By Jason LaBarge, Financial Advisor and President of LaBarge Financial
Retirement is our expertise at LaBarge Financial, and planning for Social Security plays a significant role in living comfortably in your golden years. This is especially true here in Maryland, where we have an average Social Security check of $2,139, the fifth-highest in the country.
Leading up to President Trump’s ‘One Big Beautiful Bill’ being passed into law, the most common question I received from clients was whether cutting Social Security taxes would be included. The final Act did not cut these taxes, despite a misleading claim by the Social Security administration. Still, there are a few new tax laws that could offset the taxes Maryland retirees pay on their Social Security income.
A new senior deduction of $6,000 is available to taxpayers who are 65 and older with annual incomes less than $150,000 if filing jointly and less than $75,000 individually. In addition, it increased the state and local tax (SALT) deduction from $10,000 to $40,000, which is a huge boon for taxpayers in our state — nearly 20% used the SALT deduction, second only to Washington, D.C.
Combined with making the cuts from the Tax Cuts and Jobs Act that were set to expire at the end of this year, these adjustments mean many retirees could have additional tax breaks to take advantage of. This provides clarity of lower tax rates for at least the next four years, and it presents an opportunity for retirees to capitalize on potentially lower taxable incomes.
Retirement portfolios commonly contain tax-deferred assets such as employer-sponsored 401(k)s. While these allow for larger contributions during their working years, taxes must still be paid when money is withdrawn in retirement. Even if retirees don’t need the income, required minimum distributions (RMDs) mandate withdrawals each year, ensuring that taxes will eventually be paid on these assets. Each withdrawal adds to the owner’s taxable income and can lead to a higher tax rate.
Roth conversions are a tool to move assets from tax-deferred accounts to tax-free Roth accounts. Here’s where the new deductions and continued lower taxes come into play: By lowering your taxable income, there’s more room for settling your tax bill now without increasing a tax bracket.
Once the money is in a Roth account, you can enjoy your income and capital gains tax-free. While it seems like an easy decision, there are two reasons you should have some urgency in taking advantage of these new tax laws. The biggest one is that the longer your money sits in a tax-deferred asset, the more it will continue to grow and add to your tax liability when you eventually withdraw or convert it.
We also don’t know how long this tax environment will remain after President Trump leaves office in 2028. While this Act made the cuts permanent, the federal deficit continues to increase and the Social Security trust fund is set to run out in 2034. Both are likely to be addressed and the solutions will likely require increased taxation. Roth conversions empower you by allowing greater control over your money without worrying about uncertain tax rates.
Roth conversions aren’t for every retirement plan, but tax planning is a crucial part of any retirement plan. The ‘One Big Beautiful Bill Act’ will make a big difference for tax returns in Maryland. You should work with a financial advisor or tax planner to help you understand how it impacts you and determine your strategy to take advantage of it.
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The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Jason LaBarge, Financial Advisor and President of LaBarge Financial
7 Riggs Avenue, Severna Park, MD 21146 443-647-4321
www.LaBargeFinancial.com
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. MAS and LaBarge Financial are not affiliated entities. This article is a paid placement. 3172594-07/25