Financial Planning

Detailed Explanation of Key Tax Law Changes

Universal Deduction

Starting in 2026, taxpayers who do not itemize can still claim a deduction for charitable giving.

This universal deduction allows $1,000 for single filers and $2,000 for married couples filing jointly. It applies only to cash donations to qualified operating charities (not donor-advised funds or private foundations).

This deduction is not subject to the new 0.5% AGI floor for itemized deductions of charitable contributions.

This change broadens access to tax benefits for middle-income households who typically take the standard deduction.

Itemized Deduction

In 2025, itemizers can deduct all qualified charitable contributions without restriction.

In 2026, itemized deductions for charitable giving are allowed only for amounts that exceed 0.5% of Adjusted Gross Income (AGI).

This may discourage smaller donations from itemizers who do not exceed the income floor.

Income Floor

The 0.5% AGI floor introduced in 2026 means that only charitable contributions above this threshold are deductible for itemizers.

For example, a taxpayer with $200,000 AGI must donate more than $1,000 before any of the donation becomes deductible.

This rule is intended to limit deductions to more substantial charitable contributions.

Taxpayers may choose to make larger charitable contributions in 2025 to avoid the floor when it goes into effect in 2026.

High-Income Deduction Rate

In 2025, high-income donors in the top tax bracket (37%) receive the full benefit of their charitable deductions.

In 2026, the value of these deductions is capped at 35%, even if the donor is in a higher bracket.

This reduces the tax incentive for large donations from wealthy individuals and may affect overall giving levels.

Tax-Smart Strategies for Charitable Giving

Universal Deduction

Starting in 2026, non-itemizers can deduct up to $1,000 (single) or $2,000 (married) for cash donations to qualified operating charities.

Bunching Donations

Combine multiple years of giving into one tax year to exceed the standard deduction and itemize.

Example: Instead of $5,000 annually for three years and claiming the standard deduction each year, accelerate giving plans: donate $15,000 in year one; itemize in year one to reduce tax liability; claim standard deduction in years two and three.

Giving Appreciated Assets

Individuals and couples with large brokerage (non-retirement) accounts can donate stocks, bonds, mutual funds, and exchange-traded funds that have increased in value directly to charitable organizations.

This approach avoids capital gains tax and allows donors to deduct the full fair market value of the donated securities, up to 30% of their AGI if the asset was held longer than one year.

If the asset was held less than one year, the deduction is limited to the cost basis of the asset.

Qualified Charitable Distributions (QCDs)

Individuals who are age 70½ or older can make donations directly from their IRAs. This approach is called a Qualified Charitable Distribution.

For those age 73 and older, the QCD counts toward the annual Required Minimum Distribution (RMD).

Also, the QCD is excluded from taxable income, so there is no need to itemize when utilizing this giving approach.

This strategy also helps lower the balance of the IRA, which could reduce RMDs (and taxable income) in future years.

QCDs are limited to $100,000 per person annually, and QCDs are not subject to the 0.5% “income floor” for those who itemize.

Why IRMAA Matters When Planning QCDs

If you’re on Medicare—or approaching eligibility—giving through Qualified Charitable Distributions (QCDs) can do more than reduce your tax bill.

It can also help you manage Medicare (Income-Related Monthly Adjustment Amount (IRMAA) surcharges.

IRMAA is an extra premium added to Medicare Part B and Part D for higher-income beneficiaries. It’s based on Modified Adjusted Gross Income (MAGI) from your tax return two years prior.

Crossing into a higher IRMAA bracket can increase your monthly premiums by hundreds of dollars per person.

QCDs from your IRA can lower your MAGI, and lower Modified Adjusted Gross Income may keep you below an IRMAA threshold, reducing or avoiding surcharges.

Note that giving away appreciated assets from an Individual or Joint brokerage account won’t have the same effect on IRMAA as donating from your IRA, because itemized deductions from charitable contributions are subtracted after AGI (and MAGI) is calculated.

Example: How Charitable Giving Can Lower IRMAA Costs

The example below presents typical Medicare costs for an individual with current income of $174,000, and with reduced income of $154,000 after completing a QCD from their retirement account.

In this example, the individual saved $1,570 because the $20,000 QCD is excluded from taxable income, reducing federal tax liability.

Optimization Scenarios

Below we present four scenarios designed to show how charitable giving can reduce tax liabilities and possibly lower Medicare premiums at different levels of income for individuals and couples.

Couple, Ages 45, Income $200,000

A charitably minded couple typically takes the standard deduction.

Strategy: Use bunching—donate $30,000 every three years instead of $10,000 annually.

Benefit: In the bunching year, they itemize and deduct the full $30,000, saving roughly $7,400 in taxes.

Individual, Age 55, Income $400,000

A high-income donor faces the deduction cap in 2026.

Strategy: Accelerate large gifts in 2025 to get full 37% deduction and donate appreciated stock.

Benefit: A $50,000 gift in 2025 saves $18,500 in taxes vs. $17,500 in 2026 while avoiding capital gains tax.

Couple, Ages 65, Income $250,000

A couple near retirement with a large balance in a Joint brokerage account wants to increase their charitable giving.

Strategy: Combine bunching with appreciated asset donations.

Benefit: Donate $40,000 in one year using appreciated securities, deduct full value, and avoid capital gains tax—potentially saving $10,000+ in taxes.

Individual, Age 73, Income $300,000

A charitably inclined individual will face a higher tax bill because Required Minimum Distributions will increase their taxable income.

Strategy: Use Qualified Charitable Distributions to donate $20,000 directly from IRA.

Benefit: Satisfies RMD, excludes $20,000 from taxable income, reduces AGI and possibly lowers Medicare premiums.

-SM

Each year from mid-October through early December, Medicare enrollees have a window to make changes to their coverage. This article provides a guide for reviewing your Medicare and supplemental coverage.

At the end of this article, we provide a helpful “Should I Change My Medicare Coverage?” flowchart which you can download.

For plan year 2026, the Annual Open Enrollment Period (AEP) runs October 15 through December 7.

