategy — a financial fortress built one wall at a time — and the right combination of tools depends on your needs, your risk profile and your circumstances.

Understanding what asset protection is — and is not — is essential: Done properly, it is not about hiding assets or evading legitimate debts, but it is entirely lawful and transparent.

The goal is to structure your affairs so that reaching your assets becomes difficult, slow and expensive for a creditor — changing the economics of a dispute so a claimant is motivated to settle for a fraction of the claim, if anything at all.

While the objective is not mere concealment, legitimate steps such as holding real property in an anonymous LLC can keep your ownership out of public view, since title to real property is a matter of public record.

Protection layer No. 1: The right business entity

The foundation of most plans is to operate any active trade or business through a properly formed and maintained entity, most commonly a C corporation, an S corporation or an LLC.

The purpose is liability containment: A shareholder or member is generally not personally liable for the entity's debts, so long as corporate formalities — separate bank accounts, adequate capitalization, documented governance and arm's-length dealings — are respected. However, the extent of the protection depends on the nature of the claim, the creditor and all the circumstances.

For example, a corporation or LLC is formed for liability protection, but the business owner fails to pay the employees' share of payroll taxes. Most states and the IRS provide for personal liability of not only the corporate or company officers but anyone with control over the business accounts.

The benefits of the limited liability entity were lost for failure to pay the employees' share of the payroll tax liability.

Ignoring those formalities invites veil-piercing or alter-ego claims that reach the owner personally. The choice among entities is driven mainly by taxation:

• A C corporation is a separate taxpayer subject to double taxation
• An S corporation is a pass-through but is limited to 100 eligible shareholders and a single class of stock
• An LLC is the most flexible, offering pass-through taxation by default with the option to elect other treatment

Protection layer No. 2: Foundational estate planning

Before layering on advanced tools, everyone should have a foundational estate plan, because incapacity or death can itself expose assets and because the advanced structures are built on these documents.

The core documents are:

• A revocable living trust, to avoid probate and manage assets on incapacity
• A pour-over will, to name an executor and guardians and catch assets left outside the trust
• Durable powers of attorney for financial and healthcare decisions
• An advance healthcare directive
• A HIPAA authorization

Key considerations include properly funding the trust, coordinating beneficiary designations on retirement accounts and life insurance and using discretionary and spendthrift provisions so that what you leave to children is shielded from their future creditors and divorcing spouses.

A revocable trust avoids probate, but, because you retain control, it does not protect your assets from your own creditors during life; a blind trust — which can even be a revocable trust whose name does not identify you — can hold title to real property without revealing your name in public filings.

Protection layer No. 3: Statutory exemptions

State and federal law already shield specified assets without any special structuring, so careful planning means identifying and maximizing the exemptions available where you live.

The homestead exemption protects equity in a primary residence, but the amount varies enormously by state — from a few thousand dollars to a capped figure (California ties its exemption to countywide median home prices), to the effectively unlimited exemptions in Florida and Texas.

Retirement assets receive some of the strongest protection: ERISA-governed plans such as 401(k)s enjoy a federal anti-alienation shield, and IRAs are protected in bankruptcy up to an inflation-adjusted cap.

Most states also exempt some combination of life insurance cash value and annuities, a motor vehicle up to a set value, household goods, tools of the trade, a portion of wages, public benefits such as Social Security and workers' compensation, college savings accounts and a "wildcard" amount — and some protect property held as tenancy by the entirety from the creditors of only one spouse.

A well-known illustration is the O.J. Simpson matter: After a roughly $33.5 million wrongful death judgment for the Goldman and Brown families, little was collected, in part because his NFL pension and other retirement assets were beyond creditors' reach, and he'd moved to Florida, where the homestead exemption is essentially unlimited in value.

Protection layer No. 4: Limited liability entities

Holding investment assets and real estate in limited liability entities such as LLCs and limited partnerships adds a layer of separation and changes the remedies available to a creditor.

