Hello, this is Will Hardy with ManTalk Radio. We are all about breaking down the walls of race and denomination. Your chosen Truth Network Podcast is starting in just a few minutes.
Enjoy it, share it, but most of all, thank you for listening to the Truth Network Podcast. Welcome to Finishing Well with Certified Financial Planner, Hans Scheil, and I know I'm excited to learn something today, as this topic just is intimidating to me. It's 2026 taxes, right? And so we got a lot to learn here, don't we, Hans?
Well, we do. I mean, the Tax Cuts and Jobs Act that started in 2018 has eight years to it. So, and you might remember this, when they lowered your taxes, they said this is gonna run out in 2025, or it's gonna run at the end of, or in 2026, it's gonna be back to the old deal. It's a whole new world, yeah. Well, it's back to the old deal.
Right. And so, you know, when I was thinking about the spiritual application to this, I couldn't help but reflect on my experience this morning, right? And so those who know me well know I like to get up really early, actually 3.30 this morning I was praying. And the first half hour is often me just trying to get rid of my own agenda so I can get on God's agenda, and I'm working through trying to let go and let God, right? And so eventually I get to the point where I'm like, okay, Jesus, what do you want me to know today? Or where do you want me to go? What do you want me to study? But my main question to him was, what do you want me to know today? And he said, here's what I want you to know, Robbie. He said, I want you to know you can't do humility on your own. Humility isn't a one-player sport.
It takes two. And as I began to process that and think about, oh, wow, like, yeah, like my self-determination to try to do things on my own gets me into so much trouble. And so many times I'm trying to do stuff without getting help. And most of the time not turning to Jesus for help is my first problem, right? And so as I began to really think of the wisdom of what he'd told me, and then I was looking at the show today and I went, oh, this is a perfect example of, man, I need help and I need help from somebody I can trust, which is clearly God, but also God just happened to put Hans in my life so that I could go, what is going on with this change in what's coming up in 2026? And what do I need to know? But more importantly, how do I react to that?
What's my next step? PAUL Okay, so when you change the tax law, you know, it doesn't really happen that often. People think they're up there changing it every month and every year and making it more and more confusing.
I mean, look, this happened in 2018. The time that it happened before that was several years before that, they did it in the beginning of the Obama administration. And then in the Bush number two administration, and then Reagan did a big deal with it. Clinton had it in there. So it seems like every six or eight years, there's going to be a major change in the tax code.
And they're generally major changes because it's so hard to do that they tend to be a major change. I mean, they're going to get everything in there negotiated. And this was all about a tax cut in 2018 to spur the economy on and thing is, is it worked. I mean, it just was passed in 2017. And things took off pretty quickly in 2018 2019. And then, you know, shut down or slowed down by the pandemic in 2020.
But it's, you know, the the tax cut worked out to be something that spurred the economy might have had something to do with the inflation that we have now. And none of that is anything any of us can do anything about. And nor do I spend a lot of time worrying about what they're passing what they're going to do. Because, you know, my job is to sit down and say, how does this affect my clients, based upon this new information, and what I think is going to happen or what I know is going to happen? How can I help my clients navigate this?
And what can I advise them to do? And with this big change in 2018, and the significant reduction in tax rates, and tax brackets are increasing of tax brackets, they have to have an end to it. You know, in other words, now the law stands that if you're going to cut taxes, you got to pay for it over so many years.
And you just you have to show how the Congressional Budget Office basically has to prove that this thing, this is the effect it's going to have on the overall, really the debt, and the budget and all that sort of stuff. So one of the things they did in legislation, they said, we're going to do it for eight years, it's going to have a sunset. So beginning in 2026, it's gonna all the taxes are going to revert back to what they were in 2017.
Right. And then I as I listen to this, there were several surprises in there that I thought I had some because I'd done a lot of shows on this. That's why I say you're gonna be glad you're listening today because there's some stuff that that you will learn that I did not know. And so obviously sitting down with some people, and they'll immediately say, well, yeah, they're gonna change it before then, they're gonna raise taxes, they're gonna lower taxes, they're gonna, and I said, Well, you know, I'm not going to disagree with you that that could happen. But given their success, over the last several years of passing in any legislation, I think the idea of changing this is probably they may have a desire to change it, but just getting everybody together to come up with one bill that changes it, and then getting it to the president's desk and getting it signed and paid for.