During this time, you can:

• Switch from Original Medicare + Part D to a Medicare Advantage plan
• Switch from one Medicare Advantage plan to another
• Drop Medicare Advantage and go back to Original Medicare (although in most states – except MA, CT, ME, and NY – Medigap insurers are not required to sell you a policy after your first year on Medicare if you don’t meet the medical underwriting requirements)
• Enroll in or change a Part D (prescription drug) plan

If you already have Medicare, this is your annual chance to reassess whether your coverage still meets your needs.

What Original Medicare Enrollees Should Review 

If you are enrolled in Original Medicare (Parts A & B), here’s what your annual review should focus on:

Part D Drug Coverage

• Setting up and reviewing your account at www.medicare.gov can be very helpful in comparing plans.
• Are your current medications still covered?
• Do the copays, coinsurances, and coverage tiers change for next year?
• Is your preferred pharmacy network still included?

Medigap / Supplement Policy Changes 

• Some insurers may raise premiums or adjust rate classes.
• In most states (except MA, CT, ME, and NY,) once your Medigap enrollment period is over, you may not be able to switch without medical underwriting, so changes are harder later.
• If your plan offers rate “community-rated” options or age-based rates, check how your premium may change.

Part B / Cost Increases & IRMAA 

• Expect the standard Part B monthly premium to rise to approximately $206.50 in 2026; higher-income beneficiaries may face steeper surcharges (in Medicare-speak, IRMAA: Income-Related Monthly Adjustment Amount)
• Also review the Part B deductible and coinsurance changes in your 2026 “Medicare & You” handbook.

Providers & Networks 

• Even though Original Medicare generally allows you to see any provider who accepts Medicare, certain supplemental or supplemental plan services (e.g. preventive benefits) may change coverage rules.
• Ensure your preferred physicians and hospitals still accept Medicare under the same terms.

Total Cost Projection

Your Medicare.gov account can help you:

• Add up your premiums (Parts B, Part D, Medigap) + estimated out-of-pocket (copays, deductibles) + travel/foreign care exposure.
• Compare competing Part D or Medigap policies in your area for cost savings.

What Medicare Advantage Enrollees Should Review 

If you currently have a Medicare Advantage (MA / Part C) plan, here’s a checklist:

Annual Notice of Change (ANOC) & Evidence of Coverage (EOC) 

• These notices typically arrive in September. They list changes in premiums, drug formularies, cost sharing, provider networks, and benefits.
• Review them carefully. If your plan’s changes make it worse for you (higher costs, your doctors dropped, drugs removed), consider switching.

Doctor / Hospital Network 

• Confirm that your preferred providers remain in-network under the plan for 2026.
• If your doctors shift networks, your costs could increase substantially.

Drug Coverage / Formulary Changes 

• Some drugs may be removed, moved to higher tiers (more costly), or require step therapy or prior authorization.
• Check whether your current pharmacy is still a “preferred” or in-network pharmacy.

Premiums, Deductibles, and Maximum Out-of-Pocket

• Even if your monthly premium stays low, changes elsewhere (higher outpatient copays, specialist costs, or hospital deductibles) can change your financial outcome.
• Also watch for plan design changes (e.g. shifting benefits to coinsurance vs fixed copays).

Supplemental / Extra Benefits 

• Many Medicare Advantage plans include extras (dental, vision, hearing, wellness, transportation). However, insurers are under budget pressure and may reduce or eliminate some supplemental benefits.
• Verify whether extras that matter to you remain part of the plan.

What’s Changing in 2026 (What to Watch For) 

Looking ahead to plan year 2026 for Medicare, here are some of the major shifts and pressures to be aware of:

Insurer Exits / Plan Reductions

• Several major carriers (Aetna, Elevance, UnitedHealthcare) are scaling back their Medicare Advantage or prescription drug plan presence in some markets.
• When a plan you’re enrolled in is discontinued, you’ll get a Special Enrollment Period (SEP) to choose a new plan. Some states also allow guaranteed issue rights to enroll in Medigap in that scenario.
• This website is one way to search for a new plan: medicareresources.org

Changes to Drug Pricing and Part D 

• The Inflation Reduction Act allows Medicare to negotiate certain prices for certain high-cost prescription drugs (Eliquis, Enbrel, Entresto, Farxiga, Imbruvica, Januvia, Jardiance, Flasp/Novolog, Stelara, Xarelto) starting in 2026.
• The out-of-pocket cap for Part D will increase (e.g., from $2,000 to $2,100) in 2026.
• Some insurers may face lower federal subsidy support, leading to premium increases or tighter formularies.

Premium Changes 

• While average MA plan premiums are expected to decline (or remain stable) in many areas, other costs may still rise (Part B premium increases, drug or service cost sharing).
• Part B premium increases are expected; some sources project it could reach ~$206.50 in 2026 (though that’s not yet final).

Benefit Reductions & Tighter Coverage

• Some insurers may reduce supplemental benefits (transportation, over-the-counter allowances, meal delivery) to preserve margins.
• Expect more restrictive prior authorization or utilization management in some plans.

You can find more information through this link: 10 Major Medicare Changes Coming in 2026

Tips for Choosing Wisely During Open Enrollment

• Start early — don’t wait until December. Review your ANOC/EOC as soon as you receive them.
• Use the Medicare Plan Finder at www.medicare.gov to compare all available plans in your ZIP code, using your actual drug list and preferred providers.
• Contact your State Health Insurance Assistance Program (SHIP) — free local counseling. In Massachusetts, this program is known as SHINE.
• Create a short “must-have list” for coverage (e.g. your physicians’ network, essential drugs, maximum acceptable cost increases) and screen plans against that list.
• Don’t just look at the monthly premium — total cost matters: premiums + cost sharing (copays, coinsurance, deductibles) + network adequacy.
• If your current plan is being discontinued, act quickly in the Open Enrollment period to select a new plan before coverage gaps arise.
• Document all your enrollment decisions, take screenshots, or save confirmation numbers — mistakes happen.