Their signature feature is the charging order, which in many states limits a creditor to a lien on distributions rather than the entity's assets — and where the charging order is the exclusive remedy, the creditor cannot foreclose on the interest or force a distribution, improving settlement posture.

The strength of this protection varies by state: Nevada makes the charging order the exclusive remedy even for single-member LLCs, one of the strongest positions in the country, while single-member LLCs are weaker elsewhere (Florida's Olmstead decision is the well-known example, since addressed by statute).

Holding real property in an anonymous LLC also keeps ownership off the public record, though this is privacy, not concealment, and transfers into an entity remain subject to fraudulent transfer law.

Protection layer No. 5: Marital planning

For married couples, careful planning can shift lower-risk assets to the spouse less exposed to liability. The mechanics depend on the marital property regime:

• In community property states, community property is generally reachable for the debts of either spouse, so planning may involve a written transmutation or partition agreement converting it to the separate property of the lower-risk spouse
• In common-law states, titling — and, where available, tenancy by the entirety — controls ownership.

Premarital (prenuptial) and postmarital (postnuptial) agreements are central tools, characterizing assets as one spouse's separate property and defining how future earnings are owned — generally enforceable only with full financial disclosure, independent counsel for each spouse and the absence of duress.

This planning must be proactive: A transfer to a spouse made after a claim arises can be unwound as a fraudulent transfer, and it carries divorce-related risk that should be weighed separately.

Protection layer No. 6: Domestic asset protection trusts

A domestic asset protection trust (DAPT) is a self-settled spendthrift trust that, contrary to the traditional rule, lets you remain a discretionary beneficiary while shielding trust assets from many creditors after a seasoning period.

DAPTs are authorized or permitted in 20 states, which include Alaska, Delaware, Nevada, South Dakota, Tennessee and Wyoming. Nevada is often favored for its lack of a state income tax, short two-year seasoning period and absence of statutory exception creditors.

A DAPT can also enhance privacy, since assets titled in the trust's name are not held in your own name.

Residents of states hostile to self-settled trusts — California, in particular — should plan carefully, often using a third-party trust (for the benefit of a spouse, child or parent) rather than a self-settled DAPT.

Protection layer No. 7: Foreign and hybrid trusts

A fully foreign trust is often considered the highest level of protection because it places assets beyond the easy reach of U.S. courts, but it carries the heaviest U.S. tax compliance from the outset, including foreign trust and foreign account reporting (Forms 3520 and 3520-A and FBAR filings).

The hybrid trust captures the benefit while deferring that cost: It begins as a DAPT and stays domestic until a defined threat arises, at which point the U.S. trustee resigns, and a predesignated foreign trustee takes over.

Because a trust is generally governed by the law of the jurisdiction where the trustee sits, that change shifts the trust into an offshore regime such as the Cook Islands, Nevis or the Cayman Islands — where U.S. judgments are not recognized, registries are private, and, in the Cook Islands, a creditor must prove its case beyond a reasonable doubt with no contingency fees allowed.

Even greater protection comes from also moving the underlying assets offshore, and the heavier reporting is triggered only if the trust actually goes foreign.

One important caution: If you remain within reach of the U.S. courts while your assets sit offshore, a court can order you to repatriate them and hold you in civil contempt — even jailing you until you comply, as happened in FTC v. Affordable Media, LLC and in Re Lawrence.

In both cases, though, the debtor retained control or acted in bad faith; a trust settled in calm weather is harder for a court to reach, but the personal risk of contempt is real.

Critical limitations

The most important rule is timing: Planning must be completed before the events that give rise to the liability.

Every state has a fraudulent transfer statute — the Uniform Fraudulent Transfer Act or its successor, the Uniform Voidable Transactions Act — allowing a creditor to unwind two kinds of transfers:

• Actual fraud, made with intent to hinder, delay or defraud, inferred from "badges of fraud" such as transfers to insiders or after being sued
• Constructive fraud, made without reasonably equivalent value while insolvent, regardless of intent

A voidable transfer can be set aside and clawed back from the transferee.