I think the likelihood of that happening is low. So I think we're we're stuck with whatever they passed in 2017. That went into effect in 2018. That says, this thing sunsets at the end of 2025. And therefore in 2026, we're back to the old deal. Yeah.
Okay. So So why am I talking about this today? Well, I, I've been looking at this, you know, let's just say quarterly, this is top of mind with Tom and I, all the time in advising people. And what what the gist of it is, is tax rates are really low right now. Historically, you may not think that when you're paying your tax bill, but historically, to be paying tax at 12%, or 22%, or 24%, federal rates up into some pretty high numbers is, I mean, I look at it when I'm paying my taxes. And I remember when tax rates were 50%.
Right? Not in my lifetime. Now, before the 2017 thing, do I remember taxes as slow? No, I mean, they're just and, you know, people say, well, tax rates are going to be higher in the future.
No kidding. It's the law that they're going to be higher. So if they, you know, and just so let's just for the show moving forward, this is what we think is going to happen. This is what we're going to be living with in 2026. And right now, there's, there's there's a lot of disagreement about the debt ceiling. And actually having a debt ceiling is a good thing. It just stops Congress from spending on anything and everything that they want to. And it says, Look, there's there's a law that says the debt ceiling the most the debt can be is like 31 trillion or 32 trillion or some some number in the trillions. And if you want to spend money without the corresponding tax revenue, even it's for the same programs you've already passed, you got to raise the debt ceiling, at least you got to agree on that. And that's what they're negotiating right now. And those negotiations are going to be made simpler in two years or three years when tax rates are higher, they're going to be pulling in more revenue based upon the higher taxes. So anyhow, I think this is what's going to happen.
This is what we're dealing with for now. And this is what we're planning on. Now, the gist of what the video that we made for YouTube says this that, you know, a a couple who has a high income, and they've got significant money in an IRA, 401k, and most people who have significant money period, most of it is in pre tax money. I mean, I just, that's my unverified study of people coming into me and we work with people all over the US. We're licensed in all 50 states in DC.
We do a lot of it by zoom and by phone. So we're getting a complete sampling of people. And there's just a lot of people that have had what some would look as a high income, they've got 150,000, 200,000, 120,000, you know, maybe between two people working 220. They're in that category. And they've never been over that category, yet they have a million or a couple of million in their 401k. These are savers, or their IRA, and they got it through a 401k or two of them. And so they've got all this pre tax money sitting there in a bundle. And which tells me they've been living off a lot less than they make. And when they get into retirement, they're probably going to continue to live off of a lot less. And they're not going to need to draw down that big account. And so a lot of times, what we do for clients is we kind of give them a wake up call, we say that you got this big hunk of money. And at some point, the government like age 73 is going to make you start taking RMDs or minimum distributions.
And even that isn't going to dent it that much. And then at some point, the two of you are going to die, and this is going to be passed on to your to your kids. And then your kids are going to have a tax bomb.
I mean, we've been through this in so many shows, most people generally have the gist of it. So what we're going to be talking about today is, do you want to think about taking advantage of these low tax rates that exist in 2023? Because we still got plenty of year left to do some planning 2023 2024 and 2025.
We pretty much know what they are, do we want to purposely pay some income taxes, and get some money from the, from the pre tax, to the post tax, and do some planning to just take advantage of a situation that's going to go away in 2026. See, to me, that's some really salty advice. And that's, you know what I'm saying that it it it isn't so easy, isn't so sweet to take into your mouth.
You know, but ever, but it preserves the truth. Unfortunately, we got to go to a break. And when we come back, we've got a whole lot more. But we want to remind you that this show is brought to you by cardinalguide.com, which is where you'll find the seven worries tabs. And clearly this worry is on the taxes worry, and a great place to be humble and get some help because obviously, you know, maybe not obviously, but let me just tell you, that, you know, to be able to turn to somebody who truly you can trust in a friend is a big deal. And we want you to know how to get that is to go to cardinalguide.com, Hans's book, his contact information, it's all there at cardinalguide.com. We'll be right back with a whole lot more on this really valuable subject.
