Taxman - All About Seniors

By Mark Schumacher, NMLS ID 519754; Mutual of Omaha Mortgage, Inc.NMLSID 1025894Let me tell you how it will be, Theres one for you, nineteen for me.That opening line George Harrison penned in 1966 sure feels relatable.

Its no fun losing anything weve worked to obtain.Fortunately, sometimes theres things we can do to reduce the pain.I had the opportunity to watch a presentation given by Wade Pfau, Ph.D., CFA, RICP in December 2025 titled Creating Tax-Efficiency for Retirement Income.The One Big Beautiful Bill Act (OBBBA) signed into law July 2025 was a major topic.

The most significant update shared was that there is no change to how Social Security benefits are taxed.This is a big deal because up to 85% of Social Security benefits are taxable; this tax table was set in 1994 and it is not inflation adjusted so it impacts many recipients.Though there had been talk that OBBBA would end (or significantly reduce) taxation on Social Security benefits, that didnt make it into the final bill despite many people receiving emails from the Social Security Administration stating otherwise.There was encouraging news.

The standard deduction is being increased.For single filers its increasing from $15,000 to $15,750 and for married filing jointly (MFJ), from $30,000 to $31,500.Furthermore, there is an additional $6,000 standard deduction per person for those age 65+ that will last for 4 years, from 2025 till 2028.

This added benefit gets reduced for single filers with Modified Adjusted Gross Income (MAGI) over $75,000 and $150,000 for MFJ.Some of the changes dont take effect until the 2026 tax year, such as single filers that take the standard deduction can claim up to $1,000 of charitable donations; MFJ can claim up to $2,000.These have no phase out.Standard deduction filers can also claim qualified income from tips as a deduction; up to $25,000 per person regardless of single or MFJ.

This benefit applies to 2025 thru 2028 tax years and also has a phase out for those with higher income.A very eye-opening topic he presented was about the non-linearities and traps in the tax code; situations where once an income threshold is crossed a new tax consequence takes place.Higher Medicare premiums for Part B and D is an example of this, named Income-Related Monthly Adjustment Amounts (IRMAA).Each Part, B and D, has its own calculation which applies once MAGI surpasses $109,000 for single filers and $218,000 for MFJ with increasing premiums as various MAGI levels are reached.Ordinary income is taxed at 12% but that increases to 22% if single filers exceed $48,475 or MFJ exceed $96,950.Roth Conversions can help manage future taxable income.

This is taking money from a qualified IRA account that has deferred taxes and converts it to a Roth IRA that is not taxed at distribution.Whenever retirement tax strategies are discussed the Reverse Mortgage program should be included in the discussion because the monies received from a Reverse are not taxed as income.Heres an example of the benefit of using tax-advantaged money rather than taxed money.Assume someone wants $30,000 to buy a new car.

If they use their qualified IRA to fund the purchase they will need a distribution of over $40,000 to buy the $30,000 car with the difference between the two paying for the tax hit.If they take the money from the reverse mortgage line of credit instead, they can just take the $30,000 to buy the $30,000 car.A reverse mortgage is a home loan for homeowners age 62 and greater.In some states, including South Carolina, it can be done as young as age 55 in some cases.

Reverse mortgage loans come due once the borrowers no longer live in the home.It is only available on primary residences.It allows you to tap some of the cash tied up in the home while enjoying certain characteristics these retirement-designed programs have, referred to as The Four Nevers.Never have to make a monthly mortgage payment.

Never have to move.Never owe more than the value of your home.Never give up title to your home.

Homeowners are required to maintain a homeowners insurance policy, stay current on property taxes, and maintain their home.Having this added source of tax-free cash flow can give retirees financial options to maximize benefits and minimize pain points they may not otherwise be able to do.Wade Pfau presentation was taken from his book Retirement Planning Guidebook, Navigating the Important Decisions For Retirement Success, Chapter 10: Tax Planning.