In asset protection, once a claim is on the horizon, the most effective tools are largely off the table, so implement any plan well in advance and with experienced counsel.

The same principle applies to exemptions, which are powerful but not absolute: In bankruptcy, the homestead exemption is reduced to the extent its value derives from property disposed of within the prior 10 years with intent to defraud a creditor, so last-minute conversions of nonexempt assets into exempt ones can be challenged.

In conclusion

Asset protection works best when it is proactive, layered and tailored to your circumstances.

Beginning with the right operating entity and a sound foundational estate plan, then adding statutory exemptions, limited liability entities, marital planning and — where appropriate — domestic, hybrid or foreign trusts, you can build a financial fortress that stands up to future challenges.

Because the rules vary significantly by state, interact with federal tax and bankruptcy law and turn heavily on timing, this planning should always be done well before any claim arises and with the guidance of qualified counsel.

This article is provided for general informational purposes and does not constitute legal advice. Consult a qualified attorney regarding your specific circumstances.

Related Content

• Domestic vs Offshore Asset Protection Trusts: A Basic Guide From an Attorney
• Got Assets? Attorney Explains How to Protect Them From Greedy Lawsuits
• Eight Types of Trusts for Owners of High-Net-Worth Estates
• What Assets Should You Put (or Not Put) in Your Trust?
• Ins and Outs of Domestic Asset Protection Trusts (DAPTs)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When most people picture retirement, they think of the traditional "hard stop": handing in a resignation and walking away from a career overnight. But some of today's retirees are rewriting the rules.

According to a Fidelity Investments® study, 72% of Americans expect to retire "on their own terms," with 61% opting to phase out full-time work — embracing what many now call a "soft retirement" by transitioning into part-time consulting, freelancing, or passion-driven roles.

"Retirement is being reframed," said Rita Assaf, Vice President of Retirement Offerings at Fidelity Investments, in the Fidelity study's release. "It's no longer a single date and instead is an adaptable stage."

Yet while stepping down gradually may offer lifestyle benefits, like maintaining a sense of structured routine, blending part-time earnings with long-term tax planning takes precision.

For instance, dropping into a reduced federal income tax bracket can open a prime window for lower-cost Roth IRA conversions, but stacking wages on top of those conversions can limit how much you convert.

Here are the ways to navigate this modern trend and coordinate your income without running into unexpected tax pitfalls in 2026.

What is 'soft retirement'?

"Soft retirement" describes working in a reduced capacity during your traditional retirement years. It often pairs with a sister concept, "soft saving" — prioritizing present-day experiences over more aggressive saving strategies like FIRE (Financial Independence, Retire Early).

"Soft saving is the opposite of a movement like FIRE," Melissa Almuttar, H&R Block Director of Financial Services, told Bankrate. "It's the moment where you've had enough, and you want to do something different."

• Soft saving strategies include micro-saving habits like setting up small automatic transfers of your paycheck (like 5% or 10%) into savings or retirement accounts before spending the rest.
• Soft savers direct their discretionary funds toward meaningful purchases like hobbies or self-care while minimizing spending on less significant items (see also: 3 Creative Ways to Lower Retirement Taxes).
• By setting aside less for retirement, soft savers commit to a "soft retirement" — or working more during their golden years — but in a part-time capacity and with something that brings them joy (like getting a job at the local bookstore, for instance).

According to AARP's "The Push and Pull of Work and Retirement" survey, roughly 7% of retirees return to work after retiring, driven largely by economic need (48%) or a desire to stay active (18%).

Soft retirement embraces that flexibility for those who want (or need) additional income. But it comes with certain financial risks.

How soft income impacts 2026 Roth conversions

A common strategy in any retirement plan is converting traditional IRA funds into a Roth IRA. In essence, you pay ordinary income tax on the converted amount from a 401(k) (or other traditional IRA) today, so the funds can compound and be withdrawn federally tax-free from a Roth account later.

