Podcast Summary: "Will the Tax Cuts and Jobs Act Be Extended?" (Episode 524)

Introduction

In Episode 524 of the "Your Money, Your Wealth" podcast, hosts Joe Anderson, CFP®, and Big Al Clopine, CPA of Pure Financial Advisors, welcome special guest Jeffrey Levine, Chief Planning Officer at Focus Partners and Professor of Practice in Taxation at the American College of Financial Services. The episode delves into the potential future of the Tax Cuts and Jobs Act (TCJA) of 2017 under the new administration, exploring its implications for retirement planning, Roth conversions, Required Minimum Distributions (RMDs), and the viability of Social Security.

Tax Cuts and Jobs Act Expiration

The discussion begins with the impending expiration of the TCJA at the end of 2025. Joe Anderson initiates the conversation by asking Jeffrey Levine about the likelihood of the TCJA being extended.

Joe Anderson [01:25]: "We've got the Tax Cut and Jobs act of 2017 set to expire at the end of this year, 2025. What do you think? Will it be extended or what?"

Levine emphasizes the interplay between tax policy and politics, noting that the Republican Party, responsible for the TCJA, is likely to seek extensions or modifications of its provisions.

Jeffrey Levine [01:39]: "Whether you're really happy with the election results, you're sort of indifferent or you're really unhappy. Yeah, the end result from a tax policy perspective is probably the simplest possible outcome we could have hoped for because the rules that are in place today were largely put in place by Republicans back in 2017."

Levine anticipates minimal changes, possibly adjustments to the state and local tax (SALT) cap and the child tax credit. He suggests that the current tax rules are likely to remain stable, providing easier planning for individuals and financial advisors.

Implications for Roth Conversions and IRA Planning

The stability of tax laws is particularly beneficial for strategies like Roth conversions. Joe and Big Al discuss how predictable tax rates facilitate more informed decisions regarding Roth IRA conversions.

Jeffrey Levine [04:00]: "We don't have to rush to do any last minute Roth conversions. We don't have to rush to do gifting towards the end of the year to take advantage of what would be a potentially lower exemption because it's likely to stay the same, if not higher."

Levine further explains the concept of the "death of the traditional IRA," highlighting that high-income individuals may benefit more from Roth conversions due to the likelihood of higher future tax rates.

Jeffrey Levine [05:19]: "A lot of people end up with a lot more income in the future than they expect. ... it's just worth wondering, should I just pay the tax now and be done and not have to worry about it in the future."

Social Security's Future Viability

Transitioning to Social Security, Levine addresses concerns about its long-term sustainability. He reassures that individuals nearing or already receiving Social Security benefits are likely to see minimal changes, thanks to the political influence of senior voters.

Jeffrey Levine [15:47]: "For younger individuals, I think there likely are going to be changes. ... but if you're in your mid to late 60s, I think you can count on whatever you're getting today or projected to get today to be there for you."

Levine acknowledges that while Social Security is projected to face funding shortfalls by 2031-2033, immediate changes are improbable due to the robust lobbying power of seniors.

Strategies for Inherited IRAs and RMDs

The conversation shifts to inheritance and RMD strategies under the Secure Act 2.0, which mandates the distribution of inherited IRAs within ten years. Levine provides actionable strategies for beneficiaries to manage these distributions effectively.

Jeffrey Levine [11:18]: "If you have the opportunity today to defer, ... the Roth conversion is effectively like a magic wand that creates income in exactly the year that you want it."

Joe and Big Al engage in a dynamic discussion about maximizing Roth conversions during low-income years to minimize future tax liabilities, emphasizing the importance of long-term tax planning over annual considerations.

Joe Anderson [09:13]: "I think that's one of the biggest mistakes early retirees make is they don't think about getting money into a Roth IRA when they're in a low bracket and their accountant, you've done great job."

Listener Questions and Scenarios

The episode features several listener questions, with Joe and Big Al providing expert advice on complex financial scenarios.

