Insights & Commentary

The Tax Cuts and Jobs Act of 2017 included a sunset provision that triggers significant changes to the federal tax code beginning January 1, 2026. For high-income individuals and families, the implications are substantial — and the window to take proactive action is narrowing. In this article, we break down the most important changes and outline strategies our advisory team is recommending to clients.

Key Changes Taking Effect

The most immediate impact will be felt in individual income tax brackets. The reduced rates established by the TCJA are scheduled to revert to their pre-2018 levels, meaning the top marginal rate will increase from 37% back to 39.6%. The standard deduction, which was nearly doubled under the TCJA, will also decrease significantly, potentially pushing more filers toward itemizing deductions again.

The estate and gift tax exemption, which currently stands at approximately $13.6 million per individual, is expected to be cut roughly in half. For families with taxable estates that fall between $7 million and $13.6 million, this change could create a significant federal estate tax liability that does not exist under current law. This is particularly relevant for business owners whose company valuations push their total estate above the reduced threshold.

Income Acceleration Strategies

One of the most effective strategies for clients who expect to be in a higher tax bracket in 2026 and beyond is income acceleration. This can take several forms: exercising stock options, triggering capital gains on appreciated securities, or converting traditional IRA assets to Roth IRAs. By recognizing this income in 2025 at the current lower rates, clients can potentially save hundreds of thousands of dollars in federal tax over time.

Roth conversions deserve particular attention. Converting a portion of traditional retirement assets to Roth accounts while tax rates are at their lowest creates a pool of tax-free income in retirement. Our team runs multi-year projections to determine the optimal conversion amount each year, balancing the current tax cost against the long-term benefit of tax-free growth and distributions.

Estate Planning Urgency

For clients with estates above the anticipated reduced exemption amount, the most critical action item is to utilize the current elevated exemption before it sunsets. Gifting strategies — including transfers to irrevocable trusts, spousal lifetime access trusts (SLATs), and grantor retained annuity trusts (GRATs) — can permanently remove assets from a taxable estate at today's higher exemption level.

The IRS has confirmed through Treasury regulations that gifts made under the current exemption will not be "clawed back" if the exemption is later reduced. This provides an important measure of certainty for families considering large lifetime gifts. However, these strategies require careful legal documentation and coordination with estate attorneys, which takes time — making it important to begin the process sooner rather than later.

What You Should Do Now

We recommend all clients schedule a review with their advisor to assess how these changes may affect their financial plan. Specific action items will vary based on individual circumstances, but the common thread is clear: the current tax environment offers meaningful planning opportunities that may not be available much longer. Contact our team to schedule a tax planning review and ensure your strategy is positioned for what lies ahead.

Your 40s represent a critical inflection point in retirement planning. You are likely in your peak earning years, managing competing financial priorities — children's education, aging parents, mortgage payments, career advancement — all while the runway to retirement begins to feel meaningfully shorter. The decisions you make during this decade will have an outsized impact on whether you achieve the retirement lifestyle you envision.

Over two decades of working with clients approaching and entering retirement, we have identified the most common and consequential planning mistakes that people in their 40s make. Avoiding these pitfalls can make the difference between retiring comfortably and facing difficult trade-offs later.

1. Underestimating Your Retirement Income Needs

The common rule of thumb that you will need 70-80% of your pre-retirement income is, for many of our clients, dangerously low. In the early years of retirement, spending often increases as people travel, pursue hobbies, and enjoy their newfound freedom. Healthcare costs, which are rising at roughly twice the rate of general inflation, add another layer of expense that is frequently underestimated. We encourage clients to build their retirement projections based on a detailed expense analysis rather than a simplistic percentage of current income.

2. Prioritizing College Savings Over Retirement

This is perhaps the most emotionally driven financial mistake we see. Parents who want the best for their children often redirect funds from retirement savings to 529 plans or direct college payments. While we fully understand this impulse, the financial math is clear: your children can borrow for education, but you cannot borrow for retirement. We help families develop integrated strategies that address both goals without sacrificing one for the other.