However, executing a Roth conversion strategy during soft retirement creates a balancing act. You have to weigh two competing dynamics:

• On one hand, leaving a high-salaried job for a lower "soft retirement" job may drop you into lower federal marginal tax brackets (like the 10% or 12% brackets). This can allow you to convert pre-tax IRA dollars at significantly lower tax rates than during your peak earning years.
• Conversely, unlike a 100% full retirement — where taxable income starts at $0 — part-time earnings create a baseline income floor. So if you earn $30,000 in consulting income, your Roth conversions start on top of that $30,000. This leaves less "space" in lower tax brackets before you push yourself into a higher tier.

Contributing to a Roth as a part-time retiree in 2026

Working part-time in 2026 also allows you to make direct Roth IRA contributions using cash from your paycheck.

To do this, you must meet two IRS rules: your contribution cannot exceed your actual job earnings, and your modified adjusted gross income (MAGI) must stay below the IRS phase-out limits.

• Annual contribution limits for 2026. $7,500 for workers under 50, or $8,600 for those age 50 and older (which includes a $1,100 catch-up contribution).
• Income phaseout thresholds for 2026. Full contributions are allowed up to a MAGI of $153,000 for single filers ($168,000 upper phaseout limit) and $242,000 for married couples filing jointly ($252,000 upper phaseout limit).

So, depending on when (or if) your "soft retirement" becomes a "full retirement," you might want to prioritize funding a direct Roth IRA alongside smaller, strategically timed conversions to help maximize tax-free growth.

Related: New 2026 Tax Change Could Mean More for Your IRA and 401(k) Savings

Four tax traps to avoid during a soft retirement

By stepping away from a financially lucrative career into a lower-paying one, retirees with a soft retirement strategy may face more tax complexities. For instance:

1. Increased health insurance costs. Leaving employer-sponsored healthcare before age 65 requires buying private health insurance or ACA marketplace coverage, which can offset much of your part-time income.
2. Reduced Social Security benefits. Transitioning from full-time to part-time work may incentivize you to claim Social Security early to offset lower wages. However, claiming Social Security before your full retirement age (FRA) permanently reduces the monthly payment amounts you receive — and could push your taxable income higher (and more of your Social Security benefits may be taxed with a part-time job).
3. Higher IRMAA Medicare surcharges. Some retirees may also find that part-time income combined with investment income pushes their modified adjusted gross income (MAGI) higher, triggering the income-related monthly adjustment amount (IRMAA). For 2026, the IRMAA threshold sits at $109,000 for single filers and $218,000 for joint filers.
4. Added self-employment (SE) Tax. Freelancing or consulting income is subject to a 15.3% self-employment tax (covering 2.9% Medicare and 12.4% Social Security) on top of standard federal and state income taxes. If you've never done freelance or contract work before, this may come as a surprise.

Is a soft retirement right for you?

A soft retirement isn't for everyone. It requires lifestyle changes, shifting your professional identity from a senior role to a part-time position, and sacrificing the complete free time you would get in a "full" retirement.

And then there are the financial shifts required. Balancing your retirement budget as you move from higher to lower paychecks, potentially drawing on savings, and entering into complex tax situations all take discipline.

But the payoff may be worth the sacrifice.

"The heart of the new retirement playbook is keeping things personal and practical," Assaf said in the Fidelity release. "Planning is what turns preference into payoff. With the right plan — built around retirement income, taxes, health care, and consolidation, investors can have the tools in their corner to help define a successful retirement journey."

So whether or not you adopt a soft retirement, sitting down with a tax professional can help ensure your golden years hit the ground running — and not a hard stop when you expect a soft landing.

This article does not cover state income tax and is for educational purposes only. The content does not constitute financial, legal, or tax advice.

Read More

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Bob and Sue thought they had it made when they retired at 63. They had hit their savings goal of $2 million, and their house was paid off.

They felt their work stress slip away as they settled into their retired life.

