If there's one thing I've learned in my years advising real estate investors, it's this: The tax code doesn't care about your feelings. It does, however, reward you handsomely if you know which tools to pick up and when.

The problem is that most investors think of 1031 exchanges, Delaware statutory trusts and Qualified Opportunity Zones as one-size-fits-all solutions. They're not.

Recommending a 1031 exchange to every investor who walks through the door is like a doctor prescribing the same medication to every patient. Sure, aspirin is great, but it's not going to fix a broken leg.

So let's meet four very different investors, each facing a unique set of circumstances, and match them with the tax strategy that fits like a glove.

Henry: The stock market refugee

Henry spent 25 years building a seven-figure stock portfolio. Then came the tariff whiplash of late 2025 and the energy crisis of 2026, and Henry watched a decade of gains get rattled in a matter of weeks. He didn't just lose money — he lost sleep, his appetite and his faith in Wall Street.

Now Henry wants out. He's sitting on stock he'd like to sell, but the remaining gains still carry a hefty capital gains tax bill. And he wants something he can see and touch — something that doesn't swing 3% before breakfast.

Henry's play: A Qualified Opportunity Zone fund. When he sells his stock, those capital gains can be reinvested into a QOF within 180 days. The original gain gets deferred, and if he holds the QOZ investment for at least 10 years, any new appreciation is tax-free. The growth on his new investment owes nothing to Uncle Sam.

Better still, the One Big Beautiful Bill Act (OBBBA) has made the Opportunity Zone program permanent, introducing a rolling five-year deferral for gains invested after December 31, 2026, and a 10% basis step-up for those who hold for at least five years.

For stock market refugees like Henry who want to pivot into tangible real estate while getting a serious tax break, QOZs are the escape hatch.

One important note: Henry doesn't qualify for a 1031 exchange because he's selling stocks, not real estate. The QOZ program, unlike Section 1031, accepts capital gains from virtually any asset class: Stocks, crypto, businesses, art, you name it. That's what makes it the Swiss Army knife of capital gains strategies.

Rachel and Tom: The divorcing couple

Nobody gets married planning for a divorce, but here we are. Rachel and Tom own three rental properties together, and now they need to split everything up, ideally without handing a third of their equity to the IRS in the process.

Their situation is more common than you'd think and more treacherous than most people realize. If they simply sell all three properties and divide the cash, the capital gains taxes could be devastating: Potentially hundreds of thousands of dollars in federal and state taxes, plus depreciation recapture, gone before either party sees a dime.

Rachel and Tom's play: A 1031 exchange into Delaware statutory trusts. They sell the properties and use a qualified intermediary to execute a 1031 exchange, but instead of buying replacement properties together (which, given the circumstances, has obvious shortcomings), they each exchange into separate DST investments.

DSTs allow each of them to invest independently in institutional-grade real estate — think Class A apartment complexes or Amazon distribution centers — with minimum investments typically starting around $100,000.

Each party gets their own portfolio, their own monthly distributions and their own tax deferral. No more joint ownership. No more awkward phone calls about the leaking roof on Property No. 2.

The DST structure also eliminates the 45-day identification panic that sinks so many 1031 exchanges. Because DST properties are prepackaged and already acquired by the sponsor, Rachel and Tom can identify their replacement investments quickly, even under the emotional fog of divorce proceedings.

It's the cleanest possible split, with the least possible tax damage.

Sofia: The empire builder

Sofia is 42, owns a couple of single-family rentals and is hungry for more. She's not looking for a beach chair and a mailbox full of passive income; she's looking for a ladder. Her goal is to consolidate her smaller properties into larger, higher-performing commercial real estate and build serious generational wealth.

Sofia's play: The classic 1031 exchange, the way it was drawn up over a hundred years ago. She sells her two rental homes — let's say for a combined $800,000 — and rolls the full proceeds into a 20-unit apartment building worth $2 million, financing the balance with a mortgage. No capital gains taxes due. Every dollar of equity stays in the game.

This is the power of the 1031 exchange in its purest form: The ability to trade up without the tax drag. If Sofia had sold those two rentals and paid federal and state capital gains taxes, plus depreciation recapture, she might have lost $150,000 or more off the top.

That's not just money lost; that's leverage lost. It's the difference between a 20-unit building and a 12-unit building, between scaling an empire and treading water.

And Sofia doesn't have to stop there. Five or 10 years down the road, she can 1031 that apartment building into an even larger asset — a retail center, an industrial property, a portfolio of commercial buildings.

Each exchange defers the gains from the last one, creating a compounding effect that has made more real estate millionaires than any other provision in the tax code.

If she's strategic enough to hold her final property until death, her heirs receive a stepped-up cost basis, potentially wiping out every dollar of deferred gains along the way.

That's not just a tax strategy. That's a dynasty play.

Raymond: The high-income professional

Raymond is a plastic surgeon earning north of $800,000 a year. His tax bill is, to put it delicately, eye-watering. He wants two things: Passive income that doesn't require him to leave the operating room, and every legitimate tax deduction he can get his hands on.

Raymond's play: A combination strategy. First, he invests directly in DSTs that offer bonus depreciation. Under the newly restored 100% bonus depreciation rules, Raymond can potentially offset a significant portion of his passive income with accelerated depreciation from his DST investments — paper losses that reduce his tax bill without reducing his actual wealth.

Second, Raymond allocates a portion of his capital gains from stock sales or other investments into a Qualified Opportunity Zone fund, starting the 10-year clock toward tax-free appreciation. With the OBBBA making the OZ program permanent, Raymond has a long runway to compound gains without the drag of annual capital gains taxes.

The combination of DST depreciation benefits and QOZ tax-free growth creates a one-two punch that's hard to beat for high earners. Raymond gets monthly passive income from the DSTs, a meaningful reduction in his current tax liability and a long-term growth vehicle in the QOZ, all without ever picking up a wrench or answering a tenant's midnight phone call.

Your move

If you see yourself in any of these scenarios — or in some combination of them — the worst thing you can do is nothing. The tax code rewards action, and every day you delay is a day your money is working harder for the government than it is for you.

The best thing you can do? Find an investment adviser who understands not just one of these strategies, but all of them. Find someone who can look at your complete financial picture and recommend the right tool for the job, not just the only tool they happen to sell.

Because in the world of tax-advantaged real estate investing, the right strategy isn't the most popular one. It's the one that fits you.

Related Content

• How the Energy Crisis Is Reshaping Real Estate Investment Strategy (and Creating Opportunities Most Investors Don't See)
• When Is a 1031 Exchange Not the Right Move? A Real Estate Investing Pro Offers a Reality Check for Your Next Exit
• 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
• 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.

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 deducting vehicle expenses, including the standard mileage allowance. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Standard mileage rate for Schedule C business driving

Question: I am retired but work part-time as a basketball referee. I am an independent contractor and file Schedule C. Can I claim the standard mileage allowance for driving from my home to the game site and back home?

Joy Taylor: Generally, no. The cost of business driving for self-employed individuals is a deductible business expense. However, the IRS generally considers the miles driven from your house to your first game site and the drive from your last game site back to your home as nondeductible commuting expenses. However, if you have multiple game sites in a day, you can claim the mileage traveling between game sites.

If you do take the deduction, you can claim either your actual expenses, including gas, repairs and depreciation on your car, or the IRS's standard mileage allowance. For 2026, the standard mileage rate for business driving is 72.5 cents per mile for the first half of the year and 76 cents per mile for July through December. If you use the IRS's standard mileage rate, you can also deduct the cost of any tolls or parking fees that you pay.

Be sure to keep a contemporaneous mileage log detailing each of your trips. It will make it much easier for you to figure out your total business mileage when you are preparing your tax return.

2. Employee driving

Question: I am a full-time employee and I get a W-2 each year. Sometimes, my job requires that I drive my own car between client meetings. My company doesn't reimburse me for any miles driven. Can I deduct the mileage expense on my tax return?

Joy Taylor: Unfortunately, no. Prior to 2018, employees who itemized on Schedule A were able to deduct miscellaneous itemized deductions, including their unreimbursed employee business expenses, to the extent the total amount exceeded 2% of adjusted gross income. The 2017 Tax Cuts and Jobs Act temporarily suspended these miscellaneous itemized deductions, and last year's "One Big Beautiful Bill" ended them permanently.

3. Buying a large pickup truck

Question: I bought a large pickup truck in March that I use 100% for my Schedule C business. I heard that I can expense the entire cost on my 2026 federal tax return. Is this true?

Joy Taylor: It depends. Yes, the federal tax laws allow self-employed individuals who buy a big truck that they use 100% for business to expense the full cost. However, there is a key limit to know when expensing business assets. The total amount expensed under Section 179 cannot exceed the taxable income from your business. First-year bonus depreciation doesn't have this limitation.

4. Tax breaks for business vehicles bought in 2026

Question: I am self-employed and am planning to buy a vehicle that I will use 100% in my business. Can I take a depreciation deduction for the auto?

Joy Taylor: Yes, you should be able to. There are generous tax breaks for business vehicles first put in use in 2026.

• For passenger vehicles, with first-year bonus depreciation, the first-year depreciation deduction is $20,300 for new and used cars. The second- and third-year depreciation caps are $19,800 and $11,900. After that, it is $7,160.
• For passenger vehicles for which bonus depreciation is not taken, the first-year depreciation cap is $12,300.
• For heavy SUVs, you can write off the full cost, thanks to bonus depreciation.
• For big pickup trucks, you can expense the full cost. Note that the total amount of business assets expensed can't exceed the taxable income from your business. Bonus depreciation does not have this limit.

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: Is It a Hobby or a Business?
• 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

Editor's note: This is the second article in a two-part series on how advisors can help clients move from reactive decision-making to intentional retirement planning. Part one is Are Your Client's Retirement Income Withdrawals Out of Whack? How to Help Them Get the Sequence Right.

Taxes are one of the most overlooked risks in retirement planning. The goal isn't simply to reduce taxes this year — it's to manage them across your lifetime while maintaining consistent, reliable income. This is where professional advice becomes critical.

At Wealthcare Advisors (WCA), this is what we believe an advisor's process should include.

Proactive planning before RMDs kick in

The years between retirement and age 73 (when required minimum distributions (RMDs) typically begin under current law) can be a window of opportunity. During that time, strategies may include gradually repositioning assets, managing taxable income levels and exploring Roth conversion opportunities while tax brackets are more favorable.

These three strategies should be at the top of your pre-call meeting with your team before the client discussion.

Social Security claiming decisions

Deciding when to start claiming Social Security impacts more than just the client's benefit. It affects:

• Their overall income structure and cash flow
• Taxation of benefits
• Longevity of their portfolio

Coordinating Social Security claiming with the withdrawal strategy you've developed helps create a more balanced and efficient income plan.

Adjusting for legislative changes

Tax laws change — and planning opportunities change with them. Taking advantage of provisions while they're still in place can create meaningful long-term benefits.

At WCA, an initiative-taking approach allows us to adapt strategies before the rules shift, rather than reacting afterward. And as specific provisions evolve, so do WCA strategies, meaning they're always tailored to current law at the time of planning.

Coordinating income for consistency and efficiency

Rather than pulling income from a sole source, we help design a blended withdrawal approach that:

• Maintains predictable income
• Reduces unnecessary tax spikes
• Positions assets efficiently for the future

It is not just about minimizing taxes — it is about integrating taxes into the larger income plan.

The '3L framework'

As you collaborate with clients approaching retirement, you can use WCA's "3L framework" to move them from reactive decision-making to intentional planning.

Start with what they will "lean on" — guaranteed or reliable income sources, such as Social Security, pensions and structured income streams. This is where thoughtful Social Security claiming strategies and coordination with other income sources can establish stability.

From there, guide them toward what they will "live on" — their portfolio distributions. This is where sequencing withdrawals, adapting to market conditions and proactively managing taxes before RMDs take effect all come into play. Helping clients understand not just which accounts to draw from, but why and when, positions you as a strategic partner rather than a transactional advisor.

Finally, anchor the conversation around what they will "leave behind," which naturally brings tax efficiency and long-term legacy planning into focus. This is where proactive planning — such as taking advantage of current tax provisions while they remain intact and managing lifetime tax exposure — can have a meaningful impact on legacy outcomes.

By framing these decisions within the "3L" structure, you're not answering your client's questions in isolation — you're delivering a coordinated strategy.

More importantly, you are helping clients replace a "ready, shoot, aim" mindset with clarity, confidence and a disciplined process that connects every decision back to their broader retirement objectives.

From reactive decisions to intentional retirement

The biggest mistake pre-retirees make isn't lack of preparation — it's assuming the hard part is over once they've saved enough. Distribution planning is just as important as accumulation.

With your help and before they set their retirement date, take the time to collaborate closely with your clients to explain which accounts will fund their lifestyle — and why. Explain how your joint plan will adapt to changing markets, and how taxes will be managed — not just this year, but over decades.

When your client and your team approach retirement with those answers in place, everything changes. Decisions become clearer. Income becomes more predictable. Confidence replaces uncertainty.

Why? Because your client's retirement should not start with "ready, shoot, aim." It should start with a plan.

Related Content

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• Advisers: This Outdated Retirement Rule Actually Un-Diversifies Your Clients
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• Old Annuities Contain Untapped Potential for Clients and Advisers: Here's Why
• What's the Best Age to Take Social Security? 3 Questions Advisers Should Ask

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.

If your accountant only contacts you during tax season, you might be paying for a glorified report card, not strategy. But your professional may not be entirely to blame.

The tax preparation industry has been caught in a severe supply-and-demand squeeze. On the supply side, a talent drain is hollowing out the industry, with more than 300,000 accountants and auditors leaving the workforce in two years, according to Bureau of Labor Statistics data.

On the demand side, clients are increasingly frustrated and ready to move. A new report from financial directory Sam's List reveals that 36% of people seeking personal tax help want new professionals to replace their current provider. This urgency is driven by affluent households, with over half of those seeking a financial advisor reporting a net worth of $1 million or more.

That widening gap can leave overextended accountants concentrating on compliance and pushing strategic client conversations further down the road — often until tax season is already underway.

The problem: Tax preparers vs tax planners

Tax preparation and tax planning are distinct financial services, yet industry data show consumers often purchase basic compliance when their financial situations may require proactive planning.

"You can't expect an advisory relationship when you've only hired someone to prepare a tax return," tax strategist and enrolled agent David A. Perez told Kiplinger.

"If [the last time you spoke] was 'at my appointment in March,' nobody was looking at your tax situation while you were still making the decisions that affected your tax bill," he adds.

Perez, CEO of advisory service company Tax Maverick AI, suggests the disconnect stems from an industry business model prioritizing client volume over year-round advisory work.

"Think about the economics. When your pricing requires you to take on hundreds of clients, where does the time for deeper planning come from? At $1,000 per client, you need 300 clients to generate $300,000 in revenue — that's before expenses."

To maintain those revenue thresholds, many tax professionals work 50- to 80-hour workweeks during the traditional spring tax season, balancing expanding client rosters against smaller internal teams.

This high-volume workload correlates to a measurable drop in customer satisfaction.

• According to Sam's List, one in three taxpayers utilizing professionals are seeking a replacement.
• Among those taxpayers, 16% are unhappy with their current provider, and another 10% are seeking a more affordable option.