The flowchart below is a guide that helps you determine if you should change your Medicare coverage during open enrollment. Click on the image to download or print the chart.

-SM

If you’re approaching 65, now is the perfect time to understand the Medicare rules and options so you don’t miss important deadlines. This article walks you through what you need to know as you prepare to enroll.

At the end of this article, we provide an “Am I Eligible for Medicare?” flowchart which you can download.

Who Needs to Sign Up for Medicare? 

• Most people become eligible for Medicare at age 65.
• If you are retired and not covered by an employer health plan, you’ll need to enroll in both Medicare Part A (hospital coverage) and Part B (medical/outpatient coverage) during your initial enrollment window.
• If you are still working at age 65, you should enroll in premium-free Medicare Part A while you have employer coverage, as it won’t affect your job-based insurance and can offer secondary coverage without a penalty.
• If you are 65, working, and covered by your (or your spouse’s) large employer health plan (20+ employees), you can delay Part B without penalty until you leave that employer coverage. You’ll have a Special Enrollment Period (SEP) for Part B that lasts until 8 months after your or your spouse’s employment or employer coverage ends.
• If your employer is smaller (fewer than 20 employees), Medicare generally becomes your primary insurance at 65, and you’ll need to sign up for both Medicare A and B to avoid gaps in coverage.

When Should You Sign Up? 

• Your initial enrollment period is a 7-month window around your 65^th birthday: the three months before your 65th birthday, the month of your birthday, and the three months after.
• Signing up before your birthday month ensures coverage starts as soon as you’re eligible.
• If you delay and don’t have other qualifying coverage, you may face late enrollment penalties that last for life. 

What Will Medicare Cost in 2026?

• Part A (Hospital Insurance): Generally premium-free if you or your spouse worked 10+ years.
• Part B (Medical Insurance): The standard premium is projected to be $206.50/month in 2026 (up 11% from the 2025 premium of $185/month.)
• Higher-income households may pay more due to IRMAA surcharges. With rising healthcare costs, it’s wise to budget for increases over time.

Original Medicare vs. Medicare Advantage 

Medicare Parts A (hospital) & B (outpatient) generally cover about 80% of health care charges in these two categories of care. Most people buy additional insurance to cover the remaining costs of care.

You will need to make a choice between two ways to get benefits to supplement Medicare A & B when you sign up. Below are more details on the two categories of Medicare.

Original Medicare

Original Medicare with a Medigap (supplement) policy offers the widest choice of doctors and hospitals since you can see any provider nationwide who accepts Medicare.

It works especially well if you travel frequently, are a “snowbird”, or want the flexibility to see specialists without referrals.

Pairing Original Medicare with a Medigap policy can help cover deductibles, coinsurance, and copays, giving more predictable out-of-pocket costs.

Most people also need to buy a separate Part D prescription plan, and total monthly premiums (Medicare + Medigap + Part D) can be higher than Medicare Advantage.

Medicare Advantage

Medicare Advantage plans, offered by private insurers, often bundle hospital, medical, and prescription coverage into one plan.

Many include extras like dental, vision, or gym memberships, and premiums can be lower than Original Medicare with a supplement.

However, Advantage plans typically use provider networks (HMO or PPO), which may limit your choice of doctors and hospitals.

Out-of-pocket costs can be less predictable because of deductibles, copays, and coinsurance, especially if you need specialized or out-of-network care.

There’s no one “best” option—it depends on your health, budget, and provider preferences.

Where to Get Help

• www.medicare.gov – The official Medicare website with enrollment and plan comparison tools. You can compare costs and coverage in your area for Medigap and for Medicare Advantage plans. If you set up your account and enter the drugs that you take, you can also compare the total cost of Part D insurers available to you.
• SHIP (State Health Insurance Assistance Program): Free counseling in every state.
• Generally, these services are available by calling your local senior center.
• In Massachusetts, this is called SHINE (Serving the Health Insurance Needs of Everyone).
• Your financial planner – We can help you evaluate Medicare choices in the context of your retirement income, taxes, and long-term health planning.

If you’re approaching age 65, don’t wait. Understanding when and how to enroll in Medicare—and what it will cost—can help you avoid penalties and find coverage that fits your needs.

The flowchart below is a guide that helps you determine if you’re eligible for Medicare Part A & Part B. Click on the image to download or print the chart.

-SM

Every client’s situation is unique, but it’s helpful to consider a few categories that many folks fall into, to illustrate potential effects and possible tax planning moves you might consider following the passage of OBBBA.

In the article that follows, we cover those demographics likely to benefit most from the tax changes and then divide each category into Singles and Married Couples, so that you can reference a profile consistent with your stage of life and tax filing status.

Clients in Mid-Career

Situation: You’re in your prime working years, possibly with kids at home or in college. You might have a mortgage, you’re saving for retirement, and you could be in a high tax bracket due to dual income or career success.

Mid-Career Singles

If you’re single (or a single head of household) in this stage, your tax rates will remain at the current lower levels going forward, giving you stability. You won’t see your 24% bracket jump to 28% in 2026, for instance – it stays 24%.

The higher standard deduction is now permanent, meaning if you aren’t a homeowner or otherwise don’t itemize, you’ll continue to get a larger deduction each year.

However, with the new SALT (State and Local Tax) cap increase, you might actually benefit from itemizing if you own a home or live in a high-tax area.

For example, if you pay $8k in state taxes and $7k in property tax, previously you could only deduct $10k of that; now you could deduct the full $15k.

Combined with other itemizables (charity, mortgage interest), you may exceed the standard deduction and lower your taxable income further.

We recommend calculating this each year to determine if you could benefit from itemizing.

Also be mindful of the SALT cap phase-out: if your income is approaching ~$500k, there could be a marginal “tax bump” where deductions phase down.

It’s a consideration if, say, you’re negotiating a bonus or liquidating stock options – it might be worth spreading income over two years to keep AGI (Adjusted Gross Income) under that threshold and maximize deductions.

