Post-Election Insights: What’s Next for Taxes, IRAs and Social Security

The voters have spoken, and we’ve elected a new President and Congress. 

So what does it all mean for your clients? 

While we’re continually watching what’s happening in Washington - and how it could impact U.S. savers - every so often we arrive at an inflection point that sharpens our focus on helping clients prepare for tax and legislative risk. 

With the 2024 election now behind us, we have arrived at one of these points. Helping our clients understand and prepare for the new administration - and what it could mean for their retirement approach - is the pressing work of the next few months. 

Phases of Communication for Our Clients

I see three distinct phases of client communication regarding the election outcome and the new leadership in Washington:

• Phase I | Election Day through Inauguration Day. This first phase will consist of us helping our clients understand the new Administration and Congressional leadership - and thinking strategically about what issues lay ahead. 

• Phase II | Inauguration Day through May. During this second phase, we’ll gain a sense of which priorities the Administration and Congress will push first, and help our clients prepare for potential changes and opportunities. 

• Phase III | May - December. During the third phase, we will likely have actual legislative proposals to review and communicate to our clients.

Keep in mind that our core messaging does not necessarily change between phases. As I’ll outline below, there are clear ways we can help our clients leverage today’s legislative environment to better prepare for the expansion of retirement, and we should be communicating them throughout the upcoming year. 

Evaluating the Election for Our Clients

Chief among the questions our clients will look to us for answers are:

• Will the Trump Tax Cuts get extended? 

• Will new taxes be imposed on retirement and savings accounts? 

• Will reforms impact Social Security?

• Will there be an overall change in government spending? 

Impact of the New Administration & Congress

With President Trump winning a second term, and Republicans controlling (with narrow majorities) the Senate and likely the House, it is possible key Trump priorities can more efficiently move through Congress and be signed into law. 2025 will likely be a busy year for legislation on Capitol Hill.

Some of these priorities may include: 

Extending the 2017 Tax Cuts & Jobs Act (“Trump Tax Cuts”) | The Trump Tax Cuts are set to expire next year, which means without Congressional action, tax brackets and estate tax exemptions will revert back to their older, higher rates in 2026. President-elect Trump has repeatedly said throughout the campaign that extending these tax cuts is a top priority. While his official campaign stance has been to make the tax cuts permanent (excluding the SALT cap), it is more likely that Congress will debate an extension of the tax cuts, allowing them to sunset at some point in the future. Come January, we will be keeping a close eye on how strongly President Trump is pushing for a tax extension package. If Congress plans to pass one, it will need to be an early priority, as the goal is to pass the legislation in 2025 before the existing package expires. 

Attitudes Toward Retirement Savings | Over the past four years of the Biden administration, we have seen the retirement accounts of wealthier Americans come under attack. This included proposals outlining new ways to tax-qualified accounts when account balances reach high levels and limitations on Roth conversions for certain Americans. With Trump’s victory, we will likely get a reprieve from this type of legislation. However, many in Washington would still like to see additional revenue generated from the retirement accounts of wealthier savers, so it’s an issue we’ll need to keep a close eye on as we head into future election cycles. 

Social Security | Neither candidate made Social Security reform a central component of their campaign, despite the fact that without changes, the Social Security Trust Fund will no longer be able to pay out full benefits starting in 2034. President-elect Trump has proposed eliminating income taxation of Social Security benefits, which currently generates around $51 billion in revenue. It’s unclear at this point if this proposal will gain traction on Capitol Hill, but it is certainly worth watching as the new administration lays out its priorities. 

Government Spending | Our national debt is nearly $36 trillion and growing. President-elect Trump has said he will offset the cost of extending the Trump Tax Cuts with new tariffs, but it is not clear if that proposal will have legs in Congress. A full extension of the Trump Tax Cuts would add around $3 trillion over 10 years in deficit spending. While it’s yet to be seen if the new administration and Congressional leaders focus on reducing the deficit in earnest, many of Trump’s policy proposals are primarily focused on stimulating the economy, not directly reducing the federal debt. And it may not matter in the long run anyway - more on that topic below.

