Three Possible Tax Impacts for Retirees Under Trump

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published 12 December 2024

Editor’s note: This article was written in December 2024, and things are rapidly evolving, so please be aware that information could change at any time.

After the election, I was hopeful that we could start to focus on other things. Unfortunately, that is not the case. Many questions have come in about what a second Donald Trump term means for investments, the economy and taxes. Taxes are the only one I am willing to take a guess at. Based on what his campaign put out and what he has said into a microphone, here are three possible impacts on retirees.

1. An extension of the Tax Cuts and Jobs Act

This looks to be as much of a sure thing as is possible in Washington, D.C. With control of the White House, the Senate and the House by the GOP, it looks like the personal side of the Tax Cuts and Jobs Act (TCJA) could be made permanent.

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A brief history lesson: When Trump’s tax code was initially passed, the only way to get it through was via reconciliation, making the corporate side permanent and the personal side temporary. The personal tax cuts are due to expire on December 31, 2025.

The TCJA was a complete overhaul, but at a very high level, it did a few things:

Cut most of the marginal rates by a couple of percentage points
Doubled the standard deduction
Significantly limited itemized deductions

Evan T. Beach, CFP®, AWMA®

At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.

What this means for you depends on where you live and how much income you have.

2. Estate exemption remains high

This goes along with number one but deserves its own mention. In the early part of my career, the estate exemption floated between $1 million and $5 million. This essentially is the amount you can pass to your beneficiaries before your estate owes estate taxes. For clients over that limit, a lot of resources were devoted to moving assets out of their estate to get them below that limit. As part of the TCJA, that estate exemption was doubled and indexed for inflation. Today, the exemption is $13.61 million per person, and for 2025, it’s $13.99 million. There are far fewer clients above those thresholds.

Many advisers, accountants and estate attorneys who play in this space spent an awful lot of time creating very technical plans based on the assumption that the exemption would be cut in half with the expiration of the current code. The risk in getting ahead of something like that is the same as writing an article like this: It may be a gigantic waste of time. However, it looks like the Republicans may have enough power to keep the estate exemption climbing.

3. Welcome back, SALT?

I remember seeing lines of people at City Hall hoping to pay local taxes in 2017 before that amount was capped at $10,000 per year. People who live on the coasts and have high income and high property values, and thus high state and local tax (SALT) bills, do not like the cap.

For many of our retired clients, it meant going from itemizing down to the new standard deduction. The domino effect of this was that their total tax bill may have actually gone up under the new “cuts.” It also changed the advice we give on how and how much to give to charity.

I think most of our clients will welcome back a higher cap or no cap on SALT. How we pay for it as a country is more difficult to figure out. The Tax Foundation has estimated that the extension of the TCJA, plus adding back in SALT, would add $4.4 trillion to our deficit over the next 10 years. Part of the balance for the initial cuts was the increased revenue from adding the SALT cap. Having your cake and eating it, too, would work only if we could print money. Wait a minute …

You may have noticed that I did not mention taxes disappearing on Social Security. For a program with serious funding issues, I cannot envision a way this comes to fruition. Hopefully, Elon Musk is as good at government efficiency as he is at making money. If we could do this without a huge jump in the deficit or an even earlier exhaustion of the Social Security Trust Funds, I would be all for it.

In the days following the election, I received a number of media inquiries asking how we would change our tax advice based on Trump’s victory. The reality is that what is happening in your life has much more of an impact on your taxes than a fiscal change of a few percentage points. We project our clients’ tax rates out from today until their death. Higher rates in the future mean we do one thing. Lower rates in the future mean we usually use opposite strategies. You can try a free version of the planning software we use.

Disclaimer

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.

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After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.