The outcome of the 2024 presidential election has introduced new speculation about how proposed policies from the campaign trail may impact finances. In uncertain times like these, a strong financial plan is essential to provide a roadmap for navigating potential changes.
Now that we have a clearer picture of the election’s outcome, we can better anticipate financial strategies that may be advantageous in the years ahead. While specific policies are still developing and will of course remain to be seen, taking proactive steps now with your financial advisor can help you prepare for opportunities and challenges that may arise.
Key Financial Strategies Post-Election
Tax Considerations
A cornerstone of Trump’s first term was the Tax Cuts and Jobs Act (TCJA), which significantly reduced tax rates and adjusted tax brackets. Speculation suggests that a second Trump term may focus on extending or even making permanent the TCJA provisions currently set to expire at the end of 2025.
There is some belief that he may even attempt to lower taxes further. Here are some strategies to consider in a low tax environment that you can utilize to strengthen your financial plan:
- Asset Location Strategies: Placing the right assets in tax-efficient accounts (e.g., Roth IRAs, taxable brokerage accounts) can minimize the impact of taxes on investment returns. Tax-managed funds and active asset management can further optimize your portfolio by reducing capital gains exposure.
- Maximizing the 24% Tax Bracket: With the potential continuation of lower tax rates, this may be one of the final opportunities to take advantage of the 24% bracket, which did not exist pre-TCJA. Options like Roth conversions or realizing long-term gains could allow you to lock in favorable rates.
- Deferring Capital Losses: Delaying the realization of losses could help offset future gains in a higher tax environment if rates eventually rise.
- Strategic Roth Funding: For those planning long-term retirement strategies, contributing to tax-deferred accounts now and converting to a Roth IRA could offer tax-free growth and more control over future taxable income. These conversions are also wise at any current tax bracket, as it's likely taxes will need to increase from these historic low rates at some point.
Retirement Planning
Trump’s economic policies often prioritize investment growth and tax reduction. A second term may include further incentives for retirement savings or adjustments to required minimum distribution (RMD) rules. Here’s how to prepare:
- Life Insurance as a Tax Strategy: In addition to protecting your family, life insurance policies with long-term care riders can provide tax-free income streams or hedge against estate taxes, particularly as extended care costs rise. It’s also estimated that 70% of Americans will require extended care at some point in their lifetimes1, making long term care insurance an important part of any financial plan.
- Accelerating Roth Conversions: As mentioned above as a tax-intelligent planning strategy, locking in today’s lower tax rates with Roth conversions can also help ensure future distributions remain tax-free, especially if income tax rates increase down the line.
- Incorporating Annuities: Fixed or variable annuities offer tax-deferred growth and predictable income, which can help retirees mitigate taxable events while providing financial stability.
Charitable Giving
If you’re engaged in philanthropy or looking for an avenue to offload excess funds to reduce your taxable estate or income, there are several strategies that remain effective regardless of policy changes:
- Qualified Charitable Distributions (QCDs): Taxpayers over age 70½ can direct IRA distributions to charity, reducing taxable income while satisfying RMD requirements that will kick in at age 73.
- Donor-Advised Funds (DAFs): Bundling charitable donations through a DAF can maximize itemized deductions and allow you to invest and grow charitable contributions tax-free.
- Appreciated Assets: Donating stocks or other highly appreciated assets avoids capital gain taxes while providing a deduction equal to the full market value of the gift.
Estate Planning and Wealth Transfer
Estate tax changes remain a closely watched area, with the high exemption under the TCJA ($13.99 million in 20252) set to sunset in at the end of this year unless extended. With speculation that the exemptions could be extended, but without knowing for sure, here are some solutions to consider when it comes to your estate.
- Gifting Strategies: Take advantage of the current estate tax exemption to transfer wealth to heirs tax-efficiently. This may be earlier than you intended, but it’s a smart way to gift while conditions are favorable. Annual gifting limits have also increased slightly ($19,000 per recipient in 20253) and can also help reduce taxable estates.
- Accelerated 529 Funding: Use the 5-year accelerated gifting option to provide immediate tax benefits while funding educational costs for future generations. This option allows you to make a one-time tax-free gift of up to $85,000 for single filers, and $170,000 for joint taxpayers to a 529 plan for loved ones4.
- Trust Optimization: Reviewing and updating trusts—such as irrevocable trusts or generation-skipping trusts—ensures your estate plan aligns with current and future tax laws. We can advise on any recommended changes or help you set up a trust for the first time with an attorney.
Incorporating Insurance Strategies
We believe insurance plays a pivotal role in a comprehensive financial plan, particularly when used with tax-smart principles and in anticipation of potential future policy changes. During a second Trump term, where maintaining low taxes may remain a priority, insurance strategies can provide both protection and tax efficiency.
- Life Insurance: Permanent life insurance policies (such as whole life or indexed universal life) can serve as a tax-advantaged savings vehicle, offering cash value growth that accumulates tax-deferred. Depending on the policy you have, this cash value can be accessed through loans or withdrawals during retirement, not just after death and often tax-free, to supplement income or cover unexpected expenses.
- Long-Term Care Insurance: Additionally, long-term care (LTC) insurance policies can help mitigate the rising costs of extended care while reducing the need to liquidate assets that could trigger taxable events. In a low tax environment, you can consider using additional funds to purchase LTC insurance as a way to safeguard against the cost of extended care.
- Second-to-Die Life Insurance: For estate planning, second-to-die life insurance can provide liquidity for estate taxes or create a legacy for heirs, especially if estate tax exemptions are adjusted. These strategies not only enhance your financial security but also align with tax-smart principles to maximize your wealth preservation and transfer.
Prepare for What’s Ahead
No matter what specific policy changes unfold, staying proactive and flexible in your financial planning and working with an advisor is key. If you have questions or want to discuss strategies to protect and grow your wealth, now is the time to act. Together, we can navigate these changes and ensure your financial goals remain on track.
Reach out today to schedule a review of your plan, and let’s prepare for a successful financial future.
1U.S. Department of Health and Human Services
2IRS.gov
3IRS.gov
4CollegeAccess529.com
Asset allocation does not assure or guarantee better performance/profit and cannot eliminate the risk of investment losses in declining markets.
Variable annuities are subject to market risk. Investment return and principal value will vary so that units, when redeemed, may be worth more or less than their original cost. Also, withdrawal of earnings will be subject to ordinary income tax and may be subject to 10% IRS penalty tax if taken prior to age 59 ½ . The death benefit guarantee is subject to the claims-paying ability of the issuing insurance company and does not apply to the investment performance or safety of the underlying investment options. Variable annuities are suitable for long-term investing, particularly retirement savings.
At this time, the tax law allows participants in 529 plans to make tax-free withdrawals of account earnings to pay for qualified educational expenses until December 31, 2010. After 2010, distributions may be taxed at the beneficiary’s tax rate unless there is further legislation to extend or change the tax law.” Any discussions of withdrawals must be balanced by indicating that withdrawals for non-qualified educational expenses are subject to a 10% IRS tax penalty and are taxed as ordinary income. Any discussions of tax-free withdrawals must indicate that the withdrawal must be used for qualified educational expenses and that such withdrawal may be subject to income taxes, depending upon the participant’s state of residence. Units of the 529 plan investment options are municipal securities and may be subject to market value fluctuation. Before investing in a state specific 529 plan, you should compare your own state's qualified tuition program and any state tax or other advantages it may provide.