Long-Term Impact of the 2024 Election for Our Clients

Keep in mind there are two distinct ways we need to evaluate the election outcome for our clients: 

• Near-term impact, or what specific legislation the next Congress and President might pass that could impact U.S. savers, IRAs and 401(k)s, estate taxes, and more.

• Long-term impact, or what the priorities of the incoming administration mean for America’s economic, tax, and debt environment in the decades to come.

It’s important to evaluate what will happen over the next four years and help our clients prepare. However, none of our clients plan to live in retirement only for the next four years. Because retirement is a long-term endeavor, the long-term impact of this election is critical to evaluate and address. 

The Congressional Budget Office (CBO) projects that over the next decade, the annual budget deficit will range from $1.7 trillion to $2.9 trillion. That makes one thing very clear: Americans are underpaying for the government we currently have. 

Today and into the decade ahead, U.S. revenue will not support the level of government Americans are scheduled to receive. And while certainly, our government could reduce spending in numerous places, the problem runs much deeper than any new bills the President and Congress may pass.

In the last fiscal year, our country brought in $4.4 trillion in revenue and spent $4.4 trillion on mandatory (non-Congressional) spending alone - programs like Social Security and Medicare. That means every dollar Congress appropriated (for things like defense and transportation funding) was deficit spending. 

This is not sustainable. In fact, it will likely get worse as our population ages and puts increased pressure on the Social Security and Medicare programs. At some point - sooner rather than later - the government will need more revenue. And that means more taxes. 

We are likely entering an era of rising taxes on American savers. At this point, it’s more of a demographic problem than simply a political one. And that means while control of the White House can slow or accelerate the growth of our federal debt, it's unlikely a single administration can solve the problem. 

Preparing Our Clients for What Comes Next

Higher taxes are coming. And while we don’t know the exact timing of when they’ll go up, we do know the exact timing of when our clients need to prepare:

That time is now.

Because President Trump has already served one term as President, this will be his last term in the White House. Regardless of what his administration accomplishes, in four years we will be electing a new leader. The 2024 election did not solve the problems we face as a divided nation; in fact, it likely created fiercer battlegrounds going into the 2026 midterm elections. 

What does all this mean? 

We can’t just help our clients prepare for the Trump administration over the next four years. We also need to help our clients avoid having to worry about their retirement assets and approach every four years. We are making retirement decisions in the midst of a politically volatile cycle. And while we avoided a new administration that has been openly hostile toward higher-income savers, we do not know what 2028 and beyond will bring. 

In essence, our clients have been given a gift - but it’s a gift with an expiration date. 

Tax diversification is increasingly a critical component of comprehensive retirement planning. We know it’s too risky for clients to save all their retirement funds in a 401(k), IRA, or other tax-deferred vehicle and just hope their taxes are lower in the future than they are today. Even if a client’s personal income needs can keep them in a lower tax bracket, new policies from Washington can drive up their overall tax burden.

It is absolutely critical that our clients take advantage of the next year (and, if the Trump Tax Cuts are extended, the next several years) to evaluate their potential Retirement Tax Bills and make adjustments where necessary. For savers considering converting qualified funds into tax-free funds, today’s artificially low tax bracket rates make the conversion less expensive than it will likely be in the future. 

2025 is shaping up to be the year of the Roth conversion - and more importantly, helping clients convert the right way, minimizing tax drift and government fees like IRMAA.

While it’s easy to breathe a sigh of relief that President-elect Trump has won the White House and will push for tax cut extensions, we need to leverage this time to plan for what comes next: the potential for higher taxes and more legislative volatility in Washington. 

I dive deep into the election’s impact in a special call I hosted for Stonewood members. You can watch the recording here.