Election, Taxes And Your Retirement Income

As we enter into the circus and media storm of the 2024 election, retirees and those planning for retirement have a vested interest in understanding how potential changes in tax rates could affect their financial outlook. This article aims to shed light on the possible implications of the upcoming election on tax rates, providing insights and considerations for retirees to make informed decisions about their retirement savings and income.

The outcome of any election can have significant consequences on tax policy. The 2024 election holds particular importance as it may bring forth changes that could impact tax rates for retirees. Different candidates and political parties often propose diverse tax plans that could result in varying tax rates, deductions, and exemptions. Staying informed about these potential changes can empower retirees to adapt their financial strategies accordingly. Being proactive with your tax-deferred accounts may shield you from a future tax change.

A potentially crucial factor to consider is the expiration of the Tax Cuts and Jobs Act (TCJA). Enacted in 2017, the TCJA introduced significant tax cuts for individuals and businesses. However, many of these provisions were temporary and are set to expire, leading to potential tax increases in the future. As the expiration approaches, retirees must be prepared for the possibility of higher tax rates on their retirement income, investments, and estates. Being proactive in evaluating the potential impact of these changes and exploring tax planning strategies could help navigate the shifting tax landscape and effectively manage their financial situation in the years to come.

Candidates will likely propose adjustments to income tax brackets, capital gains tax rates, or estate taxes. A decision must be made about the TCJA expiration and it is crucial for retirees to closely monitor proposed changes and understand how these modifications could affect their retirement income and long-term financial goals. Consulting with a tax focused financial advisor to evaluate the potential impact on their specific situation may provide valuable guidance.  

For decades it has been speculated that taxes for retirees would go down.  The thought is fairly simple, when retired you would have less income and therefore would stay in a lower tax bracket. So if you deferred your income into an account that can see growth, in theory you would be making withdrawals when you are no longer earning and as such would stay in a lower tax bracket. This led the financial industry and employers to lean into tax-deferred accounts such as 401(k)s and IRAs.  However, what may get overlooked is the mounting tax bill when savings are growing tax-deferred. This becomes increasingly important when you consider the expiration of the TCJA, growing national debt, and a new political cycle with decisions to make on what to do with the current tax brackets.

Changes in tax rates can directly impact retirement income sources, such as pensions, Social Security benefits, and withdrawals from retirement accounts. Higher tax rates could reduce disposable income, affecting retirees' ability to maintain their desired standard of living. Retirees may need to reassess their withdrawal strategies, considering the tax implications of different income sources. 

Adapting tax-efficient investment strategies, exploring Roth conversions, or utilizing tax-advantaged accounts may help mitigate potential negative effects. Christopher J. Dixon from Oxford Advisory Group has spent years focusing on tax planning as it relates to retirement and much of this insight today comes from his experience.

Given the uncertainties surrounding elections and potential tax policy changes, retirees may want to adopt proactive approach to tax focused financial planning. Diversifying income sources, implementing tax-efficient investment strategies, and regularly reviewing their retirement plans are prudent measures. Additionally, engaging with a knowledgeable tax-focused financial advisor can provide valuable insights, personalized guidance, and help navigate potential changes in tax rates effectively.

As the 2024 election draws near, retirees must stay informed about potential tax rate changes. By understanding the impact of political decisions on retirement income, retirees can make informed choices to protect and optimize their financial well-being. Being proactive, adaptable, and seeking professional advice such as the professionals of Oxford, one may be able to maintain a secure and prosperous retirement despite evolving tax policies.

If you are curious about what your retirement tax bill may look like, get your free estimate here.

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This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may receive this report. The information herein was obtained from various sources. Oxford Advisory Group does not guarantee the accuracy or completeness of information provided by third parties. The information in this report is given as of the date indicated and believed to be reliable. Oxford Advisory Group assumes no obligation to update this information, or to advise on further developments relating to it.