One more note: if you have any side business or 1099 income, remember that the 20% QBI deduction (Qualified Business Income) is permanent, so continue to keep good records of business expenses and income to fully utilize that break each year.

Mid-Career Married Couples

Dual-income couples will likewise benefit from the permanent lower brackets and the standard deduction. You’ll also get the slightly higher child tax credit if you have kids under 17 – an extra $200 per child annually.

Many taxpayers could benefit from the new $40k SALT deduction cap. In states like Massachusetts, a married couple with two decent incomes can easily pay over $20k in state income tax plus property taxes.

Now you’ll be able to deduct up to $40k of those taxes, which could make a significant difference in your itemized deductions.

Suppose you pay $15k state + $12k property = $27k, and you also have $5k of mortgage interest and donate $5k to charity – that total $37k would all be deductible (well above the ~$31k standard amount).

If your situation mirrors the example above, then for 2025–2029, you’d itemize and cut more off your taxable income. Look for tax-planning help in identifying if you cross that threshold.

As a strategy, consider “bunching” charitable donations (if you’re inclined toward charitable giving) into certain years to maximize your deductions. Because of the new 0.5% AGI floor on charity from 2026, you get more bang for your donated buck by concentrating gifts.

For example, instead of $5k each year, doing $10k every other year might yield a better tax result. You can facilitate this via donor-advised funds if desired.

Also, if you’re paying a mortgage, note that mortgage insurance (PMI) will be deductible again starting in 2026 – not a huge factor unless you bought recently with a small down payment, but worth knowing.

Overall, mid-career couples should find that they have a few more deductions to work with and no looming tax rate hikes, which may then allow you to invest more, set aside additional saving for college, and possibly accelerate income (like Roth conversions or stock option exercises) during these relatively low-tax years.

Clients Approaching Retirement

Situation: You’re within shouting distance of retirement, maybe planning to retire in the next 5-10 years. You’re thinking about Social Security, transition of income sources, and positioning your portfolio for withdrawals.

Approaching Retirement – Singles

If you’re single and nearing retirement, one key takeaway from OBBBA is tax predictability as you transition away from full-time work. The marginal rates you pay now on your salary will likely be the same or even lower when you switch over to retirement income streams.

This makes planning things like Roth IRA conversions or when to claim Social Security a bit easier, since we don’t have to worry about a major across-the-board tax increase in 2026.

Another benefit: if you’ll be 65 or older during 2025–2028, you’ll get that additional $6k deduction each year. Suppose you plan to retire at 66 in 2026 – your first few years in retirement (2026–2028) will have this built-in tax break.

You could use that to, for example, convert an extra $6k from your traditional IRA to a Roth IRA each year tax-free, or take slightly larger distributions in those years without tax.

You will need to watch the phase-out: if you have significant income from a pension or a high Required Minimum Distribution (RMD), and your AGI creeps above ~$75k, that $6k deduction starts shrinking.

It might influence things like whether to do partial Roth conversions (to keep AGI in a range that preserves the senior deduction).

Also, note that Social Security taxation hasn’t changed – up to 85% of benefits can still be taxable depending on your other income.

The new deductions can help reduce the taxable portion indirectly (since they lower overall AGI), but the formula is the same.

One strategy could be to take more income in 2025–2028 while you have extra deductions and maybe delay some income in 2029 when the senior deduction ends (if that makes sense with RMDs, etc.).

Approaching Retirement – Married Couples

For couples nearing retirement, the alignment of retiring and these tax changes is quite favorable.

If you both retire by, say, 2026, you’ll slide into retirement with permanently lower tax rates locked in and a four-year window of extra deductions (if at least one of you is 65+, and certainly if both are).

Let’s say one spouse is 65 and the other 63 in 2025: you’d get $6k extra in 2025 (for the older spouse), and by 2027 when both are 65, you’d get the full $12k extra for 2027–2028. This effectively gives you more tax-free income capacity.

A 65+ couple can have about $46k of income with no tax in 2025; by 2028 that will be a bit higher with inflation adjustments. This means many couples with moderate levels of income will pay very little tax in the first years of retirement on distributions, pensions, etc.

You’ll want to maximize the use of the 0% tax bracket – perhaps by doing Roth conversions or harvesting gains from investments while they’re free of tax.

Also, if you own a business and are selling it as you retire, or you plan to sell real estate, try (if possible) to schedule that sale’s income into these lower-tax years of 2025–2028.

Capturing a large capital gain in a year when you have a sizable standard deduction plus senior deduction could significantly reduce how much tax you pay on the sale.

One caution: if you have a high salary or large capital gain in 2025 and retire in 2026, be mindful that in 2025 your income might be high enough to phase out the senior deduction if one of you is 65 that year.

Lastly, regarding Social Security and Medicare – remember Medicare premiums (IRMAA surcharges) are tied to AGI from two years prior.

If you do take advantage of these low-tax years to convert a lot of IRA money to Roth, you’ll have to watch not to inadvertently spike your AGI too high and trigger high Medicare premiums down the road. It’s a balancing act: taxes vs. IRMAA.

Retired Clients

Situation: You are fully or mostly retired, living off Social Security, pensions, and/or portfolio withdrawals. You’re concerned with maintaining your lifestyle, managing RMDs, and preserving wealth for later in life or heirs.

Retired Clients – Singles

As a retired individual, you may not have thought a big new tax law would do much for you. After all, you’re not earning wages or running a business. But OBBBA actually gives retirees some tangible benefits.

First, the $6k senior deduction means you can have more income without paying tax (if you’re 65+ with income of less than $75k). If your income needs are modest (for example, mostly Social Security plus a bit of IRA withdrawal), you might find you owe zero federal income tax now.

For instance, Social Security gets special tax treatment (a minimum of 15% of Social Security income is untaxed for all recipients).

Combining that with a ~$23k total deduction (standard + new senior deduction) means many single retirees can have, say, $30-40k gross income and still pay virtually nothing in federal tax.

Additionally, the SALT cap increase could benefit you if you still own a home and pay significant property taxes. Perhaps you weren’t itemizing the last few years because the $10k SALT limit plus your other write-offs didn’t exceed the standard deduction.

