Tucked into the fine print of the Tax Cuts and Jobs Act (TCJA) of 2017 was a little-noticed detail — many of the individual tax law provisions are set to “sunset” on January 1, 2026, reverting the code to 2017 statutes. 

This expiration date applies to key changes that impacted personal income tax rates, standard deductions, exemptions, and more. While some hope that Congress will act to extend the provisions before then, many investors see the change as an opportunity to improve US tax policy and make it more progressive.

Prudent retirement planning calls for understanding and preparing for the implications of a major change in the tax code now instead of waiting until the end of 2024, as successful wealth-building requires a long-term mindset. 

What specific parts of the tax code are expiring? Individual income brackets, estate tax exemptions, deductions for mortgage insurance premiums, medical expense deductions, and dependent care benefits are some major areas to be aware of. Let’s take a deeper dive into the coming changes and explore what they could mean for your future.

Seeding Your Financial Security

Establishing your retirement nest egg transcends mere savings; an agile and customized approach is essential for maximizing your returns. Considering the uniqueness of your individual financial needs and goals, partnering with an experienced advisor becomes invaluable

Diversifying your portfolio is not just a strategy, it’s a necessity. When certain provisions of the TCJA go away, smart asset allocation ensures flexibility and resilience, especially for those in higher tax brackets.

Suppose the tax changes terminate without legislative action. In that case, the top income tax bracket will revert from the current 37% level to 39.6% for those earning over $628,300 jointly or $523,600 filing as an individual (2025 thresholds). 

An estimated 80% of taxpayers currently fall into the 12%, 22%, 24%, or 32% marginal brackets — for these households, rates would rise by 3% or more in 2026 under a sunset scenario. If your tax liability is increasing, then you’ll want to offset that by building revenue and maximizing your deductions

If you’re currently utilizing a traditional IRA, then you may want to convert it to a Roth IRA sometime in the next 2 years to take advantage of more favorable rates. An experienced financial advisor can help you begin a series of partial conversions to keep you from being bumped up to a higher bracket.

Prioritize Comprehensive Estate Planning

Estate planning isn’t just for the uberwealthy, it should be a fundamental part of your financial legacy for your loved ones and the causes and organizations you care about

The TCJA almost doubled the lifetime estate and gift tax exemption from $5.6 million to $11.18 million for individuals in 2017 For 2024, the indexed exemption will rise to $13.61 million ($27.22 million for married couples). If the law is allowed to expire, the effective limit will be reduced by approximately half, which could potentially take a huge chunk out of the inheritance you leave behind.

How can you avoid this outcome and make a positive impact now? You can make life financially easier for your family and gift certain assets now, avoiding a probable hike in estate taxes. You can also work with a knowledgeable attorney to create revocable living trusts for your children or an irrevocable Spousal Lifetime Access Trust (SLAT) for your life partner that gives full access to your assets while keeping them out of your taxable estate. 

A SLAT or revocable trust can contain cash, life insurance, securities, business interests, real estate, or property such as vehicles, boats, and valuable art or jewelry. One of the main advantages of establishing a trust is avoiding probate court and ensuring these assets will be distributed according to your wishes. 

Smart retirement saving, estate planning, and reducing your tax liability are three critical elements of a successful financial strategy.

Fortifying Your Financial Foundation With Proactive Measures

Now is the perfect time to think about how to get ahead of these TCJA tax code changes and embrace a more flexible mindset in an ever-shifting economic landscape

Given the specific impact on middle to high-income savers, it’s crucial to take proactive steps now to offset potential challenges. For those contributing to retirement plans or claiming applicable deductions, here are some tips around the 2025 tax code sunset:

Taking Action Now for a Secure Tomorrow

For middle to high-income individuals in the savings phase, immediate action and adaptability will help you navigate the impending sunset of Tax Cuts and Jobs Act provisions

While cumbersome, keeping these complex reversals and contingencies in mind when making near-term financial decisions can better position your assets and tax picture for the years ahead

Engage with a financial advisor who specializes in tax and estate planning so you can craft strategies that align with your family’s specific goals. 

Explore a diversified portfolio with an eye on potential changes in tax provisions, and incorporate tax-efficient investment options to mitigate the impact on your overall returns. Ready to take the first step? Contact me today!