3. Carrying Too Much Lifestyle Debt

As incomes rise through your 40s, lifestyle inflation can creep in — larger homes, newer cars, more expensive vacations. These spending increases often come with corresponding debt that erodes your ability to save and invest. We work with clients to establish a target savings rate of 20-25% of gross income, which typically requires making deliberate choices about lifestyle spending and debt management.

4. Ignoring Tax Diversification

Many people in their 40s have the majority of their retirement savings in tax-deferred accounts such as 401(k)s and traditional IRAs. While these accounts provide valuable current-year tax deductions, they create a concentrated tax liability in retirement when withdrawals are taxed as ordinary income. Building a mix of pre-tax, Roth, and taxable investment accounts gives you flexibility to manage your tax bracket in retirement and adapt to future tax law changes.

5. Neglecting Insurance and Risk Management

Your 40s are when the financial consequences of a disability, premature death, or long-term illness are often at their highest. You likely have significant obligations — mortgage, children, possibly a business — and your future earning capacity represents your most valuable financial asset. Ensuring adequate life insurance, disability insurance, and umbrella liability coverage is not optional during this period. We review insurance coverage as part of every comprehensive financial plan.

6. Going It Alone Without a Plan

Perhaps the most pervasive mistake is simply not having a comprehensive financial plan. A plan is not a static document — it is a dynamic framework that integrates your investment strategy, tax planning, insurance coverage, estate documents, and retirement projections into a cohesive whole. Without this framework, financial decisions are made in isolation, leading to missed opportunities and unintended consequences. If you are in your 40s and do not have a written financial plan, now is the time to create one.

The good news is that your 40s still provide ample time to course-correct and build meaningful wealth for retirement. The key is to act with intention and urgency. If you would like to discuss your retirement planning strategy, we welcome the opportunity to help.

As we enter 2026, financial markets are navigating a complex environment shaped by evolving monetary policy, geopolitical uncertainty, and shifting economic fundamentals. While the U.S. economy demonstrated remarkable resilience through 2025, several factors warrant close attention as we position client portfolios for the year ahead.

Interest Rates and Monetary Policy

The Federal Reserve's path forward remains the dominant variable for asset prices. After a measured easing cycle that began in late 2024, the Fed has signaled a more cautious approach to further rate reductions, citing persistent inflation in services and housing. We expect the federal funds rate to settle in the 3.75-4.25% range through mid-2026, which should continue to provide attractive yields for fixed income investors while supporting moderate equity valuations.

For bond investors, we see an opportunity to extend duration modestly and lock in yields that remain historically attractive. Investment-grade corporate bonds and municipal bonds for tax-sensitive investors offer compelling risk-adjusted returns at current spread levels.

Equity Markets

U.S. equity valuations remain above historical averages, driven in part by the continued dominance of mega-cap technology companies. While we are constructive on the long-term outlook for U.S. equities, we believe portfolio diversification is more important than ever. We are tilting allocations toward mid-cap value stocks, international developed markets, and select emerging market opportunities where valuations offer more attractive entry points.

Earnings growth will be the key driver of equity returns in 2026. Consensus estimates project approximately 10% earnings growth for the S&P 500, which is achievable but not without risk. Any meaningful deterioration in consumer spending, corporate margins, or global trade would pressure these estimates and likely lead to increased market volatility.

Our Positioning

We are maintaining a balanced and diversified approach across client portfolios. Key themes include: extending fixed income duration to capture attractive yields, broadening equity exposure beyond U.S. large-cap growth, maintaining adequate cash reserves for rebalancing opportunities, and continuing to harvest tax losses where available. As always, our investment decisions are anchored to each client's long-term financial plan — not short-term market predictions.

This commentary is provided for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Please consult your advisor for guidance specific to your financial situation.