Tax Reform and Your Retirement

With a final version of sweeping tax reform hitting the Senate floor next week, we may likely see the Tax Cuts, and Jobs Act signed before the end of this year.

If the bill becomes law, Americans can expect to see the largest overhaul in federal tax reform in more than 40 years1 since the Tax Reform Act simplified the tax code in 1986.

What does that mean for you and your retirement?

We’ll provide a comprehensive summary of how these new laws may impact you if you are retired or nearing retirement as soon as the bill becomes law.

For starters, don’t expect to see most changes going into effect until 2018. At this time, nothing appears to be retroactive for 2017.

Until then, these are some things we can anticipate:

Diminished Deductibles

  • It’s looking highly likely that the deductibility of state, local, and property taxes will be partially eliminated. So,
    • Pay your April property taxes in December 2017, if your combined state income taxes and property taxes exceed 10K annually.
    • Pay some of your 2018 state income taxes in 2017, if your itemized deductions less state income taxes are under $24,000 if you’re married or $12,000 if you’re single.
    • Make 2018 charitable contributions in 2017, if your itemized deductions less state income taxes are under $24,000 if you’re married or $12,000 if you’re single.
  • Expect other deductions to be repealed as well, such as alimony, tax preparation fees, casualty losses, and perhaps medical expenses. If you pay premiums on medical insurance or long-term care policies, pay those expenses in 2017. These deductibles may go away.2
  • The cap for mortgage interest deduction would be lowered to $750,000.3
  • Keep in mind: state and local taxes can be added back under alternative minimum tax (AMT) for individuals; however, receiving any deductions is better than losing them all together next year.

Take advantage of these deductions while you still can.

Increased Deductions

  • Standard deduction and personal exemption would nearly double, from $6,350 to $12,200 if you’re single or from $12,700 to $24,400 if you’re married and filing jointly.4

Changes in Credits

  • We can expect to see the repeal of several credits that will affect seniors, including the elderly and permanently disabled credit, mortgage credit certificates credit, and plug-in electric vehicle credit. 

Other Changes

  • Individuals would see fewer tax brackets (from 7 to 4) and a lower top tax bracket (to 37% from 39.6%) for individual tax rates.
  • The bill would eliminate the individual mandate penalty fee for individuals who do not have health insurance.
  • The new bill may impose a cap on tax-deferred contributions to IRAs, 401(k)’s or other retirement plans. Be sure to make your maximum annual contributions for 2017.

Working Retirees, Take Note

If you still plan to be working or to maintain business holdings into retirement, there are some further changes that may apply to you5:

  • Some Pass-through businesses would get a 20% deduction
    • If you are a sole proprietor, or own an LLC or S-corp, in which you’re booking your profits as income, a portion of your net income distributions would be taxed at the maximum rate of 25%, instead of at the individual tax rate.
  • Corporate tax rates would fall to 21%.
    • This bill would reduce the current 35% corporate rate to a flat 21%.


Sticking points still exist for the bill to pass before Christmas, such as details on the Child Tax Credit and healthcare provisions. All but two Republicans must vote for the latest version of the bill to pass in the Senate.

More changes are on the horizon that may directly impact you. The tax reform bill may very well cause major ripples in structural changes to Medicare and Social Security.6

It’s always a good idea to review your investment portfolios every year. With major changes to the tax code on the horizon, now is a good time to make sure your financial strategies are sound and your portfolio is balanced to your best interest.

We are not tax professionals or accountants, and no one except an expert in tax law should have the final say about your tax planning. So, be sure to consult a tax expert before making any decisions on your tax situation.