In addition to the CPA shortage, the friction is compounded as a new wave of buyers enters the market who may not have a clear baseline for service standards.

"For a lot of people, this is the first time they've hired anyone to help with their taxes," Kimberly Green, co-founder of Sam's List, noted in an email obtained by Kiplinger. "That's a big group starting from zero."

Who did you hire?

Most Americans first hire a tax professional at age 29, often hoping the expert will maximize their annual refund, as Kiplinger has reported. However, whether those expectations align with reality depends entirely on the specific service model you purchased.

While a tax preparer focuses on backward-looking compliance — logging what already happened — a tax planner focuses on forward-looking strategy executed before major financial decisions are made.

To distinguish between the two service models, Perez outlined three operational benchmarks that differentiate a planner from a traditional preparer:

1. Communication timing. If your tax pro last spoke to you in tax season, you are likely working with a preparer. Strategic planning requires ongoing conversations before major events occur — like taking a raise, selling stock, acquiring real estate, or launching a business.
2. Quarterly estimate methodologies. Standard preparation services often calculate your quarterly estimated tax payments based on the prior year’s bill to satisfy IRS safe-harbor rules and avoid underpayment penalties. A tax planner forecasts your current-year income trajectory and adjusts those estimated payments in real time, as circumstances change.
3. Actionable strategic deliverables. A traditional preparer reports what you owe. In contrast, a planner provides actionable recommendations, like restructuring business entities, optimizing retirement vehicle funding, or timing capital expenditures, alongside projected tax savings from those moves.

Understanding your current tax model makes it easier to decide whether to add year-round strategy to your financial plan or hire a new professional. Tax preparer fees, like those for a CPA, can range from $200 to over $2,500 for one income return. Adding tax planning on top of that can price out some taxpayers' budgets.

High earner risks (and rewards)

For households earning $250,000 to $500,000 or more — including pre-retirees and retirees — the gap between basic tax preparation and proactive tax strategy carries steep financial consequences.

Without planning, high-net-worth taxpayers may encounter costly year-end tax traps, including:

• The net investment income tax (NIIT): Crossing $200,000 in modified adjusted gross income (MAGI) as a single filer or $250,000 for married couples triggers an additional 3.8% surtax on investment income, including capital gains, dividends, and rental income. Strategically timing asset sales before year-end can keep your MAGI below those thresholds.
• The alternative minimum tax (AMT): High earnings combined with specific financial moves — like exercising incentive stock options (ISOs) or claiming a large state and local tax (SALT) deduction — can unexpectedly trigger the AMT, disallowing your standard deduction and recalculating your tax bill at a higher rate.
• Uncoordinated Roth conversions: There are several reasons to convert a traditional IRA to a Roth IRA, like achieving tax-free growth for your portfolio. But performing a conversion without modeling your overall bracket increases your current-year taxable income. This can accidentally bump you into a higher marginal federal tax bracket or trigger Medicare premium surcharges.

This risk exposure explains why higher-income taxpayers allocate significantly larger budgets to financial advisory services. Sam's List reports that two in three clients (66%) look for an accountant with a budget of $5,000 or less, while nearly one in five seekers plan to invest $20,000 or more annually.

Industry analysts estimate these larger budgets drive the need for year-round oversight, as proactive tax planners continuously evaluate income sources across multi-year horizons.

Steps to take in October and November 2026

Finding and sticking with a tax planner who meets your needs can feel daunting, particularly during the ongoing shortage of tax professionals. However, if you want to move from reactive filing to proactive tax strategy before the end of the year, there's still time to act.

"Schedule a real planning meeting now," Perez advises. "Not a quick email. Ask, 'What is my projected tax bill? What opportunities actually apply to me? What would I need to invest, and when do I need to act?'

Some actions, like updating your tax withholding or reviewing your required minimum distributions (RMDs), need to happen by December 31.

Other opportunities remain open after the year-end deadline, like making certain IRA contributions or the 4th quarter estimated tax payment for the 2026 tax year (usually due January 15 of the following year).

If you want a fresh start for 2027, establish the planning relationship at the beginning of the year — agreeing on the scope, the investment, and when you will meet long before filing season arrives. That way, when tax season finally rolls around, your return simply formalizes the work you've already done.

"Your tax return should reflect a plan you already worked on," Perez emphasizes, "Not be the first time you find out you needed one."

Read More

• 7 New Tax Brackets Proposed for High Earners: Who Would Pay More?
• The 'Mega IRA' Cap Is Back: What You Should Watch in 2026
• Types of Income the IRS Doesn't Tax

You probably know that money is taken out of your paycheck to help fund the Social Security program. But did you know there's a limit on how much of your income is subject to the tax? That threshold is rising in 2027, which means higher-paid workers could see more money withheld from their paychecks next year.

The Social Security Administration (SSA) just announced a new wage base for 2027 (roughly 4.2% higher than the 2026 tax limit), along with the annual cost-of-living adjustment (COLA) for more than 70 million Social Security recipients.

The new 3.6% COLA will boost monthly checks for beneficiaries, while the wage base determines how much of a worker's income is subject to Social Security payroll taxes.

Also worth noting: These updated numbers come as some lawmakers weigh proposals to shore up Social Security — including whether to eliminate the Social Security tax cap. Here's more to know.

New 2027 Social Security payroll tax limit

Every year, the SSA sets a limit on how much of your earnings can be taxed for Social Security. Any money you earn above this limit — also called the tax cap or wage base — isn't taxed and doesn't count toward your future retirement benefits. This limit usually goes up each year based on average wage changes across the country.

For 2027, the tax limit is $192,300, up about 4.23% from $184,500 for 2026.

High Earners: If you're at or above the taxable limit, you will pay the 6.2% tax on more of your income.

• The maximum tax an employee will pay in 2027 is $11,922.60, up from $11,439 for 2026.
• The taxable wage base is increasing by $7,800.
• So, an employee earning at least $192,300 will pay an additional $483.60 in Social Security taxes in 2027 (i.e., 6.2% of $7,800).

Other Workers: If your income is below the taxable limit, all of your income is already subject to Social Security tax.

Note: The wage base also matters for future benefits. Social Security uses a worker's earnings history to calculate retirement benefits, generally based on the highest 35 years of indexed earnings. Earnings above the annual cap don't count toward that calculation.

How much Social Security is taken from a paycheck

Employees pay 6.2% of covered wages toward Social Security, and employers pay another 6.2%. The combined rate is 12.4%. Self-employed workers generally pay both portions, for a combined rate of 12.4% on net earnings up to the annual wage base.

Self-employed individuals can generally deduct the employer-equivalent portion of their self-employment tax when calculating adjusted gross income (AGI).

It's also important to distinguish Social Security taxes from Medicare taxes.

• Medicare payroll taxes don't have the same wage cap.
• Employees generally pay 1.45% in Medicare taxes on all covered wages, and employers pay another 1.45%.
• Higher-income workers may also owe an additional 0.9% Medicare tax on wages above $200,000 for single filers and $250,000 for married couples filing jointly.
• Those thresholds are separate from the Social Security wage base.

Will the Social Security tax cap be eliminated soon?

As Kipliner has reported, 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.

If the tax cap were eliminated and assuming the 2026 limit, a worker earning $1 million, for example, would have another $815,500 of wages subject to the Social Security tax.

At the current 6.2% payroll tax rate, that would be 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).

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.

• As mentioned, Social Security benefits are based in part on a worker's earnings history, and under current law, earnings above the existing cap don't count toward benefit calculations.
• Ultimately, the financial effect of eliminating the cap would depend partly on whether and how those additional earnings would be credited toward benefits.

For now, there's no major legislative change involving the tax limit, except for the just-announced annual adjustment.

Still, the debate surrounding Social Security taxes comes as the Social Security program faces a long-term funding shortfall. According to the 2026 Social Security Trustees Report, the retirement and survivors trust fund is projected to be depleted in late 2032 if Congress doesn't act.

At that point, continuing revenue would pay 78% of scheduled benefits. That could mean a 22% cut in benefits across the board. Stay tuned.

Related

• What Eliminating the Social Security Tax Cap Would Mean for High Earners
• Midterm Election Tax Measures Target High-Income: What to Know
• Federal Income Tax Brackets and Marginal Tax Rates for 2026

Budgeting for holiday giving can feel tough in a high-cost economy, but a new tax provision helps your charitable dollars go further this year.

Under the 2025 Trump tax bill, non-itemizers can now claim a tax deduction of up to $1,000 for single filers or $2,000 for married couples filing jointly for qualified cash donations.

Because roughly 90% of U.S. households claim the 2026 standard deduction rather than itemizing, this provision expands tax savings to an estimated 144 million taxpayers, according to data from Empower. However, the new standard-filer tax break carries strict limits.

Below are the primary rules governing the non-itemizer charitable deduction — and how the math shakes out for standard filers who donate in 2026.

Only cash counts, and there are no carryforwards

Unlike traditional itemized deductions, you cannot deduct physical goods or appreciated assets under the new standard deduction rule.

Only direct cash contributions, including payments made by check, credit card, debit card, or electronic transfers, are eligible up to the $1,000/$2,000 cap.

According to IRS guidelines, the following remain non-deductible for standard filers:

• Appreciated stocks, mutual funds, or cryptocurrency
• Household items, like furniture and donated clothing
• Cars, boats, RVs, and other vehicles
• Real estate or personal property
• Volunteer out-of-pocket expenses and mileage
• Contributions made to donor-advised funds (DAFs) or private non-operating foundations

Additionally, your donation must be made to a qualified 501(c)(3) public charity. If your eligible cash giving exceeds the $1,000 (single) or $2,000 (joint) ceiling, the excess can't be carried forward to future tax years — a key difference from traditional itemized contributions.

You get tax savings, not a direct reduction of your bill

Because the non-itemizer charitable tax break is structured as a deduction instead of a tax credit, it lowers your taxable income rather than reducing your final tax bill dollar-for-dollar.

For example, suppose a joint-filing couple has an adjusted gross income (AGI) of $200,000 and claims the maximum $2,000 deduction in the 22% marginal federal tax bracket.

Note: This example reflects an oversimplified tax situation. Actual tax savings depend on individual marginal rates, other tax breaks claimed, etc.

As shown above, this new deduction reduces your taxes owed less than a tax credit would. However, taxpayers in states that use federal taxable income as a starting point — like Idaho, North Dakota, and South Carolina — may indirectly capture the new charitable tax break savings on their state income returns. Consult a qualified tax professional or visit your state's Department of Revenue website for more information.

Detailed tax records are still required for the new tax break

One common misconception is that claiming the standard deduction waives record-keeping requirements for other eligible tax breaks. But the IRS enforces the same substantiation rules for non-itemized charitable deductions as it does for itemized filers. According to issued guidance:

• For any cash donation: You should retain written communication from the charity, bank statements, canceled checks, credit card records, or electronic receipts indicating the charity name, date, and amount.
• For donations of $250 or more: You must secure a formal contemporaneous written acknowledgment (CWA) from the qualifying charity before filing. The receipt must state whether you received any goods or services in return and provide a good-faith estimate of their value.
• Document retention: Keep all supporting tax records for up to seven years after filing to meet IRS review timelines.

Tracking cash donations throughout the year takes a little extra effort, but maintaining the proper receipts may help you claim every dollar of the new deduction when tax season arrives.

How the new tax rules change your giving strategy

As Kiplinger reported, recent federal legislation made major changes to the charitable deduction at both ends of the income spectrum.

For high-income itemizers, the rules grew tighter: federal provisions now require itemizers to exceed a 0.5% AGI floor before gifts become deductible, while top-bracket earners face a 35% cap on tax benefits. Nonprofit analysts warn these upper-tier limits could dampen large-scale donations from high-net-worth taxpayers.

Yet for the 90% of American households claiming the standard deduction, the new law opens a path to tax savings. The tax break of up to $1,000/$2,000 for charitable giving expands financial incentives for lower- and middle-income households — the groups that historically donate the highest percentage of their income, according to industry reports.

So if you plan on claiming the standard deduction this tax season, here's how much you might expect to save with this new charitable deduction, depending on your 2026 federal marginal tax bracket:

• Single filers in the 10% to 12% brackets might cut their tax bill by $100 to $120, while joint filers could save $200 to $240.
• Those in the 22% to 24% tax brackets could save between $220 and $480 on federal income taxes.
• Taxpayers in the 32% to 35% tax brackets might find up to $700 in direct savings.

A non-itemizer deduction won't double your refund overnight, but if you're eligible, claiming the new benefit may ensure your everyday holiday giving lends tangible tax relief when filing season arrives.

Read More

• 3 Major Changes to the 2026 Charitable Deduction
• How Charitable Donations Can Reduce Your Taxes
• 11 Overlooked Tax Breaks That May Lower Your Tax Bill

Required minimum distribution season sneaks up on many retirees.

RMDs are the amounts you must withdraw from tax‑deferred retirement accounts once you reach the required age, which is 73 for individuals born from 1951 through 1959 and 75 for those born after 1960.

Failing to take an RMD can be an expensive mistake. Vanguard research estimates that missed RMDs cost investors as much as $1.7 billion a year, and most of that loss is avoidable with better organization and planning.

Every year, millions of people log into their IRA, withdraw the smallest amount required and move on. The RMD becomes a chore to complete before December 31.

This approach misses the point. An RMD is one of the most important annual decisions in retirement planning. How you handle it can influence your:

• Taxes
• Medicare premiums
• Charitable giving
• Investment allocation

It can also affect the legacy you leave to heirs.

The question is not how to merely satisfy the RMD requirement, but how this year's distribution should fit into your spending, tax strategy, charitable goals and estate plan.

Get organized, then get clear on what you need

One of the biggest challenges with RMDs has nothing to do with taxes. It is simply tracking down every account and calculating what you owe, which turns into a headache when your savings are scattered across several institutions.

If you are approaching retirement, consolidate your retirement accounts wherever possible. Fewer accounts require a simpler calculation, and a simpler calculation means fewer costly mistakes.

Once your accounts are in order, determine how much money you actually need from your IRA.

If the full RMD covers your living expenses, the decision is straightforward.

If it does not, the RMD becomes a spending plan waiting to be written, one that can support charitable giving, fund a Roth conversion, get reinvested or build a cash cushion.

That shift — treating the RMD as a cash flow event rather than an automatic spending requirement — unlocks everything that follows.

Let charitable intent drive a QCD and watch your AGI

A qualified charitable distribution, or QCD, lets anyone who is 70½ or older send money directly from a traditional IRA to a qualified charity, excluding it from taxable income entirely.

For 2026, the limit is $111,000 per person, and each spouse with their own IRA gets a separate limit.

The temptation is to treat this purely as a tax trick. Resist that. Start instead with a simple question: How much were you already planning to give to charity this year?

If the answer is $25,000, a QCD is simply the most efficient way to move money you were donating anyway.

Here is where the strategy gets powerful. Picture a 75-year-old with a $1.5 million traditional IRA and a $60,000 RMD. She needs only $20,000 for living expenses and already gives $25,000 a year to charity.

Instead of taking the full $60,000 as taxable income and separately writing a $25,000 check, she can direct $25,000 straight from the IRA to charity through a QCD. That portion never touches her tax return. The remaining $35,000 comes to her as a normal distribution. Same total withdrawal, same charitable gift, considerably less taxable income.