But now, if you pay $12k in property tax and $5k in state tax (maybe on your IRA distributions being taxed by Massachusetts), that $17k would be fully deductible (under the $40k cap).

Add charitable contributions and maybe some mortgage interest if you still have one, and you might well exceed the ~$18k standard deduction.

Many retirees also give to charity— if you itemize, remember the new 0.5% rule: it’s minor, but you might consider consolidating gifts or using Qualified Charitable Distributions from your IRA if you’re over 70½, which let you satisfy your RMD by giving to charity tax-free, a strategy that bypasses the deduction limits entirely.

The main idea is: more of your money might stay in your pocket due to the senior deduction and SALT relief, but you should tailor your IRA withdrawal strategy to make the best use of these tax breaks now.

This might mean doing slightly higher withdrawals in 2025–2028 and a bit less later, effectively smoothing out taxes over time.

Retired Clients – Married Couples

Retired couples possibly may receive the biggest windfall from the OBBBA changes.

As noted, a married 65+ couple can have around $46k of income in 2025 and fall in the 0% tax bracket. That threshold will likely be around $50k by 2028 due to inflation adjustments on the standard deduction.

And even beyond that level, your next dollars are taxed at only 10%, then 12%, etc., with those rates staying lower permanently. This essentially means your retirement withdrawals and income can go further because less is paid in taxes.

One strategy we highly recommend that you consider is Roth conversions during 2025–2028 up to the amount that fills your 0% and maybe 10% bracket (or perhaps even higher tax brackets, depending on your personal situation).

For example, if you typically have $30k of taxable income (after deductions) in retirement, you might convert an extra ~$15k of IRA money to Roth each of those years and still be at a 0% tax rate on that conversion because of the deductions.

Even beyond the zero bracket, converting at 10% or 12% to fill your tax bracket is quite attractive (since down the road, RMDs could force that money out at higher rates if tax laws ever change or if you’re in a higher bracket then).

Additionally, if you have a large taxable brokerage account, you can realize capital gains up to the point that keeps you in the 0% capital gains bracket (which in 2025 for a married couple is roughly up to $96k of total income).

The stable tax environment with bigger deductions allows some creative balancing of where you draw funds – from IRAs, Roths, or taxable accounts – to manage not just taxes now but in the future.

And if you intend to help family (children, grandchildren), the Trump Accounts or gifting strategies can be employed without worrying about losing your own tax benefits (since the estate tax issue is largely moot federally for most taxpayers).

One caution for high-income retirees: if, for example, you have a large pension and significant investment income putting you in the top bracket (37%), note that your itemized deductions might be trimmed by the new 35% limitation rule, and your SALT cap might effectively still be $10k due to the phase-out.

In other words, very high-income retirees don’t benefit from some of these changes. But that is not the typical scenario, as most retirees have less income than when they were working.

For the majority of retired couples, however, this law provides more breathing room and more planning opportunities to ensure your money is as tax-efficient as possible.

-RK

In this article, MFA founder Susan Moore demystifies the headlines and hype around Social Security, and answers questions that are on the minds of many people who are approaching, or already in, retirement.

With Social Security often in the headlines, many of you have asked: Will it still be there when I retire? Will my benefits be cut?

These are valid concerns—and we’d like to share where things currently stand, what’s being discussed in Washington, and how it could impact your planning.

When Will the Social Security Trust Fund Run Out?

According to the 2025 Trustees Report, the Social Security Trust Fund is projected to be depleted by 2033. At that point, the program would rely solely on ongoing payroll taxes to pay benefits, which are expected to cover about 77% of scheduled payments.

If no changes are made, benefits would be automatically reduced by roughly 23% starting in 2033.

What Would Benefit Reduction Mean?

If reductions occur across the board, here’s what the estimated impact could look like by income tier:

Source: Moore Financial Advisors

Will Cuts Affect Current Retirees?

This is one of the most frequent questions we’re asked. So far, Congress has never reduced benefits for current retirees

Most proposals focus on future beneficiaries or apply gradual changes, such as adjusting the retirement age or benefit formulas for younger workers.

However, if lawmakers do nothing, all beneficiaries—current and future—would face automatic cuts in 2033 due to the trust fund running dry.

What Is Being Proposed to Fix This?

There are several ideas on the table, but no consensus yet. Here are a few commonly discussed options:

1. Raising the Full Retirement Age (FRA) Budget proposals supported by the Republican Study Committee and Project 2025 have called for increasing FRA from 67 to 69; some versions of these proposals would roll out before 2033. This effectively cuts benefits for many, especially low- and middle-income workers, even if reductions aren’t framed as “cuts.”
2. Lifting the Payroll Tax Cap Currently, wages above $176,100 (2025) are not taxed for Social Security. One proposal would apply payroll taxes on income up to $250,000.
3. Targeted Cuts for Higher Earners Some reform plans propose benefit reductions for higher earners while preserving or increasing them for lower earners. These reductions would go into effect around 2029 for new beneficiaries with higher incomes, phasing reductions up to 50% for individuals earning over $180,000 in modified adjusted gross income (MAGI) or joint earners over $360,000.
4. Increasing Payroll Taxes Slightly Raising the 6.2% payroll tax to 6.4% or higher to bring in more revenue.
5. Means Testing Some proposals suggest reducing benefits or slowing the cost of living adjustment (COLA) for retirees with high net worth or income from other sources.
6. Backdoor Privatization Plans Recently Treasury Secretary Scott Bessent said that “Trump baby accounts” or child savings accounts are a back door for privatizing Social Security, although he later back-peddled on that statement. This raised concerns about eventually shifting FICA payroll tax funding into private investment vehicles—undermining Social Security’s defined-benefit structure and reducing program coverage over time—even if not explicitly cutting current benefits.
7. Alternative Funding Models Republican Senator Bill Cassidy and Democratic Senator Tim Kaine have proposed an alternative funding model for the safety net program, which would supplement the program’s Trust Fund with a new diversified pool of investments. Their proposal would create a new, parallel investment fund for Social Security. They estimate that the fund would require an up-front federal investment of $1.5 trillion, and propose that it be given 75 years to grow. The Treasury would shoulder the burden of supporting current benefit levels through borrowing during those 75 years. At the end of 75 years, the fund would pay the Treasury back and supplement payroll taxes to help fill the future gap.