Their morning commute turned into coffee on the porch. The only deadline they had was signing up on time for their pickleball league. And their projection of lower taxes at retirement was spot on.

With Social Security and a pension covering their bills, and their savings account covering "extras" like travel and gifts to the grandkids, their first retirement tax bill was much lower than when they were working.

Life was carefree — until they turned 73 and they got their first notice for required minimum distributions (RMDs).

Thankfully, their retirement money had grown. But now, more than $3.2 million in their traditional retirement accounts was subject to RMDs.

They were required to take out more than $120,000 in taxable income each year, and their RMDs were projected to grow even higher in the future.

When they retired, Bob and Sue figured their RMDs would push them into a higher tax bracket, but they didn't think it would be that bad.

But when they got there, they wished they had done something about the RMD problem sooner.

Sadly, Bob and Sue — and far too many others in their 70s — had missed what I call their "golden tax planning window." In their 60s, they could have chosen how much of their retirement income would be taxable, instead of being required to take a minimum taxable amount when they hit RMD age.

They thought they had their taxes set in their 60s because they had a lower tax bill each year than when they were working.

Yet they were unknowingly making a huge tax mistake each year by failing to use tax planning strategies that would help them avoid nasty tax surprises in their 70s.

Here are the three biggest mistakes I believe retirees can make during the golden tax planning window.

Tax Mistake No. 1: Missing the best years for Roth conversions

Bob and Sue were actually enjoying tax season in the early part of retirement. They were in a lower tax bracket than when they were working and they really weren't worried about how much they owed, or whether they were facing a tax penalty.

But then they were faced with their first RMD of more than $120,000.

That caused their Social Security to go from a small amount showing up as taxable to the maximum 85% showing up as taxable income.

And it pushed them from regular Medicare costs to paying extra through the IRMAA (income-related monthly adjustment amount) Medicare surcharges.

Each low tax year of their 60s felt like a win. Instead, it was a missed opportunity to take advantage of their lower tax bracket by making use of Roth conversions.

A Roth conversion allows you to intentionally pay taxes — within the tax bracket you'd like — by choosing the timing and amount of your traditional IRA that shows up on your tax return.

This level of control on the timing of your tax payments is generally the biggest during your golden tax planning window — the time between when you retire and when your RMDs start at 73.

When you retire in your 60s, your taxable income is generally the lowest it's been in decades. This allows you to convert part of your traditional IRA to a Roth IRA so that your future gains can grow tax-free — and won't be subject to required taxable distributions later on as an RMD.

Here is a three-step action framework I created to help retirees in their 60s make the most of their golden window:

Find your lower-income years: Usually these are the gap years between when you stop working and when guaranteed retirement income (pensions, Social Security benefits, RMDs) begins.

Estimate your future RMDs: Using the IRS' formula, calculate what your traditional IRA balances will be at your RMD ages, how large those RMDs will be and how much you'll have to pay in taxes.

Compare your current versus future tax brackets: If your tax rate on a Roth conversion during your golden window is lower than the tax rate on an RMD will potentially be in the future, that's your opportunity to reduce your overall lifetime taxes.

Tax Mistake No. 2: Forgetting the tax component of Social Security

Bob and Sue were like many retirees who view Social Security strictly as an income decision.

They were like many of their friends, who took their Social Security right away because it helped them get enough income to retire.

Other retirees look at the near 8% growth on waiting to file Social Security and they choose to delay their claiming, so they get the most income later on.

Whether you take Social Security early or late, focusing just on the income component may often mean you overlook the tax flexibility and lifetime tax bill that your Social Security decision can create.

Start claiming Social Security too soon, and you might drive up your taxable income for the rest of your retirement. This could potentially slam shut your golden window for Roth conversions, resulting in higher RMDs later on.

On the other hand, if you start claiming maximum benefits at 70, and you haven't already made moves to reduce the taxable impact of your RMDs, you could be facing the same basket of tax problems.