The reason this matters goes beyond the tax bracket. Most people fixate on their marginal rate and stop there, but a QCD reduces adjusted gross income (AGI) directly, and AGI quietly drives a lot of other costs in retirement.

A higher AGI can trigger Medicare IRMAA surcharges, increase the taxable portion of Social Security benefits and push you past thresholds tied to other deductions.

Before adding an additional $30,000 or $50,000 to your income, do not just ask what tax bracket that lands in. Ask what it does to your entire financial picture for the year.

Time your RMD deliberately

There is a common instinct to take the RMD in January and be done with it. Unless you need the cash immediately, there is usually no advantage to rushing.

Waiting lets the year's full tax picture come into focus first, including income, charitable plans and whether a Roth conversion makes sense.

The RMD portion itself cannot be converted to a Roth IRA, but you can take the required distribution first and then, separately, convert an additional amount if your bracket allows it.

The real annual question becomes a combination of:

• How much goes out as the RMD?
• How much becomes a QCD?
• How much room remains for a Roth conversion?

Getting that mix right, year after year, is where real tax savings accumulate.

Also, remember that any amount withdrawn beyond your RMD does not carry over to reduce next year's requirement, since every year resets on its own. Extra distributions should have a clear purpose, whether that is a large expense, a gift or a Roth conversion, rather than being taken casually on the assumption they will count later.

Timing extends to the assets themselves, not just the calendar. When it is time to raise the cash, do not simply sell whatever happens to be sitting there. Look at the full portfolio first.

If stocks have run up and your allocation has drifted more aggressive than intended, the RMD is a natural chance to trim appreciated positions, generate the required cash and rebalance at the same time, turning a required withdrawal into a disciplined investment decision instead of an afterthought.

Think beyond this year

For retirees with substantial IRAs and genuine charitable interests, QCDs can become part of a longer-term legacy strategy.

IRA assets left to heirs are generally taxed as ordinary income when withdrawn, while assets given to charity through a QCD are not taxed at all.

Directing a portion of the IRA to charity during your lifetime, rather than leaving the whole balance to be taxed later, accomplishes the same charitable goal more efficiently than doing it through your estate. And by drawing down the IRA instead of a taxable account, which gets a step up in basis at death, you may leave your noncharitable heirs better off, too.

The retirees who handle this best treat it as an ongoing process rather than a once-a-year fire drill.

Early in the year, estimate income, review charitable intentions and identify the right RMD and QCD amounts.

Confirm everything is executed well before the December rush and keep simple records of every QCD, including the charity, the date and the amount, since documentation matters for tax reporting.

Markets shift, tax laws change and personal goals evolve, so an RMD strategy built once and never revisited will eventually fall out of step with your life.

The retirees who get the most value out of this season stop thinking of it as a withdrawal requirement and start treating it as one of the most useful planning conversations they have all year.

Related Content

• The 7 RMD Tax Traps Waiting for You in Your 70s — and How to Start Disarming Them in Your 60s
• Got $2.5 Million Saved for Retirement? Here Are the Huge RMDs You Must Take at 73, 75, 80 and 85
• 5 Costly RMD Mistakes That Will Put a Dent in Your Savings (and How Early Planning Can Help)
• Good Job on Cutting Costly Investment Fees, But These 8 Tax Traps Can Hurt Far More
• Five Keys to Retirement Happiness That Have Nothing to Do With Money

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.

More retirees are asking AI the money questions they used to ask financial advisers.

The appeal is obvious. AI chatbot answers arrive in seconds, nothing is embarrassing to ask, and it costs nothing. The problem is that a wrong or incomplete answer looks exactly like a right one.

This guide explains why AI gets retirement questions wrong and provides seven steps you can use to check an answer before you act on it.

Why AI gets retirement numbers wrong

A chatbot does not look anything up. It was trained on a large body of text gathered up to a cutoff date, and it answers by predicting which words most plausibly come next. When it states a figure, it is reproducing what appeared most often in that text — it's not reading a current government page.

Retirement rules are badly suited to that, because most of the important numbers change every year.

Contribution limits are the clearest case. For 2026, the amount that can go into a 401(k) rose to $24,500, and the IRA limit to $7,500. A year earlier, they were $23,500 and $7,000. A model trained before that announcement would provide last year's figures with complete confidence, and nothing in the phrasing would suggest the numbers are stale.

Other figures can be changed by legislation, after the former figure has circulated for years. For example, the age when retirees must start taking required minimum distributions (RMDs) used to be 70½, then it was 72, then 73, and it reaches 75 in 2033. All four ages appear across the internet, usually with no date attached.

Basically, AI handles concepts reliably and specifics unreliably. The seven steps below are built around that split.

Step No. 1: Check the year on every number

Any answer containing a dollar amount, an age, a percentage or an income threshold needs a date attached before it is worth anything.

Ask the chatbot directly which tax year the figure applies to. When asked, a chatbot will often admit its information may be outdated, even though it volunteered the number without hesitation a moment earlier.

Consider any figure with no year attached suspect.

Step No. 2: Ask which agency sets the rule

This is the one question a chatbot answers reliably, because it is a concept question rather than a numbers question.

Information about contribution limits, RMDs and tax treatment should come from the IRS.

Benefit amounts and claiming ages should come from the Social Security Administration.

Information about Medicare premiums and income surcharges (IRMAA) should come from Medicare.gov and the SSA.

Pension rules sit with the Department of Labor.

Knowing which agency oversees the rule turns vague verification into a single page to open.

Step No. 3: Verify at the source

Once you get an answer from a chatbot, go to the agency's own site rather than simply reading a summary. For example, federal agency pages will state which year a figure applies to.

Skipping this step could be expensive. Missing an RMD triggers a penalty of 25% of the amount that should have been withdrawn, reduced to 10% if corrected quickly.

On a $40,000 distribution, that is $10,000 for a deadline a chatbot might have gotten wrong.

Step No. 4: Feed it your own circumstances

A chatbot answers in generalities unless you provide specifics.

Supply the details that actually influence the outcome: Age, types of accounts, pension income, state of residence and marital status, including whether your spouse has their own earnings record. (Never provide details that are personally identifiable, though.)

Then compare the answer with the answer you get when you provide none of those details.

If the response barely changes, then the advice for your particular situation cannot be trusted.

This matters most when it comes to thresholds. Medicare's IRMAA works as a cliff rather than a gradual increase — income above $109,000 in 2026 for a single filer and $218,000 for a couple.

A chatbot that suggests you do a Roth conversion without making any reference to IRMAA can lead to you facing four figures in annual premiums two years later (since IRMAA is based on your income two years ago).

Step No. 5: Ask the same question twice

Pose the question again in different words, ideally on a different day, and see whether the original response holds.

Then change one detail, such as adding five years of age or removing pension income, and check that the answer moves in a direction that makes sense.

Answers that swing wildly when you rephrase the question are being generated, not recalled. When two responses conflict, the tie gets broken by checking the relevant agency's page, not by asking the chatbot a third time.

Rawad Baroud, CFO of ZeroGPT, says that consistency should never be confused with accuracy when evaluating AI-generated information. "Generative AI can produce an answer that is clear, detailed and convincing without having verified the facts behind it.

"Asking the question again can expose inconsistencies, but getting the same answer twice doesn't prove it is correct. For financial information, the final check still needs to be against an authoritative source."

So use repetition as a warning system, not as proof of accuracy. Whether the answers are different or the same, you should always verify any important numbers or rules.

Step No. 6: Ask what it left out

Chatbots answer the question asked and rarely flag what sits outside it.

Two prompts do most of the work here:

• Ask what assumptions the answer depends on
• Ask what would make this the wrong move

A recommendation to convert to a Roth, for instance, should surface the tax due this year, the effect on Medicare premiums and the five-year rule before it counts as complete.

According to Gregor Emmian, deputy chief growth and finance officer at Rise, "The most dangerous AI answers are the ones with no caveats attached. If a chatbot tells you to convert to a Roth or claim (Social Security) early without mentioning what could go wrong, that's not a complete answer — it's half of one.

"Retirees should treat 'what am I not being told?' as a mandatory follow-up question, not an optional one."

An answer that mentions no downside is incomplete — every retirement decision requires tradeoffs.

Step No. 7: Consult an adviser when an irreversible decision is involved

Some actions cannot be undone once you do them. Claiming Social Security, converting a large sum to a Roth, buying an annuity or taking a pension as a lump sum all belong in that category.

The cost of a wrong turn here is permanent. Claiming Social Security at 62, for someone whose full retirement age is 67, reduces the monthly benefit by about 30% for life, and that reduction extends to the survivor's benefit.

On a $2,400 benefit, it is roughly $720 a month, or more than $8,600 a year, for as long as either spouse lives.

For anything in this category, print the chatbot's answer and take it to an adviser or accountant. Ask which parts are wrong and why.

That conversation will be quicker and less expansive than one you start from nothing, and it puts the specifics in front of someone who can be held responsible for them, which no chatbot can.

The bottom line: If you're using AI this way, the main thing you should keep in mind is that the moment an answer sounds the most authoritative is the moment when you should question its accuracy and explore further, preferably through the relevant agency.

Related Content

• We Gave AI Chatbots 5 Financial Challenges. Here's How They Did
• 6 Ways to Use AI to Improve Your Financial Life
• How to Protect Your Privacy While Using AI
• Sitting on Housing Wealth? How to Safely Turn Home Equity Into Retirement Income
• An Expert Guide to Your Financial Priorities Decade-by-Decade: What to Focus on in Your 30s, 40s, 50s and 60s

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.

Shortly before 9:00 a.m., Diane, a 68-year-old retired middle school teacher, walks into her local library and notices a crooked display of flyers for after-school homework help. She straightens them before signing the volunteer timesheet at the front desk.

Over the next three hours, she shelves a stack of worn graphic novels, tidies the children's picture book bin, and hauls folding tables for Saturday's book sale. At noon, rolling her sore shoulders with a tired smile, she signs out and heads home to work in her fall garden.

For her morning's work, Diane doesn't receive a paycheck; instead, she earns a $45 credit toward her annual property tax bill. That's because her municipality participates in a "Tax Work-Off Program," which lets older residents lower their local taxes through community service.

While Diane is a composite snapshot, her morning routine reflects a real trend. According to AARP, older adults across the U.S. save up to $1,500 a year through these municipal programs.

So whether you're looking to trim your home expenses or simply stay active in retirement, here's how you might find — and make the most of — a tax work-off program in your hometown.

Why older adult tax relief is needed, and how it works

According to the National Institutes of Health (NIH), about 168,000 adults over 65 face eviction or forced displacement annually, while other reports indicate that homeowners over 50 make up 25% of all foreclosures.

Skyrocketing local assessments may drive many older adults into foreclosure by inflating property tax bills far beyond what fixed incomes can absorb.

To help combat this problem, some states have established frameworks for Tax Work-Off Programs (TWOPs), allowing qualifying households to contribute their skills in exchange for a direct reduction in their property tax liability.

Here's how these programs generally work:

• Eligibility: Residents typically must be 60 or older (sometimes 62 or 65, depending on local rules), military veterans, surviving spouses, or a person with a disability.
• Residency: Eligible homeowners must own and occupy their primary residence year-round within the participating municipality.
• Service: Volunteer work must be performed for municipal departments, like public libraries, community centers, or local administrative offices.
• Credit rate: Hours worked are credited toward the property tax bill at an established rate, usually tied to the state minimum wage or a fixed local rate.
• Tax benefit: Typically, the earned reduction is applied to your property tax bill after federal income taxes, Medicare, and any applicable state taxes are withheld (though federal exemptions for volunteer first responders are allowed).

Note: These guidelines vary by region. Check your local municipality's official website to verify specific property tax relief rules.

Which states allow property tax savings for volunteer work?

Because property taxes are levied locally, these programs aren't available everywhere.

Only eight states currently have legal frameworks allowing volunteer work to offset property taxes — and even in those states, each municipality or school district must individually vote to adopt the program:

• Massachusetts: Capped by commonwealth law at $1,500 per fiscal year (though towns can vote to increase the cap up to $2,000 or lower it). Qualifying residents earn credits at the state minimum wage rate.
• Maine: Municipalities may allow residents aged 60+ to earn up to the greater of $1,000 or 100 times the state minimum wage. Volunteer firefighters and EMS personnel can earn these tax benefits regardless of age. The benefit is applied as a local property tax reduction and can't reduce total tax liability below zero.
• New York: Active volunteer firefighters and ambulance workers who meet certain service and residency guidelines may receive up to 10% property tax exemption, if their local tax jurisdiction permits.
• Pennsylvania: Public school districts can implement "senior" tax rebate programs, offering older adults property tax credits in exchange for volunteer hours. While many districts cap this benefit between $550 and $1,000, some offer up to $1,200. Active volunteer fire and EMS personnel may also receive real estate tax rebates.
• Rhode Island: Eligible residents can earn up to $1,500 annually per person for qualifying municipal volunteer work.
• Washington: Participating local school districts offer tax work-off programs for those aged 62 or older.
• Colorado and Texas: Savings limits vary widely because local counties, cities, and school districts set their own caps and hour requirements.

But if your state or town doesn't currently offer a tax work-off program, there may still be ways to save. Many states offer property tax exemptions, freezes, and circuit breaker programs.

For instance, New Jersey has three property tax programs that allow up to $6,500 in relief per year for qualifying households. And Florida voters will soon decide on an increased homestead exemption for eligible residents.

For more information on how to save on property taxes, check out Kiplinger's report, Ways to Lower Your Property Tax Bill.

The health and social benefits of an active retirement

We've covered the obvious financial benefit of using volunteer work to ease a heavy property tax bill (if your town allows). But there's also an under-the-radar benefit of staying active in retirement.

Turns out, volunteering delivers profound physical, mental, and social health benefits for all, but specifically older adults, including:

• Mental health: According to AmeriCorps Seniors, serving just 1 to 2 years in volunteer work led to significant drops in depression, anxiety, and loneliness among older adults.
• Cardiovascular health: A Carnegie Mellon University study found that adults over 50 who regularly volunteered had a lower risk of developing high blood pressure.
• Longevity and mobility: An NIH survey found that older adults who volunteer at least 100 hours per year (roughly 2 hours per week) face a lower mortality risk, experience fewer physical functioning limitations, and maintain higher overall physical activity levels than non-volunteers.

Plus, studies suggest volunteering helps combat cognitive decline, improves sleep, and restores a sense of daily purpose for retirees missing the social connection of workplace colleagues.

Ultimately, whether you're like Diane and can use volunteer work to cut your property tax bill, or you live in a region exploring other tax relief options, getting involved in your local community can be a win-win — for your heart, your mind, and your body.

Read More

• 6 Steps to Appeal Your Property Tax Bill
• The New Retirement Math: Active Living Can Lower Your Taxes
• 5 Little-Known Property Tax Breaks for Older Adults

More than 32,000 Americans now hold $10 million or more in tax-advantaged accounts, with more than 1,000 holding balances above $25 million, according to Joint Committee on Taxation data.

These balances rarely stem from routine contributions to broad index funds. Typically, they trace back to startup founders, venture capitalists and corporate insiders placing low-cost, early-stage equity into self-directed IRAs and watching valuations compound over decades inside a tax-shielded wrapper.