Important: No plan has been signed into law yet—but there is broad bipartisan agreement that something must be done before 2033.

If I’m Eligible, Should I Start Benefits Now?

If you’ve reached Full Retirement Age (FRA, currently 67) and are waiting until age 70 to claim your maximum benefit, you may be wondering if you should claim now to avoid possible benefit reductions in the future.

Here’s our advice:

• There’s no clear reason to change course—yet.
• For now, the rules remain unchanged. By waiting until age 70, you still earn delayed retirement credits, increasing your benefit by up to 8% per year between FRA and 70.
• Current beneficiaries are the least likely to face reductions.
• Starting benefits now doesn’t necessarily “lock in” protection against cuts—but neither does waiting expose you to significantly more risk. Historically, any benefit reductions or reforms have applied to future retirees, not those already collecting. Some proposals (see below) include making changes before 2033, but none to date include cuts for current beneficiaries before 2029.
• Cuts (if they happen) would likely be phased in or income-based.
• Congress has options. For example, they could preserve full benefits for those already collecting, or protect lower earners while modifying formulas for higher-income individuals.
• We recommend continuing to base your claiming decision on longevity, tax, and income needs, not on speculation. If your plan supports delaying until 70, it likely still makes sense to do so—unless there’s a sudden policy change (which we will monitor closely).

What Does This Mean for Your Financial Plan?

While the uncertainty surrounding Social Security is real, it’s important to remember:

• Cuts are not guaranteed, and changes are likely to be phased in
• If you’re already collecting—or soon will be—you are less likely to see reductions
• For younger clients, we plan with a margin of safety—factoring in modest benefit reductions as part of our retirement projections

As always, we are monitoring developments and will adjust your plan if needed.

If you have questions about how Social Security fits into your personal plan—or if you’re nearing retirement and want to discuss timing your benefits—please reach out.

-SM

Lawmakers are considering new bills to make several provisions of the TCJA permanent and to introduce additional modifications to tax law. The following article provides an update on new tax legislation, and presents an example of how raising the SALT cap could provide a measure of tax relief.

Tax policy is now at the top of the agenda for the US Congress.

The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to the US tax code, including lowering income taxes for many. But much of the TCJA is set to expire at the end of 2025.

The House narrowly passed their version of a new tax bill, entitled “The One Big Beautiful Bill Act” on May 22. The Senate is now debating their version. Identical legislation must pass through both chambers before becoming law.

Here are some of the key provisions of the House version of the new tax law:

 Makes permanent the current 7 individual federal income tax brackets

• Bumps up standard deduction by $1,500 in 2025; and $1,000 per year in future years
• Provides an additional standard deduction of $4,000 for those over 65 until 2028; phases out for individuals earning above $75,000 and couples earning above $150,000
• Increases child tax credit to $2,500 per year for next four years
• Introduces new kind of child savings account (“Trump Savings Account”) designed to help parents save, where parents can contribute $5,000 annually in after-tax dollars until child reaches age 18
• Expands estate tax exemption to $15 million per person / $30 million per couple
• Raises cap for the State and Local Tax (SALT) deduction to $40,000 per household starting in tax year 2025 from the current $10,000

We will report more fully on the tax changes when legislation is finalized.

However, since the increase in the SALT cap, if it does pass, likely will result in more people itemizing their taxes (versus taking the standard deduction), and could yield significant tax savings, we’ve provided an example of how it may work, below.

The House bill increases the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 for taxpayers earning up to $500,000. The cap and income threshold would increase by 1% annually over the next ten years under the proposed bill.

The SALT deduction allows taxpayers who itemize to deduct certain state and local taxes—such as income and property taxes—from their federal taxable income.

The $10,000 cap was introduced in 2017 under the TCJA and has been a point of contention, particularly for residents in high-tax states where state and local taxes often exceed this limit.

If enacted, this change in the SALT cap could provide substantial tax relief for taxpayers who have significant state and local tax liabilities.

Homeowners with high property taxes or individuals with substantial state income taxes could see a notable reduction in their federal taxable income, potentially lowering their overall tax burden.

As an example, let’s assume that a family with annual income of $275,000 has the following expenses:

• Property taxes: $18,000
• State income taxes: $10,000
• Mortgage interest: $8,000
• Charitable contributions: $12,000

Since their property and state income taxes are currently subject to the SALT cap of $10,000 under the current law, their deductions would total $30,000:

• SALT: $10,000
• Mortgage interest: $8,000
• Charitable contributions: $12,000

Since their total itemized deductions of $30,000 would be less than the standard deduction, they would take the standard deduction of $33,200 in 2025 (assuming no change from the current law).

If the SALT cap is increased to $40,000, this same family would be able to deduct all their property and state income tax, and they would have the following deductions:

• SALT: $28,000 ($18,000 property plus $10,000 state income tax)
• Mortgage interest: $8,000
• Charitable contributions: $12,000

This family would then be able to itemize $48,000 in deductions, giving them an additional $14,800 in deductions. If they are in the 24% tax bracket, the increased SALT cap would save them $3,552 in Federal taxes.

While the House has passed their bill, it still requires approval from the Senate, where the outcome is uncertain due to differing views on fiscal policy and tax equity.

Therefore, while the proposed changes could offer tax advantages for some, they are not yet law.

We will continue to monitor the progress of this legislation and assess its implications for your individual tax planning strategies.

-RK

Our founder Susan Moore contributed the following update for Medicare planning

The Medicare Advantage Open Enrollment Period (MA OEP) is currently underway and runs from January 1 to March 31, 2025.

This is an important time for individuals enrolled in Medicare Advantage plans to review their coverage and make any necessary changes.

