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How Railroaders Should Prepare for Higher Tax Brackets in 2026 Thumbnail

How Railroaders Should Prepare for Higher Tax Brackets in 2026

Video Retirement Financial Planning Taxes

How Should Railroaders Prepare for Possible Tax Hikes in 2026?

Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name is John McNamara from Highball Advisors, and today we're going to delve into tax planning. We're looking ahead to potential big changes on the horizon—though nothing is definite until signed into law. The Trump Tax Cuts of 2017 (TCGA) are set to expire at the end of 2025, so it's important to start preparing for possible tax increases.

Current and Proposed Tax Rates

Currently, the marginal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Under the pre-Trump tax cuts, the rates were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The significant jumps, especially from 22% to 25% and 24% to 28%, will impact many people.

Tax Planning Strategy

You have two tax years left—2024 and 2025—to take advantage of the current rates. One strategy is to consider Roth conversions. For example, if you convert $100,000 from your IRA at the current 22% rate, you pay $22,000 in taxes. If the rate increases to 25%, the tax rises to $25,000. Without the cash on hand, withdrawing from your IRA for taxes can become costly.

Roth Conversion Example

•    22% Bracket: To net $100,000, withdraw $128,205.

•    25% Bracket: To net $100,000, withdraw $133,333.

This increase results in over $5,000 more in taxes. Thus, consider Roth conversions now to pay taxes at the lower rate.

Additional Considerations

For those under 59½, avoid taking funds directly from your IRA to pay taxes due to early withdrawal penalties. Instead, use a taxable account or bank account.

Final Thoughts

Feel free to reach out to me for guidance through the Boarding for Railroad Retirement process, especially if you're near or in retirement. Tax planning is crucial, so get the help you need.

Don't forget to subscribe to the channel and click the notification bell for the latest videos. We're aiming for 10,000 subscribers by the end of the year.

Until next time, stay safe, stay on track, and take care. So long, everybody!

How should railroaders prepare for possible tax hikes in 2026? Welcome to another edition of the Highball Advisors Railroad Retirement Whiteboard. I’m John McNamara from Highball Advisors. Today, we’re diving into tax planning and looking ahead to potential changes on the horizon. While nothing is definite until signed into law, the Trump tax cuts of 2017 are set to expire at the end of 2025.

Currently, the marginal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. However, if these cuts expire, the rates could revert to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Notably, the jumps from 22% to 25% and 24% to 28% will impact many people.

To prepare, consider that you have the 2024 and 2025 tax years left to act. One strategy is converting funds from tax-deferred accounts to a Roth IRA. For example, if you convert $100,000 from your IRA and you’re in the 22% tax bracket, you’ll owe $22,000 in taxes. If rates increase to 25%, that tax bill rises to $25,000, an additional $3,000. If you need to take the money from your IRA to pay taxes, the cost increases further due to the need to cover the tax on the withdrawn amount as well.

For those under 59½, avoid using IRA funds to pay for a Roth conversion to prevent early withdrawal penalties. Use a taxable account or bank account instead.

If you’re nearing or in retirement, especially as a railroader, it’s crucial to understand these tax implications. For personalized advice, feel free to reach out.

Don’t forget to subscribe to the channel and click the notification bell for the latest updates. Let’s aim to reach 10,000 subscribers by the end of the year! Stay safe, stay on track, and take care. So long, everybody.


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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.