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Here’s What a Trump Presidency Would Mean If You’re Planning to Retire in 2025
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Retirement It’s a big life change. If you’re planning to start your golden years in 2025, you may be feeling weary about how the upcoming presidential election could affect your nest egg.
Specifically, you may be wondering about new taxes that may be imposed by the new president and any changes in the stock market that may occur with the change in leadership.
“First and foremost, politics should not be a factor in your investment portfolio,” said Ryan Brueck, CFP, Clear Wealth. “Regardless of what you believe politically, there are charts that support the fact that presidential elections do not impact long-term investment returns.”
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So he said you shouldn’t necessarily make any drastic financial changes because of the outcome of the presidential election. However, there is one thing that could affect your finances if Trump is elected back into office.
“It’s called the Tax Cuts and Jobs Act (TCJA), which was created during the previous Trump presidency,” he said. “The TCJA has a lot of income and estate tax implications and is set to expire in 2026.”
Of course, if Trump is elected, there is a chance he could extend the TCJA, since he was the one who implemented it.
“This creates many tax and estate planning opportunities that impact almost everyone who will retire in 2025,” he said.
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About the Tax Cuts and Jobs Act
Initiated by Trump, the TCJA went into effect on January 1, 2018. The biggest overhaul of the tax code in three decades affected both individual taxpayers and businesses.
The TCJA permanently cut corporate tax rates, but only temporarily cut individual tax rates. Higher earners were projected to benefit more from this law, while lower earners were expected to pay higher taxes when the individual tax provisions expire in 2025.
Individuals were hit with lower tax rates in five of the seven individual income tax brackets — the lowest tax bracket remained at 10 percent and the 35 percent tax bracket remained the same — a notably higher standard deduction, and a discontinuation of the personal exemption. In addition, it ended the individual health care mandate, repealed the ability to recharacterize one type of retirement savings contribution as another, and limited the mortgage interest deduction — among other issues.
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The legislation affected businesses by changing deductions, depreciation, expenses, tax credits, and other tax items. For example, the new Section 199A provision allowed some business owners to deduct up to 20% of qualified business income — with certain limitations applied based on income and business type.
Read more: Trump Wants to Eliminate Income Taxes: How Would That Affect You If You’re Retired?
3 Ways the TCJA Expiration Could Impact Your Finances
“A Trump presidency could be good or bad for your taxes, depending on which aspects are most relevant to your situation,” said Noah Damsky, CFA, director of Marina Wealth Consultants. “For example, some would benefit from the expiration of the SALT limitations, while others could see effectiveness rates increase due to a decline in the standard deduction.”
Formally known as the State and Local Tax Deduction, SALT is used by taxpayers who itemize their deductions to reduce their federal taxable income. These individuals can deduct up to $10,000 of property, sales, or income taxes they have already paid to state and local governments.
Damsky also highlighted the importance of the TCJA tax legislation and the potential it could affect his finances if Trump is elected and renews it.
“If Republicans can also secure the House and Senate, it would increase the likelihood of extending Trump’s landmark TCJA tax legislation.”
He said retirees could be most affected by the TCJA’s expiration in the following three ways.
1. Eliminating the limitations of SALT
“If the TCJA expires, eliminating the SALT limitations means more deductions, especially for those in high-income states and property taxes,” he said. “This is especially relevant for retirees with rental income from real estate, as they could see significant tax savings by offsetting rental income.”
The SALT deduction is popular among taxpayers in high-tax states and high-income filers because it allows them to avoid double taxation. If you fall into this category, your tax liability may increase.
2. Reduction in standard deductions
“A decline in the standard deduction could mean a higher tax bill,” he said. “If the TCJA ends, the standard deduction could be cut nearly in half.”
This could mean you end up paying more to Uncle Sam.
“For retirees with few itemized deductions, such as state and property taxes, their tax bill could increase,” he said.
3. Possible changes to the mortgage interest deduction
“Currently, under the TCJA, residential mortgage interest is deductible up to the first $750,000 of mortgage debt,” he said. “That limit would increase to $1 million if the TCJA were to expire as currently scheduled.”
Depending on the amount of your mortgage, this could be beneficial.
“That means retirees with a mortgage of more than $750,000 would benefit if the TCJA were to end,” he said.
If that’s the case for you, you could end up with more money in your wallet if the TCJA expires as scheduled in 2025.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reporting on politically focused financial stories. For more coverage on this topic, check out I’m a Financial Planner: Here’s What a Kamala Harris Presidency Would Mean If You’re Planning to Retire in 2025.
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This article was originally published in GOBankingRates.com: I’m a Financial Planner: Here’s What a Trump Presidency Would Mean If You’re Planning to Retire in 2025