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DEAR TRUST OFFICER:
Are seniors getting a $6,000 bonus next year in their Social Security benefits? —HOPEFUL RETIREE
DEAR HOPEFUL:
No, there is no benefit bonus next year. We’ve had this question a few times, and the confusion apparently comes from a new senior deduction that is in place for this tax year. The extra deduction for each taxpayer over age 65 is $6,000, so a married couple gets an added deduction of $12,000. The extra deduction replaced President Trump’s proposal to make Social Security benefits tax free again, and for some taxpayers this will be the exact result.
However, higher-income taxpayers may not enjoy the new extra deduction, as it begins phasing out at modified adjusted gross income of $75,000, or $150,000 for married couples filing jointly. Reminder: If you are 73 or older this year, you will need to take Required Minimum Distributions from your IRAs and employer retirement plans. These distributions will count toward the phase-out of the new senior deduction.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
The 401(k) plan contribution limit will increase to $24,500 in 2026, up from $23,500 for 2025. The change was announced in November by the IRS, along with other inflation adjustments noted below.
Retirement plan inflation adjustments
|
|
2025 |
2026 |
|
Annual benefit limit for defined benefit plans |
$280,000 |
$290,000 |
|
Limitation for defined contribution plans |
$70,000 |
$72,000 |
|
Annual compensation limit |
$350,000 |
$360,000 |
|
Definition of key employee in a top-heavy plan |
$230,000 |
$235,000 |
|
Highly compensated employee |
$160,000 |
$160,000 (unchanged) |
|
Limitation for SIMPLE retirement accounts |
$16,500 |
$17,000 |
Source: Notice 2025-67
Article ©2025 M.A. Co. All rights reserved. Used with permission.
According to a recent item in The Wall Street Journal, there are more than 16 million Americans over age 65 who are living alone. That’s about 28% of that age group, which is triple the rate in 1950, thanks to greater longevity and higher divorce rates among older adults. Throughout the life cycle, financial planning for singles differs from planning for couples. Obviously, there is only a single set of assets to work with, and no surviving spouse to plan for. Less obviously, taxes are higher for singles, and they have no partner to fall back upon in case of adversity.
These differences become especially acute for single seniors, as they have less room for error in their financial management. When the single senior is a widow or widower, it often is the case that the deceased spouse was the financial manager for the couple, making singlehood doubly difficult.
Get started
Putting one’s financial house in order is generally the first order of business. One must determine financial needs for the balance of retirement and assess the resources available to meet those needs. Tax planning and investment strategies will need to be reviewed and monitored.
Some experts counsel seniors to consolidate their financial accounts when possible. Fewer accounts will mean less paperwork, freeing up time to monitor each remaining account more closely. Making the paperwork more manageable will make it easier to stay on top of bills, avoiding late fees and reducing interest charges. One may also notice a discrepancy or be able to take advantage of an opportunity, given more time for review.
A net worth statement may tell you where you stand and help to create organization for your financial management. Your net worth is the sum of your assets minus your liabilities. If it’s a negative number, you will need to face reality and develop a plan to get out of debt. A net worth statement will also help you to determine the insurance coverage that you need to protect your assets.
Financial planners generally recommend having an emergency fund sufficient to cover nine to 12 months of your expenses. Keep your debt and your recurring expenses as low as possible, and try to have living quarters that fit you.
Critical questions
For single seniors, the most vexing problems are associated with incapacity. Should you become incapacitated, temporarily by illness or permanently through aging:
The first solution that comes to mind for these questions is the financial durable power of attorney. This document allows another person to step into your shoes, financially speaking, and make binding decisions on your behalf. A durable power of attorney may be as broad or as limited in scope as needed to make you comfortable. You’ll need to see your lawyer to have the power of attorney drafted and executed.