Building that level of wealth is a remarkable achievement. Protecting it across generations, however, presents an entirely different planning challenge.

Mega-retirement accounts face growing scrutiny in Washington. Legislative proposals in the past decade have sought to cap total retirement balances or enforce mandatory distributions once balances surpass $10 million.

In today's dynamic tax landscape, affluent families must ask: Is an IRA still the optimal vehicle for long-term growth assets?

The traditional IRA drag: Ordinary income vs capital gains

Traditional IRAs deliver upfront deductions and tax-deferred growth, but every distribution is taxed as ordinary income — up to 37% federally, plus state taxes.

For rapidly appreciating equity, this dynamic creates a significant tax drag. Gains that would otherwise qualify for long-term capital gains rates (capped at 20% plus the 3.8% net investment income tax) lose their tax character entirely inside a traditional IRA. Decades of growth convert into ordinary income upon withdrawal.

The ordinary income vs capital gains tradeoff deepens for heirs. Under the SECURE Act, most nonspouse beneficiaries must fully distribute an inherited IRA within 10 years. A $20 million traditional IRA forced out over a decade can push beneficiaries into top tax brackets every year, surrendering nearly half the account to tax obligations.

The Roth trap: Income tax free, estate tax exposed

Roth accounts offer tax-free distributions and no lifetime required minimum distributions (RMDs), making them a natural candidate for high-upside equities. Yet, an often-overlooked exposure remains: The full Roth balance remains inside the owner's gross taxable estate at death.

Consider an entrepreneur seeding a Roth account with early-stage equity that grows to $50 million. While heirs receive an income tax-free windfall, they might face a substantial estate tax bill on the balance above the federal exemption limit ($15 million per person).

Another strategy is to withdraw from mega-Roth accounts after age 59½ and gift those funds — either directly or via trust structures. This approach can rapidly exhaust lifetime gift tax exemptions, restricting broader estate options.

Estate planning alternatives: Irrevocable trusts

To insulate high-growth assets from systemic tax drag and estate expansion, families expecting their wealth to trend above the federal estate tax exemption amount often look beyond retirement accounts toward irrevocable trust structures.

One has the choice of paying the trust's taxes over time by using a grantor trust. Because the grantor pays the annual income tax on behalf of the trust, the assets inside compound tax-free without diminishing the trust, principally providing a tax-free gift to beneficiaries each year.

To avoid paying the taxes of the irrevocable trust, the grantor might use a non-grantor trust in which the trust pays its own taxes. The grantor might "turn off" the grantor's trust status to convert the trust into a non-grantor trust.

Grantor trusts can be structured to allow indirect access to trust funds in more than one way. An independent trustee can be granted discretion to make distributions to beneficiaries based on health, education, maintenance or support needs, offering flexibility without giving the grantor direct control.

For married grantors, a spousal lifetime access trust (SLAT) provides a more direct route: It permits actual distributions to a spouse, who might then informally share that benefit with the grantor.

A non-grantor variation, the SLANT, can achieve similar goals, often for state income tax purposes. Because retaining a swap power would convert the trust back to grantor status, SLANT distributions rely more heavily on independent trustee discretion, which calls for more careful drafting.

While legislative discussions periodically evaluate changes to grantor trust rules, these vehicles remain primary pillars for intergenerational wealth transfer when executed with careful legal oversight.

Strategic asset placement across vehicles

Optimizing a complex wealth structure requires matching specific asset classes to the appropriate legal and tax wrappers. Note that these are general frameworks; the right approach for any given family will depend on their specific asset profile, complexity and risk tolerance.

• Traditional IRAs. Often best allocated to steady, yield-generating assets such as private credit or real estate investment trusts (REITs), where ordinary income tax rates match the income profile of the asset.
• Roth IRAs. Highly effective for strong growth equities, provided total household wealth remains within long-term estate tax exemption thresholds.
• Irrevocable grantor trusts. Ideal for high-upside, early-stage positions once family wealth exceeds federal estate tax thresholds, shielding future growth from federal estate tax.
• Taxable portfolios. Well-suited for core appreciated assets intended for transfer at death, leveraging the step-up in basis to eliminate unrealized capital gains. For concentrated, highly appreciated positions held prior to death, structured hedging and derivative strategies can help manage concentration risk, while other diversification tools such as direct indexing can allow for a more gradual transition out of the position.

Preserving generational wealth requires thoughtful vehicle selection, proactive risk management and staying ahead of changing tax frameworks. As balances grow, revisiting where assets sit, and why, can be one of the more overlooked ways to preserve wealth across generations.

Related Content

• Why So Many Families Are Unprepared for the Great Wealth Transfer — and What You Can Do About It
• The Inheritance Dilemma: How to Pass Down Wealth Without Destroying Ambition
• Our Taxpaying 'Golden Hour' Won't Last: These 4 Urgent Moves Can Help Insulate Your Wealth Before It's Too Late
• How to Build Your Financial Fortress Before a Siege: Why Timing Is Everything in Asset Protection
• 3 Things That the Ultra-Rich Do to Protect Their Wealth That You Can Do, Too

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 federal and state estate taxes. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What's the lifetime federal estate and gift tax exemption?

Question: What is the lifetime federal estate and gift tax exemption for people who die this year? Will it be different for 2027 deaths?

Joy Taylor: The lifetime federal estate and gift tax exemption for people who die in 2026 is $15 million. This amount will go up each year with annual inflation. We don't yet know the figure for 2027 deaths.

2. How many estates pay federal estate tax?

Question: I'm curious how many estates actually pay estate tax, now that there is such a high lifetime federal estate and gift tax exemption.

Joy Taylor: In recent years, about 7,000 Form 706 estate tax returns have been filed with the IRS each year. More than half of these filings are from taxable estates of decedents, meaning estates that owe the federal estate tax.

The nonpartisan Tax Policy Center recently estimated that 6,890 federal estate tax returns would be filed for decedents dying in 2026, with 3,900 filed by taxable estates and 2,990 filed by estates that owe no tax.

3. Will the IRS tax me on inherited property?

Question: My grandmother recently died, and I inherited an appreciated, valuable piece of real property that she owned. Will the IRS tax me on my inheritance?

Joy Taylor: No. Inheritances are generally tax-free for federal tax purposes. And you would generally take a stepped-up tax basis in the inherited property equal to fair market value at the time of your grandmother's death. So if you sell the property shortly after her death, you shouldn't recognize much taxable gain from the sale.

4. Which states have their own estate, inheritance taxes?

Question: Which states have their own estate or inheritance taxes?

Joy Taylor: Most states do not impose taxes upon death. However, some do. Washington, D.C., and 12 states levy their own estate taxes on decedents. These states are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.

The estate tax exemption amounts in the 13 locales vary widely from state to state, and most are far below the federal exemption. Only Connecticut has hiked its estate tax exemption amount to close to the current federal level.

Five states impose an inheritance tax. They are Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

For more information, see our article on states with scary estate and inheritance taxes.

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 some retirees living on a fixed income, making ends meet can be especially challenging when everyday costs are high, as they are now. Just a couple of months ago, data showed that gasoline prices were up 27.4% from a year earlier, while grocery and housing prices keep rising.

When affordability is straining your budget, keeping more of the income you already have can make a difference. Enter taxes: another cost retirees have long had to contend with.

As you likely know, not all retirement income is taxed the same way. Some income is fully taxable, some is partially taxable, and some can be excluded from your federal taxable income altogether.

Knowing which income is tax-free can help you make the most of your retirement money and keep more of it available for everyday expenses. Here's a look at five common types of retirement income the IRS won't tax.

Nontaxable income in retirement

This is not an all-inclusive list of types of income the IRS won't tax. It's merely a sampling, for educational purposes, of some common sources of retirement income.

Because every individual's financial circumstances are different, consult a trusted tax advisor or certified financial planner who knows your situation and can offer tailored guidance.

1. Life insurance proceeds

Although life insurance typically isn't considered retirement income in a traditional sense, a surviving spouse or other beneficiary may receive a payout that helps cover living expenses or supplement other income.

Important to know: Life insurance proceeds generally aren't taxable income when paid to a beneficiary after the insured person's death.

For example, if your spouse has a $500,000 life insurance policy and you receive the $500,000 death benefit after your spouse passes, you generally won't owe federal income tax on those proceeds.

But...there are exceptions. Interest paid in addition to the death benefit is generally taxable. Special rules can also apply if you transferred a life insurance policy for value.

2. Qualified Roth account withdrawals

Qualified withdrawals from Roth IRAs and Roth 401(k)s are tax-free.

That's a key advantage of Roth retirement accounts. You contribute money after paying income taxes on it, so you don't get an upfront tax deduction. In exchange, you generally don't pay federal income tax on qualified withdrawals in retirement.

• For a Roth IRA, withdrawals are generally qualified if you've met the five-year holding period and are at least 59½.
• The five-year period generally starts with the first tax year for which you made a Roth IRA contribution.
• Other qualifying circumstances include becoming disabled or dying.
• Roth 401(k) distributions are also tax-free when they meet the applicable requirements.

A simplified example: If you withdraw $30,000 from a Roth IRA in retirement and the distribution is qualified, that $30,000 generally isn't included in your taxable income.

Not every Roth withdrawal is automatically tax-free, though. If you take a nonqualified distribution, the earnings portion may be taxable and could be subject to a 10% additional tax.

3. Municipal bond interest

Interest from many municipal bonds is generally exempt from federal income tax.

• States, cities, and other government entities issue municipal bonds to help finance public projects.
• For retirees and others who want investment income, tax-exempt municipal bond interest can provide cash flow without increasing federal taxable income.

For example, if you receive $5,000 in tax-exempt interest from qualifying municipal bonds, that interest generally isn't included in your federal taxable income.

There are exceptions. For instance, interest from certain private-activity municipal bonds can be subject to the alternative minimum tax.

State tax treatment can also vary. Depending on where you live and which bonds you own, you could owe state or local income tax even when the interest is exempt from federal tax.

4. Part of some pension payments

If you contributed after-tax money to a pension or annuity, you generally don't have to pay income tax again on the portion of your payments that represents your original investment.

This situation is more common with certain traditional pensions and annuities than with Social Security benefits or retirement accounts. The IRS generally refers to the after-tax portion as your "investment in the contract."

For example, suppose you contributed $50,000 of after-tax money toward a pension. When you begin receiving payments, you generally won't pay income tax on the portion of each payment that represents a return of that $50,000. The remaining taxable portion is generally included in your income.

The IRS has rules for determining how much of each payment is taxable and how much is tax-free. Depending on when your pension began and the type of annuity or pension you have, different calculation methods may apply.

So don't assume that your entire pension check is taxable simply because it comes from a traditional pension. Check your plan documents and tax forms (and/or consult a tax attorney) to determine whether you have an after-tax investment in the pension.

5. At least 15% of Social Security benefits

Up to 85% of your Social Security benefits can be subject to federal income tax, but the taxable amount depends on your income.

The IRS uses a measure called “combined income” to determine how much of your benefits, if any, is taxable. Generally, it includes your adjusted gross income, tax-exempt interest, and half of your Social Security benefits.

For 2026, your benefits generally are tax-free if your combined income is less than $25,000 for single filers or $32,000 for married couples filing jointly.

Above those thresholds, up to 50% of your benefits may be taxable. And as mentioned, at higher income levels, that figure can rise to 85%.

Another important consideration: Withdrawals from a traditional IRA or 401(k) can increase your combined income and may make more of your Social Security benefits subject to tax.

And...Under the 2025 Trump tax law, eligible taxpayers age 65 and older can claim an additional "senior bonus deduction" of up to $6,000 per person for 2025 through 2028. The deduction is subject to income limits and can reduce federal income tax owed, but it doesn't change the rules for determining whether Social Security benefits are taxable.

State taxes on retirement income

Federal and state tax rules can vary for retirement income. Income that isn't taxed by the IRS may still be subject to state tax, since states often have their own exemptions or deductions for retirement income.

• For example, nine states don't impose an individual income tax.
• Other states may exempt Social Security benefits but tax some or all pension income, traditional IRAs, 401(k)s, or other retirement accounts.
• Some also provide special deductions or exemptions for older taxpayers or for certain types or amounts of retirement income.

State retirement taxes can make a significant difference if you're considering where to retire. But don't judge a state's tax burden based solely on whether it has an income tax. As Kiplinger has reported, property taxes, sales taxes, estate and inheritance taxes, and other state and local levies can affect your overall cost of living.

If you're comparing states for retirement, look at how each one would tax your specific mix of income and assets, rather than relying on a state's reputation as being "tax-friendly" for retirees.

Retirement taxes: Bottom line

If you're worried about taxes eating into your retirement income, start planning before you need to take distributions. Traditional IRA and 401(k) withdrawals, for example, are generally taxable, as are many other common sources of retirement income, including interest, dividends, and capital gains.

Look at your expected income for the year and consider how a withdrawal, investment sale, or other financial decision could affect your overall tax picture. In some cases, it can help to spread income out when possible, rather than creating a large taxable-income spike in a single year.

As mentioned above, don't forget about state tax. If you're considering a move in retirement, compare the tax rules in the states you're considering based on your actual sources of income.

Related

• Types of Income the IRS Won't Tax in 2026
• Take Our Quiz: How Much Do You Know About Taxable Income?
• 5 Types of Gifts the IRS Won't Tax: Even If They're Big
• How All 50 States Tax Retirees

As Election Day approaches, all eyes are on the races that will determine the political makeup of the Senate and House of Representatives. The outcome could have far-reaching implications for the federal government's legislative agenda in coming years.

But voters will have more to decide than who is taking office in Congress. Many will also have their say on statewide ballot measures, including ones that could affect how much residents pay in taxes. Here are some of the state initiatives that voters will see in November.

State ballot measures on property taxes

In several states, voters will weigh ballot measures related to property taxes.

North Carolina residents will decide whether to support a state constitutional amendment that would require lawmakers to limit how much local governments may increase property taxes. If passed, these restrictions would put a cap on the amount of property tax revenue localities can collect. "If revenue exceeds the limit, tax rates would automatically decrease, but an individual homeowner's bill could still increase," according to the NC Budget & Tax Center.

Oklahoma voters will also decide on a constitutional amendment involving property taxes. The proposal would lower for 2027 the annual growth limit on the calculated fair cash value of property from 5% to 4%, and the cap for property qualifying for a homestead exemption would drop from 3% to 1.75%. For those 65 and older who have a homestead-exempt property, the annual growth limit would be tiered based on the taxpayer's income, with a maximum annual limit of 1.75%.

A proposed Florida constitutional amendment includes a few provisions affecting property taxes, including one that would raise the property-tax exemption for non-school taxes to $150,000 in 2027 and $250,000 in 2028; starting in 2029, the exemption would be indexed to inflation.

Tennessee currently has no state property tax, and voters will decide whether to pass a constitutional amendment that would prohibit the state's legislature from establishing a property tax.

State ballot measures on grocery taxes

As rising food prices strain family budgets, Arizonans will have their say on a measure that would prohibit local governments from adopting or increasing a tax on grocery sales without voter approval. Any new or increased tax on groceries would be limited to a rate of 2%.