What is Different about the 2025 MA OEP?

For the 2025 MA OEP, there are no significant changes to the enrollment process itself. However, it’s important to be aware of broader updates affecting Medicare coverage in 2025:

1. Changes in Plan Availability: There is a reduction in the number of Medicare Advantage plans available in 2025. Some insurers that previously offered Medicare Advantage have left the market. Additionally, some healthcare providers have stopped accepting certain Medicare Advantage plans, so it’s critical to verify that your preferred providers are still in-network.
2. Adjustments in Premiums and Benefits: While the average monthly premium for Medicare Advantage plans has decreased to $17.00 in 2025 from $18.23 in 2024, some plans may have adjusted their core benefits or reduced supplemental offerings like gym memberships. It’s essential to review any changes to your plan’s benefits and costs.
3. Introduction of a $2,000 Out-of-Pocket Cap for Part D: Starting in 2025, Medicare Part D plans will implement a $2,000 annual cap on out-of-pocket prescription drug expenses. Once you reach this limit, you won’t have to pay additional costs for covered drugs for the remainder of the year.

What You Can Do During MA OEP

During this period, if you are currently enrolled in a Medicare Advantage plan, you have the following options:

1. Switch to a different Medicare Advantage Plan: If your current plan no longer meets your needs, you can change to a different Medicare Advantage plan.
2. Drop your Medicare Advantage plan and return to Original Medicare: You can disenroll from your Medicare Advantage plan and switch back to Original Medicare (Parts A and B). You can also enroll in a standalone Part D prescription drug plan if needed. Note that in most states when someone switches to Original Medicare from Medicare Advantage, insurers can require medical underwriting in order to purchase a Medigap (Medicare Supplement) policy. This means the insurer can deny Medigap coverage if you have certain health conditions. Four states (CT, MA, ME, and NY) have implemented protections that prohibit underwriting in these situations.
3. Adjust Prescription Drug Coverage: If your Medicare Advantage plan includes drug coverage, you can change to another MA plan that better suits your medication needs.

Key Considerations

When evaluating your Medicare Advantage options, here are some factors to consider:

• Provider Network: Ensure your preferred doctors, specialists, and hospitals are included in the network of any plan you are considering.
• Drug Coverage: Check whether your medications are covered and if there are changes to the formulary or pricing.
• Out-of-Pocket Costs: Review premiums, deductibles, and co-pays to understand your total potential expenses.
• Additional Benefits: Some plans offer extra benefits such as vision, dental, hearing, and fitness memberships. Compare these benefits to see if they align with your needs.

Common Questions

• Can I switch plans multiple times during this period? No, you are allowed to make only one change during the MA OEP.
• What if I miss the deadline? After March 31, you generally cannot make changes until the next Annual Enrollment Period (October 15 – December 7), unless you qualify for a Special Enrollment Period due to specific life events.

Next Steps

If you’re considering a change to your Medicare Advantage coverage, we encourage you to act early to avoid delays.

Two important resources for help and more information are the Medicare web site, and a State Health Insurance Assistance Program (SHIP) counselor, available at your local senior center.

-SM

For most of us, when markets go down, anxiety goes up.

And since markets haven’t gone down substantially for some time, it’s possible that angst is waiting in the wings for a lot of us and could be set loose by the next downturn.

I am not anticipating an imminent demise of the bull run in stocks. But after two great years of returns, it’s important to remember that corrections are normal occurrences.

On average, we can expect stocks to drop 14% from recent peaks in any given year, according to research from JP Morgan Asset Management (recoveries typically follow closely on the heels of these declines).

And it’s important to remember that we as humans are hard wired to disproportionately fear financial losses relative to appreciating similarly sized gains.

We obviously can’t control what happens in the financial markets. But we can control how we respond to financial market developments.

The goal of this article is to provide more information about the concept of loss aversion; explain how it affects investors; and share strategies to overcome it.

Learning to become averse to loss aversion is a strategy that should yield positive results over the long term for your portfolio.

What is Loss Aversion?

Loss aversion is a key principle in behavioral finance introduced by Daniel Kahneman and Amos Tversky in Prospect Theory. Our friends at research outfit DataTrek have this to say about Loss Aversion:

• Classical economics has it that the gain or loss of $1 has the same “utility”, both on the upside and downside.
• Daniel Kahneman and Amos Tversky proved this was not the case with their work on Prospect Theory, published in 1979, with Kahneman winning the Nobel Prize in 2002.
• The possibility (or “prospect”) of losing a particular amount of money weighs about twice as heavily on the human psyche as the prospect of gaining that same amount of money is welcoming.
• Simply put, we are hard coded to be risk-averse, which is probably biologically optimal but not when it comes to investing.

This asymmetry – that people experience the pain of losses about twice as intensely as they experience the pleasure of equivalent gains – can lead investors to behave irrationally, often making suboptimal decisions due to an emotional response rather than a rational evaluation of risk and return.

How Loss Aversion Affects Investors

• Excessive Conservatism: Investors may hold too much cash or invest heavily in low-risk assets, such as bonds, due to an outsized fear of losses. This risk aversion can cause them to miss out on long-term market growth.
• Holding onto Losing Investments Too Long: Investors often refuse to sell losing stocks because doing so would “lock in” a loss. This can lead to further declines in portfolio value if the asset continues to underperform.
• Selling Winners Too Soon: The fear of losing unrealized gains can prompt investors to sell winning stocks too early, limiting their upside potential while holding onto losing positions in the hope of a rebound.
• Panic Selling in Downturns: During market downturns, loss-averse investors may sell off assets at a loss to avoid further perceived pain. This often results in missing out on the subsequent recovery.

Strategies to Overcome Loss Aversion

Investors can take several steps to mitigate the negative effects of loss aversion.

1. Maintain a Long-Term Perspective

• Historical Context:Market downturns are normal and historically temporary. The S&P 500, for instance, has endured numerous recessions, bear markets, and crashes but has always recovered over time.
• Review Past Recoveries: Looking at previous downturns (e.g., 2008 financial crisis, 2020 COVID-19 crash) can provide reassurance that patient investors tend to be rewarded.