Sure, in a vacuum, letting your Social Security benefits grow by approximately 8% per year is a smart move. But maintaining long-term financial flexibility and reducing your lifetime tax liability are also parts of the Social Security equation.

Before claiming your Social Security benefits, remember to:

Evaluate your claiming age: Calculate how your projected benefits at various ages affect the other parts of your financial plan — especially taxes and your golden window for Roth conversions.

Compare your tax projections: Run scenarios showing how your taxes could look if you claim at 62 versus claiming at full retirement age and later.

Target Roth conversion opportunities: Once you start taking Social Security, your golden window for Roth conversions starts to close. Make the most of these low-tax years before you are on Social Security so that you're taxed less in the future as well.

Tax Mistake No. 3: Leaving the survivor with the 'widow's penalty'

No one wants to imagine a world without them or their spouse in it. But preparing for both of those difficult scenarios is an important part of retirement planning.

Bob and Sue were fortunate to both be living as they hit their RMD age of 73. But at some point, one of them will pass away. The other could be faced with the same RMD amount but with the single taxpayer brackets, instead of married filing jointly brackets.

When you transition from a married couple filing taxes jointly to a single filer, the tax brackets and the standard deduction are cut in half. But RMD percentages often stay relatively the same — and the taxable RMD amount stays relatively the same.

With a similar taxable distribution, and half the room in each bracket, the widow runs through the tax brackets quicker, getting to the higher tax rates quicker.

For a surviving spouse, the taxable income often stays nearly the same, yet their tax bill goes up.

To avoid this "widow's penalty," you can take the opportunity during your golden window to:

Model survivor tax projections: What will each spouse's income and tax brackets look like if they become a single filer at various ages?

Consider Roth conversions while filing jointly: Take advantage of the wider married filing jointly tax brackets while you both are still living. The more money you can convert into a Roth IRA now, the more potential tax-free money a surviving spouse will have in the future.

Evaluate the long-term household tax burden: Too many 90-year-old widows are living off the income and tax decisions their husbands made decades ago. Couples should plan for each survivor's long-term tax scenario before they start claiming Social Security.

Create your tax-smart retirement plan

When you consider not just this year's taxes, but your lifetime tax bill, your 60s might be the most valuable decade of your entire life.

And while each of these three mistakes — missing out on Roth conversions, forgetting the tax aspect of Social Security and leaving the survivor with the widow's penalty — can be costly, I believe the biggest retirement planning mistake you can make in your 60s is not realizing how each decision coordinates with the other.

The key to retirement planning, which I cover in more detail in chapter 5 of my book Retire Today, is to follow a system that helps you make retirement decisions in a coordinated manner.

During the golden window you can often manage your tax strategy for the rest of your retirement by:

Using your lower-income years intentionally: Pay lower taxes today "on purpose" through Roth conversions.

Evaluating Social Security through a tax lens: Don't just claim benefits because you stopped working. And don't delay taking benefits just to maximize them. Consider, as well, using your Social Security plan to help lower your lifetime taxes.

Planning for the survivor tax situation before it happens: Try to avoid the "widow's penalty" by shifting taxable IRAs to the tax-free growth potential of Roth IRAs while you still have the advantage of larger tax brackets on your married filing jointly tax return.

Remember: Once the golden tax planning window closes, it's likely closed for good. Unlike Bob and Sue, use the lower tax brackets you might find in your 60s to lower your tax bill over your lifetime.

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• Retiring in the Next 12 Months? Answer These 3 Questions Before Your Paycheck Stops
• Are Roth Conversions for Retirees Dead in 2026 Because of the New Tax Law?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Sarah is a successful business owner who invested wisely in real estate decades ago.

Over time, her properties increased dramatically in value, but the properties' tax bases (called "tax basis") are now incredibly low because she had claimed depreciation on the improvements for tax savings.

Now, Sarah faces a challenge: If she sells her properties, she will owe a large capital gains tax based on those low original values, or she must engage in an IRC Section 1031 tax-free exchange.