State ballot measures on retirement taxes

Known as Proposition 42, an amendment to California's constitution would ban any new taxes on retirement account balances, individually owned assets and other personal savings. The state currently does not impose any such tax on the value of these assets, such as IRAs or 401(k)s. But the state does tax distributions from traditional retirement accounts as ordinary income at a rate of up to 13.3%, and this measure would not affect those taxes.

Proposition 42 conflicts with another proposal that Californians will consider in November: a one-time, 5% tax on the net worth of residents who have more than $1 billion in wealth. If both measures pass, the one that gets more votes will prevail, according to clauses in the initiatives.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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• Florida Voters to Decide on Property Tax Exemption

Every year, self-employed homebuyers do exactly what their accountants advise, then sit across from a lender who treats them as if they barely earn a living.

The write-offs that shrink a tax bill also shrink the income a mortgage underwriter will count, and that gap can decide whether you get an approval on your mortgage application or a courteous no.

This touches a large and growing share of the country. Bureau of Labor Statistics data put roughly 16.8 million Americans, more than 10% of the workforce, in self-employment as of late 2025. Upwork's research counts about 64 million people, close to 38% of workers, doing some freelance work over the course of a year.

Plenty earn more than enough to carry a mortgage, yet a conventional lender's math can still say otherwise. There is a well-worn path around the problem, plus a few moves that measurably improve where you land.

How your deductions shrink your borrowing power on a conventional loan

When you apply for a conventional loan, the underwriter doesn't look at what your business earned. They begin with the net profit on your tax return, run it through a standardized cash-flow worksheet (Fannie Mae's Form 1084 is the common one), average it over about two years, and turn the result into a monthly figure that gets weighed against your debts.

A low monthly number means low borrowing power, even when far more cash moves through your accounts than the return shows.

Not every deduction counts against you equally, though, and that detail rarely surfaces before someone assumes conventional financing is out of reach. The Fannie Mae worksheet adds several noncash write-offs, among them depreciation, the home office deduction, depletion and amortization, so those don't lower your qualifying income even though they lowered your tax bill.

What does pull the number down are ordinary cash operating costs:

• Supplies
• Subcontractors
• Vehicle and mileage
• Insurance
• Fuel
• Travel

That difference tells you how wide your own gap really is. If your write-offs are mostly depreciation and a home office, you might qualify with figures much closer to your true earnings.

If you carry heavy equipment, labor and fuel costs, a large slice of your income vanishes before the lender ever counts it.

How a bank statement loan reads your real cash flow

A bank statement loan settles the income question with your deposits rather than your return. Instead of starting from net profit, the lender totals the money that landed in your accounts in the past 12 or 24 months, discounts it to reflect the cost of doing business and spreads what remains across those months to reach a qualifying income.

That discount is the expense factor. On business accounts, lenders commonly assume expenses consume about half of deposits and count roughly 50% as income. Personal accounts get treated differently, since money reaching them has usually already covered some costs. This is also a number you can influence.

An underwriter is not tallying every credit on the page. They want deposits that are steady and roughly consistent with the income you report, and they remove anything that is not recurring business revenue, such as a transfer, a loan or a tax refund.

Overdrafts and returned payments draw the wrong kind of attention. The aim is to reconstruct what your business dependably produces.

The trade-off is rate. As nonqualified mortgage products, these loans typically run about 0.5 to 1 percentage point above a comparable conventional loan, and some programs ask for a few months of reserves.

Set that against what qualifying the conventional way would cost you, which is the deductions that lower your tax bill every year.

For many self-employed borrowers, keeping those write-offs is worth a slightly higher rate, though a thin-margin business should still run the numbers.

What to do before you apply

Borrowers who keep business and personal banking separate start from a strong position: Clean, easy-to-total deposits that tie plainly to their work and give an underwriter little room to discount them.

If your accounts are commingled, though, that's no reason to wait. A mortgage broker specializing in bank statement loans can review your deposits now and tell you what already qualifies, including whether your business or personal account makes the stronger case.

Those deposits also need to read clearly. Cash is hard to trace and often excluded, so deposit it promptly and keep records linking it to invoices.

When a large or irregular deposit lands, be ready to explain it, because anything resembling a transfer or a loan gets stripped from the calculation.

If your real costs run well below what the lender assumes, a CPA-prepared expense statement can increase the income on which your loan is based. This is where the expense factor stops being a flat 50%.

Say you deposit $20,000 a month and the lender counts half, or $10,000. If a CPA documents that your true costs are closer to 25%, the lender might count $15,000 instead, raising your qualifying income by half with nothing changed about how you operate.

It's not required, and it helps low-overhead businesses most. Ask your loan officer first, since lenders typically want the letter prepared in a specific way.

Where the program lets you choose, match the window to your trajectory. A business whose income has climbed usually looks stronger over 12 months, since a 24-month pull averages that recent year against a leaner one behind it.

A seasonal or uneven business tends to do better over 24, where the slow stretches sit next to the busy ones. Run it both ways and go with the window that best reflects your current earning power.

Line up the real costs before you fall for a house, including a down payment, several months of reserves and a rate above conventional.

Whatever you're preapproved for, make sure your cash flow comfortably covers the monthly payment and carrying costs in an ordinary month, not just a busy one.

Ask your CPA about timing, too, since the deduction strategy that saves the most at tax time is not always the one that serves you in a year when you also want to buy.

Lenders don't all read your file the same way, so gather a few quotes and select a loan officer who lays out both paths instead of selling one.

The right loan depends on what you need most: Conventional often wins on rate when your deductions are mostly the paper kind that get added back, while a bank statement loan can win on loan size or speed.

That call is yours to make. Assemble your file early either way:

• 12 to 24 months of statements
• About two years of proof of self-employment
• Your CPA's expense letter
• A year-to-date profit and loss statement

The bottom line

A conventional turndown usually says more about the measuring stick than about you. Underwriting built for a W-2 world reads a healthy business as a low earner, and the very deductions that make you a savvy taxpayer are the ones that make you look small on paper.

As the workforce keeps shifting toward independent income, the financing has quietly caught up.

Your task is to know which door fits and to arrive prepared: Clean deposits, a documented expense ratio, reserves set aside and a lender who writes these loans routinely. Do that, and self-employment stops being the reason you can't buy.

Related Content

• Getting a Mortgage in Retirement Is Way Harder Than It Should Be: Here's How to Navigate the Process
• 12 Tax Strategies Every Self-Employed Worker Needs in 2026
• Applying for a Mortgage Loan? Here's What to Expect
• 7 Overlooked Tax Deductions for the Self-Employed
• A Practical Guide to Credit and Loans

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 retirees and pre-retirees, the question has shifted, from "How do I grow my wealth?" to "How do I sustain, protect and distribute it tax-efficiently?"

Over the past few years, technological advancements in the investment world have ushered in a new era of flexibility and control.

As a financial planner and owner of Alpha Planning, I find that direct indexing and tax-loss harvesting have become strategies that I'm discussing regularly — often with clients who have brokerage accounts over $250,000 and are keen on managing their retirement tax outcomes.

What is direct indexing — and why is it different?

Most investors have grown comfortable with index funds: Buy an S&P 500 ETF, and you get hundreds of companies with one click. But direct indexing lets us go one step further.

Instead of holding shares of a fund, we own the individual stocks that make up an index, opening up far more opportunities for customization and tax optimization.

To illustrate: Imagine your portfolio is like a chef's kitchen. Index funds are the meal kit — pre-packaged, efficient and predictable.

But direct indexing is the custom kitchen, stocked with individual ingredients that let you adjust every dish to your taste. You can swap one item for another, season to your preferences or craft a meal that's uniquely yours.

This flexibility is invaluable when managing taxes and making strategic choices.

And it's not just theoretical. Our team consistently averages 1% to 1.5% of tax alpha each year in nonqualified accounts simply by trading stocks strategically — that's above and beyond any market performance.

"Tax alpha" is a measure of how much additional money you keep by lowering your tax bill, and this alpha accumulates year after year, resulting in thousands of dollars in additional value for our clients over time.

The capital gains budget: A smarter, more strategic tax plan

One concept that has become the backbone of many retirement conversations is the capital gains budget. Think of it as an annual spending plan for your realized gains: How much can you afford to distribute before tipping into higher tax brackets or triggering additional Medicare IRMAA premiums?

Intentionally setting a capital gains budget creates room to coordinate other income strategies — like Roth conversions — without crossing those crucial thresholds.

Direct indexing allows for precise control of:

Tax-loss harvesting. By tracking individual positions, we can harvest losses throughout the year, offsetting gains and smoothing out your tax bill.

Roth conversions. Loss harvesting frees up "space" in your tax bracket so you can convert more IRA assets to Roth at preferable rates and accelerate tax-free growth without impacting IRMAA.

IRMAA management. Staying under IRMAA cutoffs means keeping your Medicare premiums as low as possible.

Flexible withdrawals. Harvested losses don't just help in a single year — they often carry forward, providing valuable flexibility for withdrawals in later retirement years. This can help ensure you're less likely to trigger excessive taxes when accessing your investment accounts for future needs, often when long-term care comes into view.

A case from my desk: Linda and Bob's retirement tax playbook

Earlier this year, I met with Linda and Bob, a couple who'd recently retired with $3 million in investable assets. Their challenge: To maximize after-tax retirement income, minimize surprises and plan for their family's future.

With direct indexing in their taxable account, we harvested $75,000 in losses over the first two years of the strategy.

This loss harvesting became essential to keeping their capital gains budget on track — allowing us to convert IRA dollars to Roth while staying under Medicare IRMAA thresholds and AGI limits.

It also provided the flexibility to help fund a second home purchase without affecting their IRMAA and Roth conversion strategy thanks to the carry-over losses we had helped accrue.

The payoff? Linda and Bob enjoyed predictable Medicare premiums, more tax-free growth, more flexibility for future withdrawals and an estate strategy ready for the next generation.

Their story is a perfect example of how intentional planning — not just reacting to market swings — translates into tangible, lasting benefits.

Who benefits most?

Direct indexing and a capital gains budget aren't only for ultra-high-net-worth investors. If you have a brokerage account over $250,000 and want to take control of your retirement tax plan, these strategies could be your missing link.

They offer proactive ways to personalize your financial plan, prepare for future legislative changes and put more money to work for you.

Key takeaways

• Direct indexing brings customized flexibility — think of it like a custom-made mutual fund — you have control over when to buy and sell, not the mutual fund or ETF
• Tax-loss harvesting is more powerful when you own individual stocks
• Setting a capital gains budget helps coordinate Roth conversions and manage Medicare costs
• Strategic trading generates tax alpha — on average 1% to 1.5% per year — which compounds into substantial long-term benefits
• Harvested losses create flexibility for withdrawals in future years, helping minimize taxes as retirement unfolds — especially when future needs like long-term care arise

Final thoughts

Retirement is about more than investment returns — it's about controlling what you can and planning with intention.

If you haven't reviewed your capital gains budget or explored direct indexing, now's a good time to sit down with your adviser and ask the tough questions.

In my experience, the confidence that comes from a well-structured, tax-smart retirement plan is the most valuable asset you can own.

Related Content

• How to Dodge a Retirement Danger You May Not Have Heard About
• 8 Retirement Tax Strategies Your CPA Won't Tell You
• 9 Tax Surprises Retirees Don't See Coming Until It's Too Late
• Retiring Early? This Strategy Cuts Your Income Tax to Zero
• The 40-Year Retirement Rule: How to Prepare Your Taxes for a Longer Life

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.

The most dangerous word in American estate planning is "permanent."

Congress used it last summer when it enacted the One Big Beautiful Bill Act (OBBBA), and every planning practice in the country quietly lost its sense of urgency in the days that followed.

The relief was understandable. For much of the preceding three years, the profession had operated under a deadline: The doubled estate exemption in the Tax Cuts and Jobs Act (TCJA) was scheduled to sunset at the end of 2025, and families with substantial wealth were counseled — correctly, under the law at the time — to compress years of transfer planning into a matter of months.

Then the deadline evaporated — and with it, for many families, the last practical motivation to reopen the estate binder.

The deadline that never came

On July 4, 2025, President Donald Trump signed the OBBBA into effect, setting the estate, gift and generation-skipping transfer tax exemption at $15 million per individual for 2026, or $30 million for married couples — up from $13.99 million and $27.98 million, respectively, in 2025.

It also provides for inflation adjustments beginning in 2027 using 2025 as the base year. The top federal rate remains 40%.

The 2026 annual gift exclusion for 2026 is $19,000.

Since the OBBBA took effect, for the great majority of Americans with substantial wealth — households with net worth between roughly $5 million and $30 million — the federal estate tax has effectively receded as a planning concern.

Why 'permanent' is a dangerous word

"Permanent," in tax legislation, is a term of art. It signals that Congress has chosen not to include a scheduled expiration in the statute — nothing more.

A future Congress remains free to revise the number at any time, and the historical record suggests it does so with regularity.

In 2001, the federal estate tax exemption stood at $675,000. By 2002, it had risen to $1 million. In 2009, it reached $3.5 million. In 2010, the estate tax was briefly repealed altogether, then reinstated at $5 million in 2011.

The TCJA doubled that figure to $11.18 million in 2018, and it drifted upward with inflation being lifted it to its current level.

Against that record, "permanent" is a description of legislative posture, not of statutory reality.

The behavioral response most families adopt on hearing the word — read the news, exhale, close the binder — is precisely the wrong one.

Four questions your documents need to address now

1. Does your existing plan still function when the exemption rises rather than falls?

Many trusts drafted during the preceding decade contain formula clauses — provisions that automatically allocate assets between a credit-shelter share and a marital share based on the exemption in effect at the first spouse's death.

A formula written to divide an estate at a $5 million or $7 million threshold behaves very differently at $15 million.

In some drafting patterns, the credit-shelter share now consumes nearly the entire estate and starves the surviving spouse's marital share. In others, the reverse occurs.

Neither outcome may reflect what the family intended when the documents were signed.

The remedy is unglamorous: Read the formula language, model the outcome under current law and amend or restate where the mechanics no longer serve the intent.

2. How should appreciated assets in your estate be handled?

This question inverts a decade of planning orthodoxy. Under the pre-OBBBA regime, the arithmetic favored removing appreciated assets from the estate — through gifts, sales to intentionally defective grantor trusts or grantor retained annuity trusts — to avoid a 40% estate tax that would otherwise apply.

That calculus was often correct. Under a permanent $30 million exemption, it frequently is not.

For families comfortably beneath the threshold, retaining appreciated assets in the estate captures the basis step-up permitted at death, which eliminates embedded capital gain from a lifetime of appreciation.

A 23.8% federal capital gains rate applied to decades of unrealized growth can now exceed the estate tax cost of holding the asset — often by a substantial margin.

The old default of "give it away" deserves a fresh calculation.

3. What impact will state estate or inheritance taxes have?

Several states levy their own estate tax at thresholds far below the federal exemptions, and additional jurisdictions impose inheritance tax on the recipient rather than the estate.

• Oregon begins taxation at $1 million
• Massachusetts at $2 million
• Washington at approximately $3 million
• New York at $7.35 million, with a distinctive cliff at 105% of exemption above which the entire estate becomes taxable from the first dollar

Our practice, Palmer Wealth Group, (I am the CEO), is based in Texas, which imposes no state estate tax, a genuine planning advantage for its residents.