2. Avoid Emotional Decision-Making

• Recognize Emotional Triggers: Fear and anxiety can drive investors to sell at the worst possible time. Understanding that these emotions are natural but not always rational can help maintain discipline.
• Pause Before Making Major Moves: Implement a 24- or 48-hour rule before making significant financial decisions to avoid impulsive reactions.

3. Stick to a Predefined Investment Plan

• Set Portfolio Rules in Advance: Establish clear rules for buying, selling, and rebalancing to avoid making decisions based on market noise.

4. Use Mental Accounting to Categorize Risk

• Investors can separate their portfolios into different “buckets,”such as:
  • A short-term stability bucket (cash, bonds) for near-term needs.
  • A growth bucket (stocks, real estate) for long-term wealth building.
• This mental separation reduces the fear of short-term lossesaffecting immediate financial security.

5. Rebalance Rather Than Panic-Sell

• Automatic Rebalancing:If stock prices fall, rebalancing forces investors to sell overperforming assets (like bonds) and buy underperforming assets (stocks) at a discount.
• Stay within Target Allocations:Keeping the portfolio’s stock-to-bond ratio aligned with the original strategy ensures disciplined investing.

6. Use Dollar-Cost Averaging (DCA)

• Invest Regularly Regardless of Market Conditions: Investing a fixed amount regularly reduces the emotional burden of market timing.
• Buy More Shares at Lower Prices:Instead of fearing lower prices, DCA allows investors to accumulate more shares when prices are low, boosting returns when markets recover.

7. Maintain Cash Reserves

• Emergency Fund:Having 6–12 months of living expenses in cash reduces the need to liquidate investments during downturns.
• Dry Powder Strategy:Investors who keep some cash on hand can take advantage of market downturns by buying assets at depressed prices.

8. Diversify to Reduce Portfolio Volatility

• Asset Allocation: Spreading investments across stocks, bonds, real estate, and alternative assets helps mitigate losses.
• Low-Correlation Assets:Investments like Treasury Bills and Treasury bonds can provide balance when equities decline.

9. Avoid Market Timing

• Missing the Best Days Hurts Returns:Data shows that missing just a few of the best market days (which often occur after the worst days) significantly lowers long-term returns.
• Stay Invested:Rather than guessing market bottoms, staying in the market increases the likelihood of benefiting from recovery.

10. Turn Market Declines into Tax-Saving Opportunities

• Tax-Loss Harvesting: Selling losing investments to offset capital gains taxes can improve after-tax returns.
• Roth Conversions:Converting traditional IRA funds to a Roth IRA during downturns allows investors to pay taxes at lower asset values, leading to greater tax-free growth.

The key to overcoming loss aversion during a market downturn is sticking to a well-thought-out plan, staying diversified, and avoiding knee-jerk reactions.

Implementing these strategies can help you manage their emotions, take advantage of market opportunities, and build long-term wealth.

-RK

On January 5, 2025 the Social Security Fairness Act became law. It will provide new or additional Social Security benefits for about three million individuals who receive government pensions from jobs not covered by Social Security.

Two parts of the law governing Social Security payments have been eliminated: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The new law eliminates the reduction of Social Security benefits that resulted from WEP and GPO.

Upon signing the legislation into law, President Biden said those affected will receive lump sum payments from 2024 in 2025. President-elect Trump also supported the legislation.

Additional details of the Social Security Fairness Act relating to WEP and GPO are:

• The new law repeals the Windfall Elimination Provision (WEP) which reduced Social Security or disability benefits for certain public sector workers such as teachers, nurses, police officers, and firefighters who receive pensions from jobs where they didn’t pay Social Security payroll taxes.
• WEP applied to 2.1 million beneficiaries, or 3.1% of the total in 2022, according to the Social Security Administration. Most retirees affected by the WEP have pensions that are higher than average Social Security benefits, the Center on Budget and Policy Priorities said.
• The law also eliminates the Government Pension Offset (GPO) which reduces Social Security benefits for about 750,000 spouses, widows, and widowers who receive pensions from jobs not covered by Social Security taxes.

Most state and local government workers (and all federal workers hired in 1984 or later) are in jobs covered by Social Security. Pensioners who worked in Social Security-covered employment in their government jobs will not receive increased Social Security benefits from the law.

According to the non-partisan news source TheHill.com, which focuses on US politics and government policy, actually making the new benefit structure a reality will be a challenge for the Social Security Administration (SSA).

An example of the additional administrative burden on the SSA: prior to the new law, individuals affected by the Government Pension Offset may not have been eligible to receive any Social Security spouse or survivor payments, so a number of these individuals likely did not file for Social Security and, as a result, are not in the SSA’s computer systems.

The Congression Budget Office expects the SSA will have to process new applications as a result of the legislation, and the new applications will lead to an extra 70,000 people coming onto the rolls for payments.

The Hill comments that SSA’s administrative budget has been in sharp decline over several years, and the SSA recently testified that it now has “one of the lowest staffing levels in 50 years.”

In their most recent communication from January 6, the SSA said: “The Social Security Administration is evaluating how to implement the Act. We will provide more information as soon as available.”

Keep in mind that the Social Security Fairness Act is retroactive to January 2024, so beneficiaries affected by the repealed provisions should receive lump-sum payments for benefits lost during 2024.

If you have been affected by WEP and GPO, what can you do to ensure that you receive your benefits?

1. If you previously have filed for Social Security, the SSA is not recommending that you take action at this time (though you may wish to verify that your contact and banking information with the SSA are up-to-date)
2. If you are receiving a public pension and are interested in filing for Social Security benefits, you may file online at ssa.gov/apply
3. Keep an eye on the SSA website for further announcements at: ssa.gov/benefits/retirement/social-security-fairness.act
4. Watch your email for communication from your former employer on this topic
5. Check your bank statements closely on a regular basis during 2025 to see if / when your payment has been adjusted and to verify that you’ve received a lump sum payment related to 2024