1. RMD Timing Strategy (00:21:06)

   Judy from San Diego inquires about the optimal timing for taking RMDs from retirement accounts: beginning of the year, end of the year, monthly distribution, or indifferent.

   Big Al Clopine [21:06]: "Andi Last: And he said a little Hazy IPA...."

   The hosts recommend taking RMDs early in the year to capitalize on potential capital gains tax advantages, emphasizing tax efficiency.

2. Roth Conversion Calculation (00:33:39)

   Joe, a listener, seeks guidance on calculating the maximum Roth conversion amount to stay within the 24% tax bracket.

   Joe Anderson [35:01]: "Typically, Hazy IPA is not necessarily low calorie, but maybe there's some for little ones..."

   Big Al and Joe outline a step-by-step approach using taxable income projections and tax brackets to determine optimal conversion amounts, reiterating that slight overages into higher tax brackets are manageable.

3. Inherited IRAs and Minor Beneficiaries (00:40:31)

   Esther from San Francisco asks about the implications of minor beneficiaries inheriting IRAs and the associated probate concerns.

   Big Al Clopine [40:31]: "All right, so we're inheriting..."

   The hosts clarify that minor beneficiaries classified as eligible designated beneficiaries (EDB) are generally not subject to the 10-year rule until they reach the age of majority, which the IRS has standardized at 21 years old as of July 2024. They debunk misconceptions about probate triggers, emphasizing that designated beneficiaries typically avoid probate.

Conclusion and Final Thoughts

As the episode wraps up, Joe and Big Al recap the critical insights shared by Jeffrey Levine, reinforcing the significance of proactive tax and retirement planning. They highlight the benefits of understanding and leveraging current tax laws to optimize retirement strategies, ensuring listeners are well-equipped to navigate their financial futures.

Jeffrey Levine [19:16]: "I'm always trying to encourage people, don't look at this year's tax bill... your goal should be to create the lowest lifetime tax bill."

Listeners are encouraged to access additional resources and engage with Pure Financial Advisors for personalized financial assessments.

Notable Quotes

• Jeffrey Levine [01:39]: "The end result from a tax policy perspective is probably the simplest possible outcome we could have hoped for because the rules that are in place today were largely put in place by Republicans back in 2017."

• Jeffrey Levine [07:00]: "A lot of people end up with a lot more income in the future than they expect...should I just pay the tax now and be done and not have to worry about it in the future."

• Jeffrey Levine [15:48]: "I think there's a lot of reasons behind that. ... the AARP is one of the most powerful lobbies in Washington."

• Joe Anderson [09:13]: "I think that's one of the biggest mistakes early retirees make is they don't think about getting money into a Roth IRA when they're in a low bracket..."

• Jeffrey Levine [19:16]: "It's about creating the lowest lifetime tax bill."

Key Takeaways

1. Tax Policy Stability: The TCJA is likely to remain largely in effect beyond 2025, providing a more predictable environment for retirement and tax planning.

2. Strategic Roth Conversions: Utilizing Roth conversions during low-income years can significantly reduce lifetime tax liabilities, especially for high-income individuals.

3. Social Security Assurance: While younger individuals may face changes, those nearing or in retirement can expect their Social Security benefits to remain stable.

4. Inherited IRA Management: Eligible designated beneficiaries, including minor children, have specific rules under the Secure Act 2.0 that allow for extended distribution periods, minimizing immediate tax burdens and probate concerns.

5. Proactive Financial Planning: Emphasizing long-term tax efficiency over annual tax considerations ensures optimized retirement outcomes and wealth preservation.

Resources Mentioned

• DIY Retirement Guide: Available for download via the episode description.
• Ask Joe & Big Al On Air: For personalized retirement plan spitball analyses.

Final Note

Joe Anderson and Big Al Clopine adeptly blend humor with insightful financial advice, making complex topics like tax policy and retirement planning engaging and accessible. Episode 524 serves as a valuable resource for individuals seeking to navigate the evolving landscape of personal finance with confidence and strategic foresight.