But the analysis rarely stays clean. Property held in another state, family members domiciled elsewhere or a beneficiary residing in an inheritance tax jurisdiction can each trigger exposure the federal calculation misses entirely.

State thresholds change more frequently than federal, and several states index their exemptions annually. What was safe last year may not be safe this year.

4. Which trust strategies are the most tax-efficient?

This one addresses what existing trusts have quietly become. When federal estate tax was the binding constraint, the goal of an irrevocable trust was often to remove assets from the grantor's estate as efficiently as possible. Income taxation was a secondary concern. It is no longer.

Now, a trust reaches the top 37% federal income tax bracket at $16,000 of undistributed income in 2026 — a threshold a single individual does not encounter until $640,600 of taxable income.

For a trust with meaningful investment assets, the compression is severe.

Distributable net income planning, grantor-trust elections, situs selection and the choice between distributing and accumulating income each become materially more important once the estate tax rationale no longer overwhelms every other consideration.

What this review actually looks like

Taken together, these four questions form the shape of an estate plan review that has these components:

• Documentary. Retrieve the current trust and will documents and read the formula clauses aloud. The exercise is more revealing than most families expect.
• Arithmetic. Re-inventory the estate against the new estate tax threshold, separating what remains a candidate for lifetime transfer from what has quietly become a candidate for basis step-up.
• Geographic. identify every state in which the family owns real property, maintains a domicile or has significant beneficiaries and map the exposure against current state statutes.

The fourth component is coordinative — and, in some respects, it's the most difficult because estate planning, tax planning and investment management sit on three separate professional desks, plus a personal one:

• The attorney drafts the documents
• The accountant computes the return
• The adviser manages the assets
• The family too often serves as the unpaid coordinator among them

In our practice, the review typically begins with the attorney reading the formula clauses in the family's presence and ends with the accountant and the investment adviser at the same table, working from the same current inventory.

The mechanics are ordinary; the coordination is not. Its absence — not the tax code — is what most often causes an updated plan to remain uncompleted after the review begins.

Nothing in the current law prevents a future Congress from changing the exemption again. The 40% rate, the state estate tax landscape and the compressed income tax brackets that apply to trusts all remain what they were before OBBBA.

What has changed is the immediacy of the pressure to act. That change is welcome, but it should not be mistaken for a change in the underlying discipline.

Estate planning is not the practice of racing deadlines. It is the practice of building a plan that survives whatever the rules become next.

Related Content

• 17 States With Scary Estate and Inheritance Taxes
• The Illinois 'Cliff Tax': A Single Dollar Could Cost Families Hundreds of Thousands
• Inherited Money or Property? What You Need to Know Before Filing Your Taxes
• Estate Tax vs Inheritance Tax: Who Actually Pays the Bill?
• Which Trust Type Saves Your Kids The Most Money?

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.

Every team is measured by the scoreboard, but after the game, good coaches look beyond the numbers in their constant quest for improvement.

They study video to discern strengths and weaknesses in their team and the upcoming opponent. They identify opportunities, assess risks and make adjustments before the next game.

Retirement planning deserves the same approach.

Most people know how much they have saved for retirement. They may know their investment returns, their 401(k) balance or the value of their IRA. But those numbers alone don't answer the most important question: Are you actually prepared for the retirement you want?

A strong retirement plan should be evaluated from several different angles. A retirement scorecard can help identify where a plan is strong, where it may have vulnerabilities and where adjustments could make a meaningful difference.

Here are five areas worth keeping score on.

1. Secure income: How much of your retirement income can you count on?

One of the first questions retirees should ask is not how much money they have, but how much reliable income they will have.

Social Security may provide an important foundation. Pensions can provide another source of dependable income. Some retirees may also use annuities or other strategies designed to create guaranteed income.

The next step is to compare that dependable income with the expenses that must be paid regardless of what the financial markets are doing.

Consider:

• Essential living expenses
• Healthcare costs
• Mortgage or housing expenses
• Other recurring obligations

The objective isn't necessarily to have every dollar of expenses covered by guaranteed income. Rather, it's important to understand how much of your essential lifestyle depends on your investment portfolio's performance.

A retiree with $2 million invested and $100,000 of dependable annual income may have a very different retirement outlook than someone with the same $2 million portfolio but only $40,000 of dependable income. The account balances are identical; the retirement plans are not.

2. Retirement confidence: How well does your plan hold up when things change?

Retirement rarely unfolds exactly as expected. Markets rise and fall. Inflation changes. Tax laws evolve. Healthcare expenses can be unpredictable. And people may live longer than they anticipated.

That's why a retirement plan should be tested against more than one possible future.

One way to do that is through Monte Carlo analysis, which can test a retirement plan across thousands of potential market and economic environments.

A retirement plan can be tested against periods of strong markets, declining markets, sideways markets, different inflation rates and changing tax environments.

The purpose isn't to predict exactly what the future will look like. It's to determine how resilient the plan is when the future doesn't cooperate.

A plan that works only when investment returns are strong may look successful on paper but provide less confidence in the real world. A stronger plan is one that has enough flexibility to withstand adversity without requiring the retiree to completely change course.

3. Retirement taxes: How much of your money will you get to keep?

A retirement account balance isn't necessarily the same thing as retirement wealth.

Taxes matter. A retiree may have money in traditional IRAs, 401(k)s, Roth accounts, taxable investment accounts and other sources. Each account can have different tax consequences when money is withdrawn.

That means retirement planning shouldn't simply ask, "How much can I withdraw?" It should also ask, "Which account should the money come from, and when?"

For example, a retiree might consider whether to:

• Convert some traditional IRA assets to a Roth IRA
• Realize capital gains in a lower tax year
• Coordinate IRA withdrawals with Social Security
• Manage income to avoid unnecessarily higher tax brackets
• Consider the effect of additional income on Medicare premiums
• Determine which investments should be sold to fund retirement expenses

These decisions can look relatively small when viewed individually. Over a 20- or 30-year retirement, though, the cumulative tax impact can be significant. That's why a retirement scorecard shouldn't measure only investment performance; it should also measure how efficiently the plan converts wealth into after-tax retirement income.

4. Retirement risk: What could knock the plan off course?

Risk in retirement is about much more than whether the stock market goes down.

A comprehensive risk assessment should consider several factors, including:

• Expected investment return
• Retirement time horizon
• Target portfolio withdrawals
• Market volatility
• Inflation
• Longevity
• Healthcare costs
• Liquidity needs
• Personal comfort with investment risk

One retiree may be comfortable with a portfolio that another would find difficult to stick to during a market downturn. A theoretically optimal portfolio isn't necessarily a successful portfolio if the investor can't remain committed to it during a difficult market.

The goal isn't to eliminate risk. That's impossible. The goal is to understand the risks you're taking and determine whether they're appropriate for the retirement you're trying to create.

5. Estate efficiency: What happens to the money you don't spend?

Retirement planning doesn't end when you determine that you have enough money to live comfortably. There is another question: What happens to the money that remains?

For many retirees, leaving assets to children, grandchildren or charitable organizations is an important part of the overall plan. That means estate planning should be considered alongside retirement planning rather than treated as a separate exercise.

The type of account, beneficiary designations, potential taxes, fees and the way assets are transferred can all influence how much reaches the intended beneficiaries.

The goal is about more than accumulating wealth; it's also about determining how efficiently that wealth can accomplish what you want it to accomplish — during your lifetime and afterward.

Keep evaluating your scorecard throughout retirement

A scorecard isn't valuable because it produces a number, but because it starts a conversation. A retirement plan might have excellent investment performance but a weak tax strategy.

It might have substantial assets but insufficient guaranteed income.

It might have a strong probability of success but too little liquidity for the retiree's comfort. Or it might provide plenty of income today while creating unnecessary tax or estate planning problems later. That's why the numbers need to be viewed together.

The purpose of a retirement scorecard is to identify what needs attention now. Great coaches evaluate throughout the season. They recognize what is working, identify what isn't and make adjustments when circumstances change. Retirement is a long season and deserves the same discipline.

The goal isn't to achieve a perfect score and put the plan on a shelf; it's to understand where you stand today and identify what may need to change as your circumstances, markets and priorities evolve. A strong retirement plan is evaluated, adjusted and improved throughout the retirement journey.

Great coaches don't wait until the final game of the season to make adjustments; they keep evaluating the scoreboard along the way. Retirement is a long season and deserves the same discipline.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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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.

Editor's note: This is the second article in a two-part series on investing via Delaware statutory trusts (DSTs) investing. The first is Why a "Fee-Based" DST Investing Sales Pitch is a Red Flag for Investors.

Delaware statutory trust (DST) investors sometimes ask, "Why am I paying taxes on more income than I actually received in cash?"

At first glance, it may seem confusing. However, this is not unique to DST investing — it is the same concept that has applied to direct real estate ownership for decades.

This is how we explain it at Kay Properties and Investments, which has been helping thousands of DST investors for nearly 20 years, and where I'm the CEO.

A simple example

For decades — indeed, for generations — real estate owners and landlords have followed the same basic financial principle: Not every dollar of rental income should be distributed immediately. A prudent owner plans ahead by setting aside reserves for future expenses that potentially protect and preserve the property's value.

Imagine you personally own a commercial building that generates $200,000 in annual rental income. During the year, you discover the roof has reached the end of its useful life and will need to be replaced in the near future. Rather than distributing every dollar of rental income to yourself, you wisely retain a portion of the cash flow each month to build a reserve fund for the future roof replacement.

At year-end, you may have only withdrawn $150,000 in cash, with the remaining $50,000 held in the property's bank account as reserves.

Even though you didn't receive that $50,000 personally, it is still income generated by your property. Under IRS tax rules, you generally report the property's taxable income — not simply the cash you chose to distribute to yourself.

At first, this may result in you paying tax on income that remained in the property's reserve account.

However, when those reserve dollars are ultimately used to replace the roof (or any other type of repair or investment in the property, such as resurfacing the parking lot, renovating space for a new tenant or completing other improvements), those expenditures become investments back into the property.

As those costs are recognized for tax purposes over time — major improvements are generally depreciated over their recovery periods rather than deducted all at once — they generally provide write-offs, expenses and future tax benefits to the property's owners, making the earlier timing difference largely a matter of when the expense and tax benefit is realized rather than whether it is realized.

This has been standard practice among real estate owners for decades and is simply part of responsible property ownership and long-term asset management.

How rental income is reported in a DST

Just as with direct real estate ownership, a DST property receives rental income from its tenants throughout the year.

Business tenants that pay rent in the course of their trade or business generally report the rent paid to the property on IRS Form 1099. The DST asset manager receives these forms on behalf of the investors and typically prepares a Nominee 1099 allocating each investor's proportional share of the property's gross rental income.

The Nominee 1099 is primarily an informational reporting document that helps reconcile the rental income reported to the IRS. It is not the document used to calculate an investor's taxable income. Instead, it serves as a record-keeping tool that ties together the gross rents reported by tenants with each investor's ownership interest in the DST.

In addition, DST investors receive a calendar-year balance sheet and income statement for the property. These financial statements reflect the full year of property operations and are prepared by the DST sponsor.

This financial information breaks down the entire DST property's financial information as well as further details of each individual investor's percentage ownership of the DST and their corresponding pro rata numbers. Typical DST financial information at year-end will include the property's gross rental income, operating expenses, net income and balance sheet.

The net income based on your pro rata percentage interest in the DST is an important starting point, but your CPA or tax preparer will adjust it — most notably for depreciation — when preparing your tax return, generally relying on the tax reporting package (often a grantor letter) provided by the sponsor rather than the operating statement alone. (Read on for why cash-basis net income and taxable income are not the same figure.)

Why cash distributions and taxable income may be different

DST investors may have questions if the amount of cash distributions they receive during the year is less than the taxable income reported by the DST property.

This difference is completely normal in commercial real estate whether the investor owns the property outright or a percentage of a DST.

One of the primary reasons is that prudent property management often requires retaining cash to build reserves for future property needs rather than distributing every available dollar to investors.

Those reserves may be accumulated for:

• Tenant improvements for lease renewals or new tenants
• Leasing commissions to secure a new tenant
• Roof replacements
• Parking lot resurfacing
• HVAC replacements
• Landscaping and exterior improvements
• Other major capital expenditures that preserve and improve the property

Although these reserve dollars may temporarily reduce current cash distributions, they remain assets of the property and continue to belong to the DST investors collectively based on their proportional ownership interests.

The reserves are not owned by the DST sponsor or asset manager — they are investor-owned funds being held at the property level for future capital needs. If reserve funds ultimately are not needed for their intended purpose, those funds remain property assets and will be distributed back to investors on a pro rata basis upon the sale or disposition of the property, consistent with the governing DST documents.

Two other reasons taxable income can differ from cash distributions received

Depreciation. One of the most significant tax features of real estate is depreciation. Each year the tax law allows the property's owners to deduct a portion of the building's cost, even though no cash is actually spent.

In the early years of a DST hold, depreciation often shelters a substantial portion of the property's net income — which is why many investors initially report taxable income that is lower than the cash they receive.

As those depreciation deductions decline over the hold period, taxable income tends to rise relative to cash flow.

Mortgage principal. In a leveraged DST, repaying mortgage principal uses the property's cash but is not tax-deductible. As depreciation deductions decline and a growing share of each mortgage payment is applied to principal, an investor may report taxable income that exceeds the cash actually distributed.

This effect — sometimes called "phantom income" — is a normal feature of leveraged real estate, whether owned directly or through a DST, and works alongside the reserve timing difference described in the main article.

The real estate ownership timing difference: Taxes today, tax benefits tomorrow

One point that is often overlooked is that reserve building generally creates a timing difference, not necessarily a permanent tax cost.

During the period reserves are being accumulated, an investor may report more taxable income than the amount of cash actually distributed because some of the property's cash flow has been retained for future capital needs.

However, when those reserve dollars are eventually used — to replace a roof, resurface a parking lot, install HVAC systems and so on — the property incurs those expenditures on behalf of its owners. Because each DST investor owns a beneficial interest in the property, each investor will receive their proportional share of the expenses and write offs associated with those capital expenditures.

As those reserve dollars are invested back into the property, the related expenses and write-offs are passed through to investors based on their ownership interests, helping offset taxable income over time. Because most of these items are capital in nature, the related deductions are generally realized gradually through depreciation and amortization rather than entirely in the year the reserves are spent.

In other words, while a DST investor may have paid tax earlier because reserves were accumulated instead of distributed (the same way as when they directly owned real estate and built reserves), those future expenses will help offset taxable income in later years.

What initially appears to be paying tax on "income you didn't receive" is often simply a matter of tax timing rather than an additional permanent tax burden. This is the case whether you own an interest in a DST or own a property outright.

Example timeline: How a reserve timing difference works

Imagine you own a 1% interest in a DST.

Year 1

• Rental income allocated to you: $100,000
• Cash distributed to you: $95,000
• Reserved by the property for future capital improvements: $5,000

Although you received only $95,000 in cash, the property earned $100,000, so you may report taxable income based on the property's operations rather than simply the cash distributed. (This illustration is simplified; your actual taxable income would reflect operating expenses, mortgage interest (if it were a leveraged DST but not if it was a debt free DST) and depreciation.)

