The Role of Taxes in Retirement Planning
Discussion around taxes often is, and historically has been, centered around income, focusing on changes in tax brackets, relevant deductions, and capital gains. But when it comes to planning for your financial future, annuities and insurance-based solutions may also be treated differently based on tax policies currently under discussion in Washington.
In particular, the One Big Beautiful Bill Act, Bonus Tax Relief for America’s Seniors Act and The SECURE 2.0 Act, all at varying stages in the approval process, have implications for retirement planning, with varying knock-off effects for annuities. To tackle these changes head on, educating yourself and working with a financial professional to understand how they impact you and your goals will enable you to make the smartest decisions possible.
SECURE 2.0 Act and Annuities
Out of upcoming legislation, the SECURE 2.0 Act has the largest anticipated impact on how annuities function and are taxed. Effective in 2025, the act increased Qualified Longevity Annuity Contract contribution limits to $210,000 and expanded annuity options for retirement plans. With these changes, pre-retirees have more choices and protections to make annuities a more central part of their retirement planning.
Bonus Tax Relief for America’s Seniors Act
Similarly, the Bonus Tax Relief for America’s Seniors Act, introduced in Congress to reduce tax burden on seniors, would increase the standard deduction for individuals over 65. Although it is unclear whether the bill will ultimately pass, it would allow retirees to keep more of their Social Security and retirement income, saving a more significant amount of their nest egg.
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One Big Beautiful Bill Act and Social Security
Finally, while the White House’s recently passed One Big Beautiful Bill Act does not directly impact annuities, broader considerations around Social Security may change how Americans plan for retirement. The legislation also proposes the elimination of the Federal Employees Retirement System annuity supplement, a benefit that helps cover the gap between an eligible government worker’s retirement date and when they become eligible for Social Security. For those younger than 62, this change may necessitate a differentiated income stream for that timeline.
Navigating Legislative Changes with a Financial Professional
In order to understand the full picture, working with a financial professional will help savers understand the full benefits landscape. For example, tax cuts on benefits, while potentially beneficial for consumers’ ability to save in the near term, may lead to an earlier depletion of the Social Security trust fund, changing the landscape for retirees.
And the reach of proposed legislation changes will ultimately depend on upcoming budget negotiations. While nothing changes overnight, an important part of being in control of your financial future includes understanding how regulatory changes may impact you. Moving forward, while sometimes slight, these new laws have the potential to shape the way we save for retirement. Education on the latest pieces of legislation creates an opportunity to take advantage of any improvements and minimize any potential lapses in coverage.