Sarah's parents, Helen and James, recently retired and had a modest estate well below the $15 million per person ($30 million per couple) estate tax exemption, which if unused at their death would be wasted.

Sarah wondered whether their unused exemption could help reduce taxes on her own properties someday.

At a meeting with her estate planning attorney, Sarah learned about a special estate planning tool called a testamentary general power of appointment (TGPA). The TGPA is regularly used to help taxpayers grant powers to other beneficiaries without subjecting the underlying property to risks the grantee may be subject to.

This power means Sarah could give her parents the right to exercise the TGPA through their wills at their deaths, but if the power was not exercised under their wills, the property to which the power relates is undisturbed.

Why would Sarah do this? Because the assets covered by this power would be included in her parents' estate when they die.

Even though Sarah still owns these assets, they get a big tax benefit when Sarah's parents pass because the tax value of those assets is "stepped up" to their current market value.

For Sarah, this is huge. The property she bought for $200,000, which has now appreciated to $2 million, would receive a step-up in tax basis at the death of Sarah's parents, even if the parents didn't exercise this power via their wills.

If her parents didn't have the power over these assets, Sarah's tax basis would remain at what she paid for the property, less depreciation deductions. If Sarah decided to sell the property for $2 million after her parents died, she would legally owe no capital gains tax.

Due to the step-up in basis at the deaths of her parents, if she decides to keep the property, she receives a new tax basis for purposes of depreciation and amortization to be used to offset the rental income she receives.

Thanks to this planning, Sarah has options she otherwise didn't know existed, which optimize her tax savings for the long term.

What this means for you

If your parents' estate is below the estate tax exemption amount, it might be possible to use their exemption to step up the tax basis of your assets at their deaths.

This strategy can reduce the taxes you pay when you sell or keep valuable investments and real estate.

Working with an estate planning attorney is critical to set this up correctly.

This story is for educational purposes only and is not legal or financial advice. Always consult with a qualified tax specialist or attorney about your situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week in our Ask the Tax Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers on retirement plans and IRAs, including a big change to 401(k) catch-up contributions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. 401(k) catch-up contributions

Question: I am 53, and I make tax-deferred contributions each month to my employer's 401(k) plan. This year, I intend to max out my regular contributions and also make catch-up contributions to the plan. However, I was told by my employer that, because of the amount of my annual salary, I can put catch-up contributions only into my employer's Roth 401(k). Is this true?

Joy Taylor: Yes. This change, which was enacted under the 2022 Secure 2.0 Act, first takes effect this year. Employees who are 50 and older, and whose annual compensation exceeds $150,000 in 2025, can make 401(k) catch-up contributions only to a post-tax Roth 401(k). Note that the IRS offered a grace period until 2027 for employers and plans to implement the rule in good faith, but many employers have already done so.

2. Roth IRA conversions

Question: I am 75 years old. I am thinking of converting a portion of my traditional IRA to a Roth IRA. Can I do that before taking my required minimum distribution (RMD) from my traditional IRA for the year?

Joy Taylor: No. You must first take your annual RMD for the year before doing the Roth conversion.

For people with multiple traditional IRAs, the rule that you must take your annual RMD before doing a Roth conversion for the year can be tricky. That’s because if a person has multiple traditional IRAs, the total aggregate RMD for the year must be withdrawn during the year before doing a Roth conversion from any of the traditional IRAs. (Note that this doesn’t include RMDs from 401(k)s or other workplace retirement plans.)

3. IRA inherited from spouse

Question: My wife passed away last year in late December. She had a traditional IRA, and I am the beneficiary. After she died, I elected to have her IRA funds added to my traditional IRA, but that didn't happen until February of this year. How do I calculate my RMD for 2026?

Joy Taylor: Since you rolled your deceased wife's IRA into your own IRA, you are treated as owning the IRA. So you determine your RMD as if you were the owner, beginning the year you are deemed to be the owner (that would be 2026, when you added the funds to your IRA). You would then determine your RMD for 2026 using your life expectancy. I am guessing your wife, while alive, already took her RMD for 2025, the year of her death. If not, you have until December 31, 2026, to do so.

