Financial Planning & Long-Term Tax Reduction in Light of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) that was signed into law in December of 2017 has created a unique and time-sensitive retirement planning opportunity that will sunset in 2025.

Representing the most significant tax code overhaul the United States has seen in over three decades, the Tax Cuts and Jobs act brings the US into one of the lowest combined marginal tax rate environments this country has experienced since the late 1980’s.

The chart below displays the highest and lowest historical marginal tax brackets in the United States. With the lowest marginal tax bracket as high as 25%, and the highest marginal tax bracket as high as 95%, today’s tax brackets are some of the lowest on record.

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The challenge with our low current tax rates is that Congress failed to curb spending, and our national debt is now growing at an accelerating pace. These two things: low tax rates and an accelerating national debt, are not sustainable long-term.

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With the Tax Cuts and Jobs Act scheduled to sunset at the end of 2025, some families will see their marginal tax bracket rise by as much as 9%.

This short window, however, creates a unique opportunity to take advantage of our current tax rates and convert pre-tax retirement assets to tax-free accounts. Taking advantage of today’s low tax rates and positioning retirement assets in an account that the US government will never tax again can not only dramatically reduce your lifetime tax liability it can also significantly increase your likelihood of a safe and secure retirement.

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By taking the additional cash flow created from our General Tax Planning and growing the retirement savings in the “Never-To-Be-Taxed-Again Bucket,” we have the potential to dramatically reduce your life-time tax burden, reduce the paralyzing impacts of RMD’s (Required Minimum Distributions) and reduce the taxability of your Social Security Benefits.

With the opportunities and challenges of the Tax Cuts and Jobs Act, Monotelo’s unique blend of expertise in tax law, retirement planning and wealth management can be a critical factor in helping you reach your short and long-term goals.