The $5,000 was not paid to the sponsor — it remained your money as part of the property's reserve account, along with the reserves attributable to the other DST investors.

Year 2

The property uses the reserve funds to:

• Replace the roof
• Resurface the parking lot
• Complete tenant improvements for a new lease
• Pay leasing commissions to secure a new tenant

Because you are a beneficial owner of the DST property, your proportional share of those capital expenditures is reflected in the property's tax reporting. Those expenditures generally create future tax benefits that help offset taxable income in later years, generally realized through depreciation and amortization over the assets' recovery periods.

The result: Although you may have paid tax on the additional $5,000 in Year 1 because it remained in reserves, those reserve dollars were ultimately invested back into the property for your benefit.

The associated future expenses help offset taxable income over time, making the difference between taxable income and cash distributions a matter of timing rather than a permanent additional tax burden.

The bottom line

The difference between DST cash distributions and taxable income is often misunderstood, but it is simply a reflection of how commercial real estate ownership has worked for decades regardless of if it is owned outright by the investor or by a DST.

Think back to the example of the landlord who owned a building and prudently retained a portion of rental income to build reserves for a future roof replacement. Although that owner received less cash in hand during the year, the reserve funds still belonged to the owner, remained invested in the property, and were ultimately used to preserve and enhance the value of the real estate.

Those expenditures ultimately generated expenses associated with those improvements, helping offset taxable income over time.

A DST simply follows that same long-established and widely accepted real estate ownership practice through a professionally managed ownership structure.

As always, because every investor's tax situation is unique, investors should consult their CPA or qualified tax adviser regarding the tax treatment of their individual DST investment.

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• How Do You Step Away From Your Real Estate Empire Without Facing a Giant Tax Bill?

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 who are paid tax return preparers. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. How much can you rely on the IRS's frequently asked questions?

Question: It seems that for the past several years, the IRS has issued lots of its tax law guidance quickly in the form of frequently asked questions (FAQ). Can my clients rely on the agency's FAQs to avoid penalties if the IRS audits them?

Joy Taylor: In many cases, yes. Although the IRS's FAQ guidance does not rise to the level of legal authority and cannot be cited as precedent to support the merits of a taxpayer's position, taxpayers can rely on them to escape accuracy-related penalties. Taxpayers who can show that they relied on the FAQs in good faith and that such reliance was reasonable based on all the facts and circumstances have a valid reasonable-cause defense and won't be subject to the negligence penalty or other accuracy-related penalties.

The IRS includes the following language in each of its FAQ guidance documents:

"These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible. Accordingly, these FAQs may not address any particular taxpayer’s specific facts and circumstances, and they may be updated or modified upon further review. Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax. Any later updates or modifications to these FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of these FAQs will be maintained on IRS.gov to ensure that taxpayers, who may have relied on a prior version, can locate that version if they later need to do so."

2. Do paid preparers need a data security plan?

Question: I am a self-employed tax return preparer. I heard that the IRS requires all paid preparers to have a data security plan. Is this true?

Joy Taylor: Yes. Having a data security plan is mandatory for paid tax return preparers. In part, that's because preparers are a frequent target of cyberthieves, who prey on them in their quest for taxpayer personal information.

Anyone who prepares or assists in preparing federal tax returns for compensation must have a preparer tax identification number (PTIN) from the IRS that they renew each year. The form that preparers use to apply for or renew their PTIN requires them to check yes or no to the following statement: "I am aware that paid tax return preparers are required by law to create and maintain a written information security plan that provides data and system security protections for all taxpayer information."

IRS provides help for preparers who need to create a written information security plan. IRS Publication 5708 includes a template of a written information security plan (or WISP) that preparers can use as a starting point and amend according to their own situation.

3. IRS regulation of unenrolled preparers

Question: I am a tax return preparer. I am not a CPA, enrolled agent or lawyer. I heard that Congress wants to make it harder for me to get a preparer tax identification number (PTIN) each year. Can you explain exactly what Congress is proposing for tax return preparers?

Joy Taylor: In late September, the Senate approved a bipartisan bill called "The Taxpayer Assistance and Service Act" that has over 60 proposals covering 10 broad topics:

• Tax administration and customer service
• U.S. citizens who live abroad
• Streamlining judicial review for filers who challenge IRS in court
• Tax return preparers
• IRS's Taxpayer Advocate's office
• IRS's appeals office
• Whistle-blowers
• U.S. citizens held hostage overseas
• Small businesses
• Miscellaneous provisions

One of the sections in this bill would let the IRS regulate unenrolled paid tax return preparers. An unenrolled preparer is someone who prepares tax returns for money but is not a CPA, lawyer, enrolled agent or a comparable state-licensed holder.

Under the bill, unenrolled preparers would have to meet various requirements in order to apply for or renew a PTIN each year. These preparers must provide information about their competence and character, pass criminal background and tax compliance checks, and take up to 18 hours of continuing education courses. Importantly, the proposal does not require unenrolled preparers to pass a competency exam. Under the proposal, the IRS would be able to deny, revoke or suspend PTINs for unenrolled preparers who don't comply with the rules.

Giving the IRS power to regulate unenrolled preparers has been tried before. Since 2014, after an appeals court struck down the IRS's administrative oversight rules for unenrolled preparers, the IRS's National Taxpayer Advocate, Treasury inspectors, government auditors and tax practitioner groups have pleaded with Congress to let the IRS regulate unenrolled preparers. But this has always faced a wall of naysayers in the House and Senate, mainly Republicans, with added pressure from key free-market groups that oppose giving the IRS more statutory authority to regulate preparers.

But some tax professionals say this time could be different. The current language in the bipartisan Senate bill is more modest when compared with prior proposals. Democrats have made preparer oversight a top priority. And it is well-documented that unenrolled preparers make more errors with their clients' refundable credits and certain other tax breaks, when compared with filers who do their own returns, CPAs, enrolled agents, attorneys, and volunteers with tax-filing assistance programs.

Now that the Senate has approved the Taxpayer Assistance and Service Act, the ball is in the House's court. Maybe we will see the House act on the bill in the short time period after the midterm elections and before lawmakers head home again for the December holidays. There are many factors that will determine this, including which party comes out ahead in the midterms, other items on the House's plate, and the determination of legislators to focus on taxes.

4. What are the electronic filing rules for client returns

Question: I am a part-time, self-employed tax return preparer. On average, I prepare about 15 Form 1040 tax returns each filing season for my clients. I prepare the returns on paper and give them to my clients to file. Someone told me that I have to file my clients' returns electronically each year. Is this accurate?

Joy Taylor: The rules for tax preparers on electronic filing of client tax returns are thorny, but I'll try to explain them as simply as I can.

The preparer e-filing rules have been around since 2011. As a general rule, preparers who expect to file more than 10 Forms 1040, 1040-SR, 1040-NR or 1041, or any combination of these during the year, must electronically file them with the IRS.

There are three escape hatches to this general rule:
First, your clients can opt out of e-filing. Returns that clients mail to the IRS themselves are not treated as filed by the preparer and do not count against the 10-return cap. Clients must opt for this in writing. Preparers must keep a copy of the clients' signed statements in their file and attach the IRS Form 8948 to the tax return that the client mails to the IRS. Note that you can provide filing instructions, addressed envelopes, stamps, etc., as long as the client actually mails the return.

Second, preparers who don't e-file returns can request a hardship waiver using IRS Form 8944. To seek a hardship waiver, you must generally send the 8944 to the IRS by February 15 of the year for which the waiver is sought. Note that the IRS is sometimes a bit stingy in granting these waivers. Also, the waivers are valid for one calendar year.

Third, there are a few very narrow administrative exemptions. For example, one is for preparers who are members of certain religious groups who oppose e-filing.

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

Federal taxes often get the most attention, but state and local taxes make up a significant portion of the tax burden for households across the country. As many states grapple with budget pressures and competing revenue demands, whether high earners should pay more taxes is a key question.

That issue will reach voters in several states this November, with 2026 midterm election ballot measures taking different approaches to taxing wealth and high-income households.

Proposals range from changing state income-tax rates to a one-time tax on billionaire wealth — and, in another state, repealing a recently enacted millionaire's tax. Here's more to know.

2026 State tax measures on the ballot

Note: This information is provided for educational purposes only, and the measures highlighted here are just a sampling of the tax-related questions voters will face on state ballots this November.

Colorado income tax: Amendment 87

This fall, Colorado voters will consider a major change to the state's income-tax system.

If approved, Amendment 87 would replace the Centennial State's current 4.4% flat income-tax rate with a six-tier graduated system beginning with tax years on or after Jan. 1, 2027.

• The proposed marginal rates would range from 3.7% to 8.4%, with the highest rate applying to taxable income above $1 million.
• Those rates would apply to individuals, estates, trusts, and corporations.

Under the proposal, Coloradans with taxable income below $500,000 would generally pay less in state income taxes, while those with taxable income of about $500,000 or more would generally pay more. The tax increase would become substantially larger at higher income levels.

The measure is expected to raise additional state revenue, with the Colorado Legislative Council Staff estimating an increase of about $2.7 billion in the first full fiscal year.

The money would reportedly go toward K-12 public education, healthcare, and early childhood care and education.

Supporters: The Protect Colorado's Future coalition and groups including the Bell Policy Center support the measure. They say it would reduce taxes for most Colorado taxpayers while asking higher-income households to contribute more and raising money for education, healthcare, and child care. The Bell Policy Center says 97% of taxpayers would receive a tax cut under the proposal.

Opponents: Americans for Prosperity-Colorado and the Colorado Chamber of Commerce oppose the measure. They have raised concerns about Colorado's business climate, economic competitiveness, and changes to the state's Taxpayer's Bill of Rights.

Note: A competing measure, Proposition 136 (originally introduced as Initiative 232), would instead cap individual and corporate income-tax rates at 4.4%.

California Billionaire Tax: Will Prop 40 pass?

In California, Proposition 40 takes a different approach. Instead of changing the state's income tax rates, the so-called billionaire's tax would impose a one-time levy on individuals who were California residents on Jan. 1, 2026, with their net worth evaluated as of Dec. 31, 2026

• The tax would be 5% of net worth, generally excluding real estate and certain pensions and retirement accounts, and would be due in 2027.
• Affected taxpayers could spread the payments over five years at an additional cost through an annual deferral charge.

The measure would direct 90% of the revenue to health care, with the remainder going toward education, food assistance, and administrative costs.

The state Legislative Analyst's Office estimates that the tax could generate tens of billions of dollars over several years and that changes in taxpayer behavior, including some billionaires potentially leaving California, could reduce state income-tax revenue by less than $1 billion a year.

Supporters: Backers of Proposition 40, led by SEIU-United Healthcare Workers West, say the tax would help replace healthcare funding affected by federal cuts. Supporters include U.S. Sen. Bernie Sanders, the California Democratic Party and other labor and healthcare groups.

Opponents: Gov. Gavin Newsom and a broad coalition of business, healthcare, education, and labor groups, including the California Business Roundtable, California Medical Association, California Teachers Association, California Professional Firefighters, Planned Parenthood Affiliates of California, and the State Building and Construction Trades Council, oppose the measure. They and other critics argue that a one-time wealth tax could make state revenues more volatile, discourage wealthy residents from staying in California, and reduce future income-tax revenue.

Note: Prop 41 (a proposed change to how certain new taxes interact with the state's spending limit ) and Prop 42 (prohibiting new state taxes on personal property) also appear on the Nov. 3 ballot.

If either receives more affirmative votes than Proposition 40, it would not take effect.

Washington Millionaire tax referendum: Will voters repeal?

In Washington state, voters will decide whether to repeal a new tax enacted in March 2026, rather than whether to impose one.

• As Kiplinger has reported, Senate Bill 6346 established a 9.9% tax on individual and household income above $1 million.
• The tax is scheduled to take effect on Jan. 1, 2028, with the first payments due in 2029.
• The $1 million threshold will be adjusted for inflation, and the tax would apply only to income above that amount.

However, if voters approve Initiative 645, it would repeal the tax and prohibit state and local governments in the Evergreen State from imposing taxes measured by or imposed on individual income.

The state's current fiscal analysis estimates that repealing the tax would reduce state revenue by about $11.4 billion over five fiscal years, with most of the loss affecting the state general fund. Additional reductions would affect an account that supports child care and early learning.

If the tax remains, it's expected to raise between $3 and $4 billion a year beginning in 2029. According to the Tax Policy Center, roughly 25,000 households would be subject to the levy.

Supporters: Let's Go Washington, the campaign behind I-645, argues that Washington should preserve its longstanding absence of an individual income tax and says the new tax could affect families, businesses, and the state's economy.

Opponents: Gov. Bob Ferguson and a coalition that includes public-sector unions oppose the repeal. They argue that eliminating the tax would reduce funding available for education, health care, child care, and other public priorities.

Note: The so-called millionaires tax also faces a separate legal challenge over whether it complies with Washington's constitution.

Election Day 2026: What voters should know

For voters evaluating these measures, the state tax rate is only the starting point. Here are some things to consider before voting on these or other measures.

Read the official ballot language. Campaign materials can emphasize different aspects of a measure, but the official ballot language should explain what a "yes" or "no" vote means.

Look beyond the tax headline. A 9.9% tax on income above $1 million, for example, might not be a 9.9% tax on every dollar a household earns.

Check who's affected. Income thresholds, residency requirements, exemptions, and definitions of taxable income or wealth can substantially change who pays.

Compare the arguments on both sides. Supporters and opponents may be making competing claims about revenue, economic effects, and public spending. Independent state analyses can provide another point of reference.

Keep in mind that these three states aren't the only ones with tax-related measures on the November ballot. Check your sample ballot and research what a particular measure could mean for your bottom line, as well as services or funding in your state.

And, as always, stay tuned. If voters approve any of these measures, new court challenges, implementation decisions, and updated revenue estimates could potentially impact what happens next.

Related

• Property Tax Changes Homeowners 65 and Older Should Watch in 2026
• Washington Enacts 9.9% Millionaires Tax
• New California Wealth Tax? What to Know About the Latest Proposal

Whether you pay your property tax directly or through an escrow account, reviewing your assessment each year is important. If you don't, you could miss local tax breaks, or worse, pay a higher bill on incorrect property details.

Research from Realtor.com shows that local governments potentially overassess more than 40% of U.S. properties. That means millions of homeowners miss median property tax bill savings of $539 per year — money that could go toward home improvements or other housing essentials.

So don't let your hard-earned dollars go to waste. Test your knowledge below to unlock potential property tax savings.

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If you have a pension and substantial retirement savings, your tax situation could look very different from that of the average retiree.

You might have heard the statistic: Roughly 80% of retirees pay no federal income taxes. If you have a pension and a million dollars or more saved for retirement, you might read that statistic and think, "There's no way that applies to me."

You're probably right.

As a CERTIFIED FINANCIAL PLANNER® and the founder and CEO of Peak Retirement Planning, we work primarily with what we call the 2% Club — people who have pensions and $1 million or more saved (I wrote a book about this group — you can request it for free here).

We see a pattern that runs counter to the retirement advice many of us have heard throughout our working years. We were told that we would be in a lower tax bracket once we stopped working, but for retirees with substantial pensions and significant tax-deferred savings, that outcome isn't guaranteed.