I bet you're going to learn something if you listen. Investment Advisory Services offered through Brookstone Capital Management, LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.
Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with Certified Financial Planner, Hans Scheil. Today's show, 2026 Taxes, which are some we really need to talk about today. And I think, like I said, you're going to learn something.
I sure learned something as I went through what this is going to be about, Hans. Yeah, so if you're working, a lot of people don't know what their tax rate and their tax bracket even is. They do it in their head. And so if you make a high income, like I was talking about earlier, somebody that makes 10 grand a month or $120,000 a year, whether that's from two people or one person or working, they don't see 10 grand a month. They maybe see six grand a month.
And four grand of a month, they pretty much say goes to taxes. And a lot of it does, but they're not in the 40% tax bracket because a lot of that money that's coming out of there is Social Security deductions, 401k contributions, all kinds of stuff. I mean, somebody that makes 120 grand a year and then they take the standard deduction, their tax bracket, a married couple is somewhere around 12%, okay? Maybe creeping a little bit into the 22% level. I'm just looking at the sheet right here is that 89,450 is the top of the 12% bracket.
The top of the 22% bracket is 190,000. So, you know, what I want you to do for your thinking just a minute here is that every year that passes when December 31st is over with and you, let's say you are this person at $120,000 a year, and then you take the standard deduction, which is about, you know, in the high 20s, let's just call it that depending on if somebody's over 65 or not. I mean, that means that your tax bracket is about 90 grand. And so if you finish the year, you pay taxes at the federal level on 90 grand. Let's look at this a different way is you've let go or it's an opportunity cost that you could have if you'd have converted a bunch of your pre-tax IRA, 401k into a Roth and made it post-tax, you could have done a nice chunk of that at pretty low tax rates, like the top of the 24% bracket for a couple is $364,000. So this couple that is at 120 and, you know, maybe they have a million dollars in their IRA that they're saying, oh, I'm not paying taxes now because my tax rate is going to be a lot lower in retirement. And what I would tell them is your tax rate is pretty low right now. I mean, you're at 12, 14%, you could bite off about 200 grand of that money. Now I'm not telling anybody to do this over the air.
I'm not making a recommendation. I'm just doing a for instance, you could take 200 grand per year. Yeah, but we're, I'm just talking about 2023. So we're going to plan it out for you, but I'm just, you could take 200 grand of your IRA money and put it into a Roth. And now it'd be after tax money. Now, if you don't have other money and money sitting on the sidelines, you're going to have to pay that tax out of the IRA. And it's certainly if it's 24% and about 50 grand.
Yeah. So you're going to have to pay some dough out of your, either your IRA money or your other money. So this, this isn't as simple as I'm kind of making it sound.
I want to show you the dark side of this as well. I think just to jump ahead, cause I like to do that. It's obviously if it's 24% and you're 200 grand, so $48,000, right? At 24% that you're going to pay right now. But at whatever point in time, your kids or whoever, if the tax rate's 45%, that 24th, that, that 48,000 is going to be more like a hundred thousand.
Well, absolutely. And then furthermore, if it's you taking it out of there, then, and you're up in your seventies, you're going to be also paying a bunch of tax on your social security. Or we take the positive side of that. If you're able to draw down out of your Roth, that's tax free. And then it doesn't increase your income either.
Right. And it doesn't create income for the social security. So, you know, you just, we're looking for a really low tax rate or a non-existent tax rate when we're in our seventies, eighties and nineties.
Especially because, and we've talked about this in many shows, if you're married now and you pass away right now, your wife is going to not only have this new higher tax rate, but it's going to be even higher because she's single and she's not going to meet the same. Let's just move to a single. Let's say we've got a single making 120 grand a year. Okay. Their tax rate is 24%.
Okay. Cause their standard deduction is half and their brackets, the top of their brackets is about half. And so they're already at 24%. And to get to the top of the 24% bracket is 182,000. So if I'm still on people that are in their sixties now making a good income and yet they have a million dollars or something approaching that or more in pre-tax money, you know, a single person can only do half as much. Right.