4. Inherited Roth IRA

Question: I inherited a Roth IRA from my uncle earlier this year. Do I have to take annual RMDs?

Joy Taylor: No. Roth IRA owners do not need to take RMDs. You should, however, be aware of the 10-year rule for inherited IRAs. Similar to the rules for traditional IRAs, many non-spousal beneficiaries of Roth IRAs inherited after 2019 must clean out the account by the end of the 10th year after the owner’s death.

Because Roth IRA owners are not required to take annual RMDs, beneficiaries of inherited Roth IRAs needn’t worry about whether the original account owner died before or after the starting date for taking RMDs. Roth IRA beneficiaries can opt to clean out the account in year 1, wait until year 10 to take out all the Roth IRA funds, skip years, or take annual distributions, provided they fully deplete the Roth IRA within the 10-year period.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Estimated Tax Payments and Withholding
• Ask the Editor: Questions on Selling a Home
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Tax Rules for Landlords

From Andrew Carnegie to Mackenzie Scott, America has a long and proud tradition of producing great philanthropists who have erected universities and cultural institutions and bestowed generous gifts to causes and communities.

But it's not just centi-millionaires and billionaires who are generous — average Americans are committed to charitable giving, too. According to a survey from the Associated Press-NORC Center for Public Affairs Research, roughly three-quarters of U.S. adults say their households have donated to a charitable cause.

While "'tis better to give than to receive," it does help that the U.S. tax code rewards generosity. Of course, the structure of the gift is important when considering the tax implications of philanthropy.

Heading into the second half of the year, many people begin to think carefully about their year-end giving strategy. Here are four structures to consider.

Direct giving

The simplest, most straightforward way to give to a charitable organization or cause is direct giving. While most people think philanthropy must involve monetary donations, you can also gift appreciated securities, automobiles, recreational vehicles, boats and other personal items, all of which will also qualify for a tax benefit.

Direct gifts of appreciated securities, for example, may allow donors to avoid recognizing capital gains while potentially receiving a charitable deduction for the full fair market value, subject to applicable IRA rules.

Not only is this the most common form of giving, it can also supplement the other structures outlined below.

Donor-advised funds

Donor-advised funds (DAFs), which effectively separate the tax savings from the charitable-planning component, are becoming increasingly popular.

With a DAF, an advisor opens the fund, and the donor immediately receives an eligible charitable income tax deduction. Meanwhile, the fund continues to grow, giving the donor time to decide how to disburse money.

Beyond the planning benefits, DAFs can provide meaningful tax savings. With the standard deduction for married couples (filing jointly) now at $32,200, most Americans will find that it doesn't make sense to itemize their taxes for a standard charitable gift.

But if you can afford to bunch multiple years of charitable donations into one lump sum, it might help you surpass the standard deduction and realize significant tax savings.

This strategy is particularly helpful in a year when a family has an unexpected windfall, such as a large bonus, and it's looking to offset larger tax liabilities. Another perk of setting up a DAF: You can name the fund, which can allow you to preserve anonymity.

DAFs are also great for teaching children about giving back and money management, as families can decide together how to distribute the funds based on shared values.

Charitable trusts

For families gifting larger dollar amounts, charitable trusts can wrap charitable donations in a larger estate planning framework. There are typically two trust structures which clients choose from when creating a charitable trust.

A charitable remainder trust provides income from investments during the donor's lifetime, with the remaining assets ultimately passing to the charity.

Conversely, if a donor wants to leave assets to their children, a charitable lead trust operates in the opposite fashion — the charity receives payments for a specific period before the remaining assets pass to heirs.

Both options allow families to pair their charitable giving with estate planning to support both personal and philanthropic goals.

Foundations

Individual or family foundations provide donors with more control over named charities and benefactors, but this structure also requires a significant commitment, both financially and timewise.