The tax planning world has changed. Have I and my fellow advisors caught up?
Below I discuss three changes in the past three years. These recent changes make a big impact on retiree taxation. Most commentators and gurus have largely ignored these changes.
The world has changed. It’s time for financial planners and tax advisors to adjust their advice accordingly.
No RMDs Until Age 75
In September 2022 required minimum distributions (“RMDs”) began at age 72. RMDs make traditional retirement account balances in retirement accounts less desirable, since they require taxable distributions.
In December 2022, SECURE 2.0 became law. For those born in 1960 and later, it delayed the onset of RMDs until age 75. SECURE 2.0 moved the needle when it comes to the desirability of traditional retirement accounts since it cancelled the three most likely to occur RMDs.
How long do we expect people to live beyond age 75? Take a look at the most recent Social Security Trustees Report actuarial table. For the vast majority of Americans, RMDs will now impact a very small proportionate share of their lifetime.
It’s time for advisors to question prioritizing a planning concern, RMDs, that now impacts a very small slice of most Americans’ lives.
Permanently Extended Lower Tax Brackets and Higher Standard Deduction
In 2022, advisors were on alert.
Better do those Roth conversions before lower tax rates sunset in 2026 was the common refrain. To be fair, in 2022 the Internal Revenue Code stated that the lower tax rates and the higher standard deduction expired on New Year’s Day 2026.
Since 2022, both the world and the Internal Revenue Code have changed.
The sunset never happened! In July 2025, the One Big Beautiful Bill permanently extended the previously “temporary” lower tax brackets and the higher standard deduction. In fact, the new bill slightly increased the higher standard deduction ($750 for singles, $1,500 for those married filing jointly).
Let’s think about what that means for taxes in retirement. RMDs that would have been taxed at 15%, 25%, and/or 28% will now be taxed at 12%, 22%, and 24%. That makes a big difference in planning, as the taxation of RMDs becomes less harmful.
It gets better! Less of most Americans’ RMDs will be taxed in a taxpayer’s highest bracket, thanks to the higher standard deduction. The higher standard deduction drags taxable income down in retirement, decreasing the amount of an RMD subject to the taxpayer’s highest marginal tax bracket.
Senior Deduction
New for 2025 is the senior deduction. It is up to $6,000 per person for those 65 or older by year end. Yes, it is subject to modified adjusted gross income (“MAGI”) phaseouts between $75,000 and $175,000 for singles and $150,000 to $250,000 for those married filing jointly. But those income phase outs still allow many rather affluent retirees to claim some or all of the senior deduction.
Many affluent retired couples will not show $150,000 of MAGI, especially prior to claiming Social Security. Even those with $200,000 of MAGI, a very limited cohort of affluent retired couples, get $6,000 of the potential $12,000 deduction. While the senior deduction may be more limited for affluent single retirees, many will be able to control income so as to qualify for some of the senior deduction.
The senior deduction helps with several retirement tax planning tactics and objectives. For some, the senior deduction opens the door wider for significant tax free taxable Roth conversions prior to collecting Social Security. For others, it will open the door to very significant Hidden Roth IRA distributions prior to collecting Social Security. The senior deduction also reduces the tax hit on RMDs, since it lowers the amount of the RMD subject to the taxpayer’s highest marginal tax rate.
2025 Increased Deduction: Consider a married couple both turning 65 in 2025. On New Year’s Day, their 2025 standard deduction was $33,200. Pretty good. With the increased standard deduction and the new senior deduction, assuming their MAGI is $150,000 or less, their total combined 2025 “standard” deduction is now $46,700. Yes, the tax planning world has changed!
Senior Deduction Uncertainty
Some worry: doesn’t the senior deduction vanish in 2029?
Aren’t we back to the “temporary” tax cuts that lowered the tax brackets and increased the standard deduction?
“Temporary” was simply the weigh station to “permanent” in that case. I strongly suspect something similar will happen with the senior deduction.
Let’s play out the politics. If Congress does nothing, in 2029, the senior deduction, the new deduction for tipped income, and the new deduction for overtime income all vanish overnight. Is it politically wise for Congress to allow seniors, waiters, waitresses, and many blue collar workers to face tax hikes?
Congress tends to act in its own best interests. While there are no guarantees, the politics are well aligned for the senior deduction to be extended into 2029 and beyond.
Tax Planning Impact
Fewer RMDs. Lower tax rates and a higher standard deduction. The senior deduction.
Three big changes in three years change tax planning.
We’ve heard commentators push for Roth 401(k) contributions during the working years and aggressive Roth conversions during the early part of retirement. Both tactics optimize for taxes in the later part of retirement. But we’ve just seen three changes in three years that significantly lower taxes later in retirement.
If the goal is to pay tax when you pay less tax, it’s time to adjust our thinking.
This is particularly true when it comes to Roth 401(k) contributions. These contributions, for most taxpayers, tend to cost a tax deduction at the taxpayer’s highest lifetime marginal tax rate. In a changed world where retiree taxation has been significantly reduced, that’s not likely to be good planning for most Americans.
My view is that the new tax planning environment reduces the desirability of significant Roth conversions prior to collecting Social Security. As Mike Piper stated, one of the main benefits of Roth conversions is to reduce tax drag caused by RMDs. The new tax laws significantly reduce that tax drag. Thus, accelerating income tax through Roth conversions becomes much less desirable.
Tax Planning Resource For a Changed World
Cody Garrett, CFP(R), and I created a resource for the new tax planning landscape.
Tax Planning To and Through Early Retirement is a book that tackles the new realities of tax planning, including deep dives into accumulation planning, drawdown tactics, taxable Roth conversions, RMDs, the Widow’s Tax Trap, and the senior deduction.
We also have an entire chapter titled Planning for Uncertainty. In that chapter we tackle the “What about future tax hikes?” question using history, logic, and reason.
Conclusion
In football and in tax planning, the game changes. The recommendations advisors made four years ago may have been the right recommendations then. But big changes in the retirement tax landscape require advisors to reevaluate their strategies and tactics when it comes to tax planning.
FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com
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This post is for entertainment and educational purposes only. It does not constitute accounting, financial, investment, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, investment, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.
