The current administration and Congress are getting closer to finalizing their tax proposals. How it will all shake out is still unknown as of me writing this.

But there are some things that are getting some attention. Let’s look at those and then look at things that more directly affect your planning for retirement.

First, corporate tax rates. The current plan is seeking to lower the corporate tax rate. It currently is between 15% and 35%. The new plan seeks to lower it to 21%.

Second, the deduction for local taxes (state, county, city) is proposed to be capped at $10,000. This applies to state income taxes, city income taxes, and even property taxes. In other words, what local jurisdictions tax.

These issues are getting some big attention during this phase of the tax proposal. So let’s discuss how these things (as well as other factors) affect your retirement.

How Tax Reform Could Impact Your Retirement

Since most of us are only going to be impacted by what proposed tax rates do at the individual level the issue of a corporate tax rate change may seem of no interest.

But it could potentially have some impact.

As it stands now, the US corporate tax rate is comparatively high when looking at other countries. So what happens is international corporations choose to keep some of their profits overseas in the country they earned them in. If they brought the money back to the US they’d have to pay a higher tax rate on it.

With a lower corporate tax rate this could cause the companies to repatriate these dollars and invest more in the US. This could ultimately be good for business and job creation. The effects of this could even include higher valuations in the stock market, though nothing is for certain.

Thus, the proposed change in the corporate tax rate could have a positive impact for individuals as well.

Winners and Losers

The other issue that is gaining a lot of attention is capping deductions associated with taxes you paid to local jurisdictions, like city, county and state. The proposal is currently seeking to cap these deductions at $10,000 when doing your federal taxes.

The big losers if that goes through will be residents of states that have high state income taxes. These are the states like New York and California. Even Massachusetts.

As it stands now, when they pay income taxes to their state they are able to deduct that on their federal income tax form, thus helping to reduce what the federal government will tax them.

People that will be largely unaffected by this issue are residents in states that don’t have state income taxes. This would include my state of Tennessee, as well as other states like Texas and Florida.

To help offset this they are seeking to increase the standard deduction from $12,700 for married joint filers, all the way up to $24,000.

The Bigger Picture Of Tax Reform And Retirement Planning

These specifics are important to look at in how they will impact each of us as individuals. But I think it is important to take a step back and consider the bigger picture.

And that bigger picture is that tax laws can and do change all the time. All it takes is for a different political party to come to power, have enough votes, and then decide they want to increase tax rates down the road.

In fact, as the current proposal stands, some of the more favorable deductions are set to expire in the future:

  • The $24,000 standard deduction is set to expire in 2026.
  • The estate tax (i.e. death tax) exemptions that are proposed to double would revert to current levels in 2025.
  • Some deductions for Pass-Through entity owners would expire in 2026

It’s always changing. If the Republicans pass the proposal, who’s to say the Democrats won’t change it to a higher taxation plan when they take Congress back one day. If history is any lesson, whichever party is in power when the next recession occurs is the party that gets blamed. Whether or not they were responsible for the bad economy. And the rival party usually gets voted in when the economy is in the tank.

So the big takeaway is to position yourself as if tax rates will go up.

This means consider options like Roth conversions if it makes sense for your situation.

If you have a lot of money in a traditional 401k, IRA, 403b, then that money is building up just waiting to be taxed when you pull it out. If your personal effective tax rate is higher when you pull funds out of your traditional IRA in retirement, that means less retirement money for you to enjoy.

Or looked at another way, you may have to wait longer to afford to retire, or you may have to reduce your standard of living in retirement because the government is demanding more from you through higher tax rates.

And the withdrawals you take from your 401k and IRA can affect whether or not your Social Security benefits get taxed. And even in higher income earning cases, your Medicare Part B premiums can be increased if your income is too high.

If you don’t prepare for this before you retire by positioning your savings into tax-free environments (like Roth IRA’s as one example), you may end up paying more in taxes in retirement than you originally thought you would.


If the tax proposal goes through and if people do in fact pay lower taxes from the change, then that is wonderful. I’d suggest using the time of lower taxation to begin positioning your savings and investments in such a way that you reduce your exposure to the risk of future tax increases.

Have questions about planning for retirement?

If you have questions about how to position yourself to help reduce the impact of taxes in your retirement, then go here to fill out this form and someone from our office will contact you.


Chris Hammond


This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Tri State Financial Group and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.