Which is unfortunate situation. You know, when I pass away, Tammy is going to be there to try to navigate all this stuff. And again, all the more reason that we try to do the planning so that it'd be as easy as possible at this point in time when we're not sure to help. Well, look, we do when a person does pass away, one of two and a couple, they got that year where they can do a Roth conversion that surviving one can at married jointly rates. So the point we're trying to make here is tax rates are going to be higher in the future. They're low now for three more years, go ahead and take, take advantage of that and do some Roth conversions or consider doing some Roth conversions up to the top of the 24% bracket. I mean, and that's a lot less for a single person, still something they ought to take a look at or possibly even going into higher brackets for that single person. If they have a lot of money in an IRA, not so much for leaving the money to the kids, but to have tax free money available to them at any point in their seventies.
So I want to get in a couple more points on the show. Number one, um, the, the standard deduction that we've all become. So, you know, like, uh, for two people over 65, it's over $30,000 that you don't have to list all your deductions, whether you have them or not, you take 30 grand off your taxes.
That's sweet. If you're a single person, it's about 15 grand in 2026. Those are going back to what they were before that thing started in 2018. So, you know, that comes off your tax brackets. What is it going to be in 20?
I don't want to say that on the air because I, I could be wrong. Um, but a lot is going to go back to what it was half. I'm looking at, it's right here on the board, but, um, just go to the show notes and look up the YouTube video on our web website, website, cardinal guide.com and look for the show notes on the 2026 income and estate tax cut sunset.
Um, so I want to get that point. Standard deduction is going to be less than 2026. The estate tax, the exemption is going in half. Now the exemption is so large now that it doesn't affect very many people, but, um, it's cutting in half in 2026.
And what I want to add is this is an area that there's clearly a target on. So don't just assume if you're nowhere near those numbers that the estate tax is never going to apply to you, especially if you're in your sixties, because the estate tax is never applied until the second one of a married couple dies anyhow. So if one of you lives into your nineties, we're talking about 30 years from now, so they could come in and really put a doing on estates when they need revenue.
So, uh, estate planning and within the estate tax is still something we keep an eye on. Yeah. And I was thinking that what we had talked about earlier on this, you know, cause again, that standard deduction is a huge deal in my world.
I mean, it just is. And, and so if that's going to be drastically reduced, which half is pretty drastic. Um, and we don't know that for sure, but somewhere in that neighborhood, but then as I understand the caps on, on all the stuff that they did because they'd raised it so high, they're leaving those in place. And so it's kind of almost like a double whammy. That's exactly right.
So there's only some of the stuff that goes back, the stuff that's bad for you goes back to what it was, the stuff that's, it would be good for you to get, put it back. They're not doing that. I mean, this, this thing was all written in such a way that they only had to pay for it for eight years. It's kind of like, we'll worry about that in eight years.
Well, eight years is pretty soon. So, and this stuff all applies at the much lower tax brackets. I mean, I've got people who are retired that live on a real simple income, like a couple of social security checks, and then they've got a smaller number than what I was talking about. And they still hoard their money in their IRA.
They don't want to touch it. They leave it pre-tax. And the top of the 12% bracket is $89,450 for a couple.
And what that means is you could convert a smaller amount this year, pay the 12% tax, and your children might be in the much larger tax brackets than you when they ultimately inherit this money. So there's, this is smart to take a look at it now during 2023. Yeah, it is. And to think about other things that you may need to adjust as you go into those new years, right? Because your whole world, your budget's gonna change.
It is. And that's why we do a lot of planning with a lot of people, right, when they're going on Medicare. Well, again, we're so grateful we run out of time before we run out of show.
But that's the reason why there's so many resources, right? If you go to cardinalguide.com, you go to cardinalguide.com, you're gonna see tons of podcasts, of course, but there's also the YouTube videos are all there under the seven worries tabs, as well as, you know, Hans' complete, you know, cardinal guide to live... Planning for and living in retirement. I hadn't said it in three weeks. His book, it's all there at cardinalguide.com. Most importantly, contact Hans personally, right? He wants to help you.
That's what he's there for. And it's all there at cardinalguide.com. Again, I'm so grateful to share this with you, Hans, and for all your work on this. God bless.
Thank you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.
Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated or not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.
Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.
Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and The Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to CardinalGuide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's CardinalGuide.com. This is the Truth Network.
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