Another axis of anxiety concerns health care. In this area, you may need:
The benefit of a living trust
Affluent individuals often rely upon a living trust for financial management in retirement. A living trust can provide financial protection in the event of disability or incapacity, as a durable power of attorney does. However, a living trust offers additional advantages, such as financial privacy at death and probate avoidance. If a corporate trustee is named as the trustee, there will be the advantages that come with working with an institution compared to an individual.
A living trust is not a panacea; it doesn’t solve every financial or investment problem. Still, a trust can be the cornerstone for successful financial and estate planning.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
The One Big Beautiful Bill Act has added several wrinkles to tax planning. Here are some basic questions to get you started.
1. What will be your estimated 2025 income? This will determine whether you qualify for several tax breaks.
2. Did you pay more than $10,000 in state and local taxes this year? The cap for the deduction has been lifted to $40,000.
3. Should you itemize or use the standard deduction? More than 90% of taxpayers have been using the expanded standard deduction, but lifting the cap on the SALT deduction could affect that calculation.
4. Should you bunch your deductions? If you are near the boundary for the standard deduction, it may be profitable to accelerate some charitable contributions or medical expenses into one year, itemize deductions that year, and take the standard deduction the next year.
5. Did you have tip income in 2025? Up to $25,000 of tip income may be tax free, but the benefit phases out at higher income levels.
6. Did you have overtime pay in 2025? Up to $12,500 of overtime pay ($25,000 for marrieds filing jointly) may be tax free, but again, the benefit phases out at higher income levels.
7. Have you purchased an American-made new car this year? The interest on a loan for such a purchase may be deductible.
8. Is the asset allocation in your investment portfolio still consistent with your goals? Strong stock market performance this year may have pushed some portfolios out of balance.
9. Should you harvest some capital losses to offset realized gains? Up to $3,000 of realized capital losses may offset ordinary income.
10. Are you 65 or older this year? You may be eligible for an additional $6,000 deduction from income, but this benefit phases out for higher-income retirees.
11. Have you maximized your 401(k) deferral? One should defer at least enough to secure an employer match in a qualified retirement plan.
12. Have you made a maximum IRA contribution? Up to $7,000 may be contribution to a traditional IRA, a Roth IRA, or a combination of the two.
13. Are you eligible for catch-up contributions? For those 50 and older, an additional $1,000 may be contributed to an IRA. An additional $7,500 may be contributed to a 401(k), 403(b), or 457 plan.
14. Are you eligible for a super catch-up contribution? Beginning in 2025, those who are 60, 61, 62, or 63 have a larger catch-up contribution, $11,250. At age 64 and up, the limit falls back to $7,500.
15. If you are 73 or older, have you taken your Required Minimum Distributions (RMDs) for the year? RMDs are required from IRAs and from employer retirement plan accounts, such as 401(k) plans.
16. Should you consider a Qualified Charitable Distribution from your IRA? A direct transfer from an IRA to a charity will satisfy RMD requirements without boosting ordinary income.
17. Should you consider conversion to a Roth IRA? The conversion is subject to ordinary income tax the year that it is made, but future distributions may be tax-free, and the Roth IRA does not have Required Minimum Distributions.
18. Have you taken advantage of the annual gift tax exclusion? Up to $19,000 may be gifted to as many beneficiaries as you wish without the necessity of filing a federal gift tax return. A grandparent with four children and six grandchildren could make gifts to each of them, which removes $190,000 from a future taxable estate. Married couples may “split” their gifts, for a total of $38,000 per done. No gift tax will be due, but a gift tax return must be filed in that even.
19. Has education funding been taken care of? Tax-deferred savings opportunities include the Coverdell Education Savings Account and the 529 plan.
20. Have you reviewed your will this year? Next year, the amount exempt from federal estate and gift tax goes to $15 million, and this change has no expiration date, unlike earlier increases in this threshold. The exemption is per person, so a married couple has $30 million of tax shelter, and the exemption will be indexed for future inflation. The permanence of this change could have significant ramifications for your estate plan.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
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