Ready to talk about taxes? On this episode of Market Sense, we dive into the new tax law, and how it could impact your 2025 taxes. A Fidelity branch leader and former tax preparer will highlight some of the changes and strategies for itemizing, charitable giving and Roth conversions. Plus, all the latest market headlines in 20 minutes. Topics covered: • 2025 tax changes • SALT • Roth Conversion • Charitable Contributions 00:00 Market Sense Introduction 01:39 Latest market headlines 04:22 Latest market headl ...

Core Insights - The article discusses the considerations for converting a traditional 401(k) into a Roth 401(k), particularly focusing on the implications of current and future tax brackets [2][5]. Current Tax Bracket - The current tax bracket is a known value, with an example provided of a combined income placing a couple in the 35% federal tax bracket [6]. - Variability in income from year to year can complicate the determination of the current tax bracket, suggesting that analysis should be conducted later in the year for accuracy [7]. Future Tax Bracket - Estimating the future tax bracket is more complex due to uncertainties over decades, including changes in career, income, and tax laws [8]. - Despite the uncertainties, reasonable assumptions can still provide useful insights for planning [8]. Roth Conversion Considerations - Roth conversions may be beneficial if the current tax bracket is lower than the expected future tax bracket, although being in a high current bracket generally suggests that conversions may be less advantageous [5].

Tax Bracket Adjustments - The IRS adjusts tax brackets annually to account for inflation, preventing "bracket creep" [1][2] - Due to inflation adjustments and an increased standard deduction, taxpayers may pay slightly less in 2025 compared to 2024, even with the same income [3] Tax Benefits for Seniors - Seniors aged 65 or older receive a temporary $6,000 tax deduction in addition to the standard deduction for the years 2025-2028 [4] - The $6,000 deduction for seniors is phased out for individuals with income at $75,000 and couples at $150,000 [4] - Changes to Medicaid may impact seniors, potentially raising costs related to long-term care [5] State and Local Tax (SALT) Deduction - The SALT deduction has increased to $40,000 [5] - Taxpayers in states with high local and state taxes who itemize their deductions could significantly benefit from the raised SALT deduction [6][7] Tax Planning Strategies - Bunching deductions, such as charitable contributions, can help taxpayers exceed the standard deduction and maximize tax savings [8] - Bunching can also be applied to medical expenses to surpass the required percentage for write-offs beyond the standard deduction [9]

Core Insights - The IRS has released the 2026 tax brackets and standard deductions, which, while not changing marginal tax rates, could significantly impact tax bills for high earners [1][8] - The income thresholds for the tax brackets have been adjusted upward for inflation, affecting taxable income calculations for high-income households [2][3] Tax Bracket Changes - The 2026 tax brackets show no change in marginal tax rates, but the income thresholds have increased due to inflation adjustments [2] - Taxable income is defined as gross income minus allowable deductions, which are also increasing in 2026 [3] Standard Deductions - The standard deduction for single taxpayers will rise from $15,750 in 2025 to $16,100 in 2026, while for married couples filing jointly, it will increase from $31,500 to $32,200 [3][6] Impact on High Earners - In 2026, a married couple with an adjusted gross income (AGI) of $1,000,000 will see a decrease in their tax bill from $282,407.50 in 2025 to $280,250.50 in 2026, resulting in a savings of $2,157 [6][7] - The increase in the standard deduction and adjusted tax brackets means that slightly more income will be taxed at lower rates [4][6]

Core Insights - Converting a 401(k) to a Roth IRA can be a beneficial strategy for tax-free growth and avoiding required minimum distributions (RMDs) [3][4] - It is advised to avoid converting the entire balance at once to prevent entering a higher tax bracket and increasing Medicare premiums [5][6] - Gradual conversions over several years can optimize tax liabilities and maintain lower tax brackets [6][7] Group 1 - Converting to a Roth IRA allows for tax-free growth and avoids RMDs, which can help reduce taxable income in retirement [3][4] - A full conversion of $1.6 million in one year could push an individual into the top tax bracket, leading to a tax rate as high as 37% [5][6] - Dividing the conversion into smaller amounts over several years can keep the individual in a lower tax bracket, potentially as low as 12% [6]