In fact, you might find yourself in the same or an even higher tax bracket.

The good news is that having to pay taxes in retirement is hardly a bad problem to have. It means you have income and assets that many retirees don't.

However, I don't believe you should pay a penny more than necessary, and the key is understanding why most retirees can avoid federal income taxes and why your situation may require a different strategy.

You can watch my video on this topic:

Why so many retirees pay no federal income tax

The primary reason is the standard deduction. The standard deduction allows taxpayers to exclude a certain amount of income from federal taxation. For retirees with relatively modest income, that deduction can eliminate much or all of their taxable income.

Consider a hypothetical retiree with $500,000 in an IRA, no pension and Social Security as their primary source of income. At age 73, that person would begin taking required minimum distributions (RMDs). A roughly 4% withdrawal from a $500,000 account would generate about $20,000 of taxable income.

That isn't a particularly large amount of income when compared with the standard deduction, especially when additional deductions available to older taxpayers are considered.

Social Security also isn't necessarily fully taxable, as the amount of Social Security benefits included in taxable income depends on a retiree's overall income, and in this case, little or none of their benefits will be taxable.

That's how you can arrive at a retiree with retirement income who still owes little or even $0 in federal income taxes.

Now let's change the equation.

A pension can change everything

A pension is one of the greatest retirement benefits you can have. It provides something that millions of Americans don't have, which is a predictable income for life.

But from a tax-planning perspective, that guaranteed income often creates a challenge. Instead of starting retirement with relatively little taxable income, a pension holder frequently has three significant sources of retirement income:

• A pension
• Social Security
• Withdrawals from tax-deferred accounts such as 401(k)s, IRAs, TSPs or 403(b)s

I call this the three-legged stool of retirement income. It can provide tremendous financial security, but it can also create a substantial tax bill.

If your pension alone provides $50,000, $100,000 or even several hundred thousand dollars annually, you have already moved well beyond the situation facing the retiree with $500,000 saved and no pension.

Then add Social Security and eventually RMDs, and your taxable income can climb even higher. That's why I tell pension holders to stop comparing their tax situation with the average retiree. Your retirement income strategy needs to be built around your specific numbers.

Your Social Security could become taxable, too

Social Security taxation is another reason pension holders can find themselves paying more than expected. Depending on your income, up to 85% of your Social Security benefits can be included in taxable income.

For many of the clients we work with, that full 85% is taxable because their pension and other income push them above the relevant thresholds.

This can create a compounding effect. Your pension generates taxable income, which can cause more of your Social Security to become taxable, which then increases your overall taxable income.

And that's before we even get to your retirement accounts.

RMDs can become a bigger problem over time

One of the biggest mistakes I see is treating RMDs as if they're a problem for someone else. They're not. If you have substantial tax-deferred savings, you need to think about what those accounts could look like when RMDs begin.

Let's say you're 60 years old with $1 million in tax-deferred retirement accounts. If those assets grow significantly over the next decade or more, you could reach your RMD years with substantially more than $1 million.

This creates a very different tax problem. The percentage you are required to withdraw increases as you age, and you have to take those distributions regardless of whether you actually need the money for spending.

This could leave you in a situation where your pension and Social Security already provide enough income to live comfortably, yet the government requires you to withdraw additional money from your IRA. This additional income can push you into higher tax brackets and affect other parts of your retirement plan.

Medicare adds another layer

Your income doesn't just determine your federal income tax bill; it can also affect your Medicare premiums through the income-related monthly adjustment amount, or IRMAA.

If your income increases enough, you will find yourself paying more in premiums for Medicare Part B and D for the exact same coverage as someone with a lower income.

This is one reason I don't think retirement tax planning should focus solely on the federal tax bracket you're in. The real question is: What is your all-in cost?

This includes federal income taxes, Social Security taxation, Medicare premiums, capital gains and, depending on where you live, state income taxes.

Tax diversification can give you more control

Most diligent savers we work with did exactly what they were told to do throughout their careers: They put money into their 401(k), IRA, TSP or other tax-deferred accounts, received the tax deduction and kept saving.

That's a great way to build wealth, but there's a potential downside when you reach retirement: You could have too much of your wealth sitting in one tax bucket.

If nearly all of your retirement savings are tax-deferred, you don't have complete control over your future tax bill, and when you need additional income, you typically have one option: To recognize more taxable income.

That's why I like the concept of tax diversification. Instead of having all your money in tax-deferred accounts, consider building a combination of:

• Tax-deferred accounts. Traditional IRAs, 401(k)s, TSPs and similar accounts
• Tax-free accounts. Roth IRAs and Roth 401(k)s
• Taxable accounts. Brokerage and other investment accounts

The goal isn't necessarily to maximize one category but to create flexibility. If tax rates are high, having money in a Roth account could give you a source of retirement income without creating additional taxable income, and if tax rates are lower, you could draw from tax-deferred accounts instead.

You can't predict exactly what tax laws will look like 10, 20 or 30 years from now, but you can build a portfolio that gives you choices.

Roth conversions could be especially valuable for pension holders

This is where Roth conversions enter the conversation. A Roth conversion allows you to move money from a tax-deferred account into a Roth IRA, paying the applicable taxes on the converted amount today. Once the money is in the Roth, qualified withdrawals are tax-free, and Roth IRAs don't have RMDs during the original owner's lifetime.

For a pension holder with substantial tax-deferred savings, this can be a powerful planning tool, but I don't recommend converting money simply because someone says, "Roth is tax-free."

The question is more nuanced: What tax rate are you paying today compared with the tax rate you could face later?

If you have a large pension, substantial retirement savings and years before RMDs begin, you could have an opportunity to gradually move money into the Roth while managing your tax bracket.

For example, someone with a $100,000 pension has a very different future tax picture from someone with no pension. Add $1 million or more in tax-deferred accounts, and future RMDs could become significant.

A Roth conversion could reduce the size of those future RMDs while also creating a pool of money that grows without future RMDs for you.

But there's an important caveat: Don't convert blindly. Converting too much may push you into a higher tax bracket, increase your Medicare premiums or create other unintended consequences.

Converting too little might leave valuable lower tax brackets unused. The objective is to find the right amount, not simply the biggest amount.

Don't forget about the widow's penalty

There's another tax issue that married couples need to consider long before it happens: The so-called widow's penalty. While you're married, you generally file a joint return and benefit from married-filing-jointly tax brackets and deductions. When one spouse dies, the surviving spouse eventually files as a single taxpayer.

At the same time, the surviving spouse could lose one Social Security benefit while continuing to have pension income and retirement assets. In other words, income declines while the tax brackets become less favorable.

That's why I encourage couples to plan for both spouses, not just the tax situation they have today.

One strategy could be taking larger withdrawals or completing Roth conversions during the years when both spouses are filing jointly. Doing so could reduce the amount of tax-deferred money that remains for the surviving spouse. It's essentially risk management for your tax plan.

Your retirement goal matters, too

Tax planning isn't only about minimizing taxes; it's about aligning your tax strategy with what you actually want to do with your money.

If your goal is to spend your savings during retirement, it could make sense to take advantage of the earlier years of retirement, when you're healthy enough to travel, pursue hobbies and enjoy the wealth you've accumulated. I call these the "go-go years."

If your goal is to leave a significant legacy, the strategy could look different. A Roth conversion could turn tax-deferred assets into a potentially tax-free legacy for your heirs while also eliminating lifetime RMDs on the converted Roth assets.
Either way, your retirement tax strategy should start with your goals, not simply a desire to pay the lowest possible tax bill this year.

You might not be able to join the 80%, but you can still pay less

If you have a pension and substantial savings, you probably aren't going to replicate the tax situation of a retiree with modest income and no pension. And that's OK. I'd rather have a large pension and substantial retirement savings and pay some taxes than have no taxable income because I didn't save enough.

But there's a big difference between paying taxes because you have significant income and paying more taxes than necessary because you didn't plan ahead. If you're a pension holder with significant retirement savings, start by asking yourself some questions:

• How much taxable income will my pension create?
• How much of my Social Security will be taxable?
• What will my RMDs look like at 73, 75 and beyond?
• Could my RMDs push me into a higher tax bracket?
• Could my income increase my Medicare premiums?
• How much of my retirement savings is tax-deferred vs tax-free?
• Would Roth conversions make sense while I'm still working or early in retirement?
• What happens to my spouse's tax situation if I die first?
• What happens to my heirs if I leave them a large tax-deferred account?
• Where will I live in retirement, and how will state taxes affect the equation?

You might not be able to eliminate your retirement tax bill. But with the right planning, you can potentially reduce it, spread it out and gain more control over where and when you pay it.

That's the goal we have for our clients: Pay your fair share, but not a penny more.

Related Content

• 8 Retirement Tax Strategies Your CPA Won't Tell You
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully
• 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)

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.

Retirement doesn't unfold in a straight line. It behaves more like a lake. Every financial decision, whether a withdrawal, major purchase, tax strategy or claiming choice, creates ripples that spread across a retiree's financial future.

Some ripples fade quickly. Others reshape the entire retirement landscape. Understanding those ripples is key to building a retirement plan that is resilient, flexible and sustainable.

Every decision has an outcome or a consequence. Every financial decision does, too. Your experience is what clients need to navigate them.

Here's how we use the lake metaphor at Wealthcare Advisors.

Lifetime savings: The first major ripple

Lifetime savings form the depth of the lake — the reservoir that determines how much flexibility your retiree or soon-to-be retiree client has when making major decisions later. Choices made during the accumulation years shape their entire retirement.

Key drivers include:

• Savings behavior. Consistency, contribution levels and discipline
• Asset location. Taxable, tax‑deferred and tax‑free positioning
• Liquidity reserves. Cash availability for large purchases
• Volatility exposure. How much risk the portfolio carries into and through retirement

These choices determine how disruptive a major expense will be later in life. A deep lake absorbs ripples. The second ripple, tax planning, magnifies them.

Tax planning: The second major ripple

Tax planning is the bridge between accumulation and distribution. It determines how efficiently your client can access their savings and how long those savings will last. Important tax ripples include:

• RMD exposure
• Roth conversion windows
• Withdrawal sequencing
• IRMAA thresholds

This is where real‑world decisions, such as buying a car or a home, become powerful teaching moments.

Imagine your clients decide to buy a $50,000 car at age 70. That single decision creates a cascade of ripples across their "retirement lake." We would frame it like this:

Ripple one: Liquidity shock. The source of the $50,000 determines the size of this ripple.

Should the clients decide to make a tax‑deferred withdrawal, that may lead them into a higher tax bracket, IRMAA penalty risk and reduced Roth conversion space.

Using assets within their taxable account may lead to additional capital gains and reduced future income‑producing asset base.

If the decision is to use some of their cash reserves, they may be concerned about lower emergency liquidity and higher portfolio withdrawal pressure.

A combination of two or all three of these sources may solve the issue.

Ripple two: 18-24 month spending impact. A $50,000 purchase will often reduce discretionary spending for 18 to 24 months. Here are just a few decisions that may be affected:

• Planned travel may be delayed and home projects postponed
• Gifts to family or charitable giving are reduced
• The clients may have to lean harder on the assets you manage as portfolio withdrawals may also need to be increased

This is the ripple clients feel most immediately — the stone hitting the water.

Lifetime income planning: The third major ripple

This is where all prior ripples converge. Lifetime income planning (LIP) is the art of turning savings, tax strategy and spending decisions into a coordinated, predictable income stream. And LIP is the most crucial and difficult of these tasks.

At Wealthcare Advisors, we explain it this way. Clients will have assets they "lean on," assets they "live on" and a legacy they will "leave behind." LIP is the successful combination of our first two. Key components include:

• Sustainable withdrawal strategies
• Bucket or time‑segmented planning
• Guaranteed income tools
• Longevity protection
• Sequence‑of‑returns mitigation

Using our prior example, a $50,000 car purchase becomes part of the client's income plan — not an isolated event. That may require adjusting withdrawal rates, rebalancing accounts or shifting guaranteed income sources to maintain stability.

Social Security claiming: The last major ripple

Once spending, taxes and lifetime income have been coordinated, the final major planning decision is often Social Security claiming strategy.

Social Security can either calm the lake or amplify the waves. It interacts directly with spending decisions, tax strategy and income planning and gives us several scenarios to consider:

• A major purchase may influence whether delaying benefits is still optimal
• Claiming now may reduce portfolio withdrawals in the future
• If planning for a couple's lifetime, how do survivor benefits fit into the plan?

Finally, we need to scope out exactly how Social Security interacts with other taxable income and IRMAA.

For example, if a client had planned to delay claiming to age 70 but now needs cash flow, claiming earlier may reduce strain on the portfolio but permanently reduces lifetime benefits. This is why Social Security must be evaluated after lifetime income planning, not before.

The question is more complex than, "When should I/we claim?" It's "How do I/we design the income bridge so delaying benefits becomes sustainable in practice, not just on paper?"

Why the lake metaphor works

Clients instantly understand:

• The stone = the decision
• The ripples = the consequences and trade-offs
• The shoreline = long‑term impact and outcomes

It is intuitive, visual and memorable. And it reinforces your core message: The ripples never stop.

Retirement planning is not a series of independent decisions. It is an interconnected process where every choice influences the next. A withdrawal affects taxes. Taxes affect income. Income affects Social Security strategies. And together, these decisions shape a retiree's long-term financial security.

Like a stone cast into a lake, every financial decision creates ripples. Some are small and short-lived. Others travel far beyond the initial event and can impact a client's lifestyle, legacy and confidence for years to come.

The advisor's role is not simply to react to the ripples, but to anticipate them and help clients understand their potential consequences.

When savings, tax planning, lifetime income planning and Social Security claiming are coordinated through a thoughtful process, clients are better positioned to allocate assets according to their goals and priorities.

They gain the confidence to spend what they have worked so hard to accumulate, support the people and causes they care about, and enjoy a retirement that is meaningful, secure and dignified.

At Wealthcare, we believe that understanding the ripple effect of every retirement decision helps advisors deliver more than a financial plan. It helps them provide clarity, confidence and a road map for lasting retirement success.

Related Content

• True Wealth Starts With Health: How the Adviser's Role Is Expanding From Financial Gatekeeper to Life Strategist
• The Best Advisers Help Their Clients Use Their Retirement Fear Constructively: Here's How
• How to Turn Wealthy Clients' Charitable Giving Into a Cohesive Plan
• Your Legacy Is More Than Your Money: How to Plan for Values, Not Just Valuables
• Are You and Your Financial Adviser in Sync on Social Security?

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 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 tax 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 more than $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, 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 might 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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• I'm a Financial Planner: Here's How to Invest Like the Wealthy, Even if You Don't Have Millions
• I'm a Financial Strategist: This Is Why After-Tax Returns Are the Only Returns That Matter

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.

Related Content

• What Is a Stock Split and Why It Matters To Investors
• For High-Net-Worth Retirees, Tax Planning and Estate Planning Are the Main Events
• Give More But Pay Less: An Essential Guide to Tax-Smart Charitable Giving in 2026
• Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial Planner
• Tied Up in Knots Over a Concentrated Stock Position? This Strategy Will Help You Unravel

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.

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