Clients approaching retirement can delay their future required minimum distributions — and accompanying income taxes — until they’re 73 rather than starting them at 72, as was the rule prior to the Secure 2.0 Act. In 2033, the first RMDs will fall back to 75.
Those changes will help pre-retirees lock in more tax-advantaged investment gains in their individual retirement accounts and build more wealth apart from Social Security.
The bad news is that they face the potential for much higher taxes in the future if they wait that long to begin taking the distributions into their taxable income.
More financial advisors and tax professionals with clients who are eligible for penalty-free IRA withdrawals as young as 59½ years old are considering how the distributions can be a bridge to claiming Social Security benefits later and avoiding so-called stealth expenses, according to four experts who spoke with Financial Planning. The approaching end of the year and the current federal tax brackets mean that it’s an especially timely topic of discussion.
The later the clients claim Social Security, the higher their monthly payments will be in retirement. At the same time, those benefits draw taxes for higher-income households that are also subject to higher Medicare costs. If the clients have built up healthy nest eggs in their traditional IRAs, those assets pose a complex planning opportunity with some built-in risks that can make a major impact on their retirement.
Sarah Brenner is the director of retirement education with Ed Slott and Company.
Ed Slott and Company
“For a lot of people, their IRA is one of their biggest assets, if not their biggest asset,” Sarah Brenner, the director of retirement education with retirement consulting firm Ed Slott and Company, said in an interview. “It makes sense to use this taxable money earlier. It makes sense to use this money as a bridge.”
She and the other experts stressed that the bridge depends on any number of factors that are part of the retirement mix. The strategy also represents a departure from “the old regime,” which held that advisors and their clients should “defer, delay” and “wait until the bitter end” when they were obligated to receive the IRA distributions, according to Heather Schreiber, the founder of advanced planning consulting firm HLS Retirement Consulting.
“Now we’ve had to change our logic about that,” she said. “We have to think about shifting the mindset of people to say, ‘How do we take our assets in a way that’s the most tax-efficient?”
Advisors and their clients will be looking especially closely at four categories of numbers to figure out whether to use the bridge, with their cash flow needs being the first basic question.
They’ll need to know the size of their possible RMD — the quotient of their IRA balance divided by life expectancies issued by the IRS. Then they’ll weigh that amount against their Social Security benefit, which is based on their average earnings over as many as 35 years in the workforce and their timing for taking benefits as early as 62, at the full retirement age between 66 and 67, or as late as 70. That’s when there will no longer be an advantage to waiting to claim the benefits.
If those considerations weren’t enough, they’ll need to remember that roughly 40% of Social Security beneficiaries pay federal taxes on the payments they receive and those in some areas must pay state duties on them as well. At the federal level, as much as 85% of the benefits are taxable for individuals with more than $34,000 in “combined income” or joint filers with $44,000. Medicare adds another layer of questions, since any possible Income Related Monthly Adjustment Amounts (IRMAA) with their monthly premiums are tied to income as well.
Each of the permutations could look different through, say, converting the IRA to a Roth to avoid the question of RMDs entirely for the rest of the client’s life while also paying the taxes for the switch. A qualified charitable distribution from an IRA could provide another way around the additional income from the mandatory withdrawal.
Erin Wood is a senior vice president for financial planning and advanced solutions with Omaha, Nebraska-based registered investment advisory firm Carson Group.
Carson Group
The stealthiness of the tax and expenses comes from their interaction across income brackets, healthcare costs, RMDs and other areas, according to Erin Wood, a senior vice president for financial planning and advanced solutions with Omaha, Nebraska-based registered investment advisory firm Carson Group.
“All of these things end up being connected together,” she said. “It does surprise people if they’re in a different position than they thought they would be in.”
For some clients, unexpected health problems could put them in that type of bind in which they may need to tap the Social Security benefits right away, according to Valerie Escobar, a senior wealth advisor with Kansas City, Missouri-based advisory practice BMG Advisors. For others, they may wish to keep earning tax-free yield in their IRAs and claim benefits sooner as well, she noted. A third group could opt to use earlier withdrawals as a bridge to wait until 70 for Social Security to get the maximum benefits possible.
Valerie Escobar is a senior wealth advisor with Kansas City, Missouri-based advisory practice BMG Advisors.
Valerie Escobar
“I know that if I can wait as long as possible, then 8% growth is going to be credited to me,” Escobar said. “It is a way to offset the risk. You’re putting it on the government and not having to make it on your own investment dollars.”
In general, the last quarter marks a good time for completing any RMDs or other withdrawals or planning them for next year. The new rules under Secure 2.0 lent another reason for a fresh look at a clients’ options and mandates, according to Brenner.
“Roths are more important than ever,” she said. “They can access that completely tax-free during their retirement.”
The expiration date of many provisions of the Tax Cuts and Jobs Act of 2017 at the end of 2025 tacked on more incentive to convert to a Roth or take distributions under brackets that may revert to their previous, higher rates in 2026, Shreiber noted.
“Do you wait or do you take advantage?” she said. “These years — especially this year and next — are really pivotal opportunity years to consider doing that.”
The current lower rates may act as a “big, big savings opportunity to take advantage of now,” Wood agreed, noting that another shift in IRA guidelines from Secure 2.0 in 2025 and beyond will give clients between the ages of 60 and 63 a chance to make larger so-called catchup contributions to their accounts. Those “can be gold mines for getting extra money saved as well,” but advisors and their clients must find the right balance with their future taxes, she said.
“How much income you have in every given year is the difference between being in a higher tax bracket and a lower tax bracket and what level your Social Security is going to be taxed at as well,” Wood said.
All of the experts pointed out that clients could get a double whammy from higher taxes and lower benefits by claiming Social Security while still working full- or part-time. The significant hit to benefits offers another rationale for using the bridge strategy to claim later or simply to think through the RMDs far in advance.
“It gives you much more flexibility,” Escobar said. “It allows your model to be able to have more options when you’re planning it all out for your clients.”
Advisors should guide clients through the decision about when to take IRA distributions and claim Social Security by assisting them in avoiding two of the most common mistakes, according to Shreiber.
The first comes from underestimating how long they’ll live in general and in retirement. The second revolves around the possible negative impact of a “widow’s penalty” in the form of “substantially lower income” for a surviving spouse when there is a significant disparity between their earnings and ages and the older one took Social Security benefits early, she said.
Heather Schreiber is the founder of HLS Retirement Consulting.
HLS Retirement Consulting
Talking to clients early and often about the bridge strategy and other tools that may be at their disposal in their retirement can set them up for financial security down the line.
“I tell advisors all over the country that consumers need them — they need them as their advocates on this. They go to Social Security and oftentimes come out more confused than they went,” Shreiber said. “They need help. They really need advocates, and they’re searching for them. So this is an opportunity for advisors to really help their clients by getting more educated about Social Security.”
President Donald Trump called on members of his party to unite behind his economic agenda in Congress, putting pressure on factions of lawmakers who are calling for last-minute changes to the legislation to drop their demands.
“We don’t need ‘GRANDSTANDERS’ in the Republican Party,” Trump said in a social media post on Friday. “STOP TALKING, AND GET IT DONE! It is time to fix the MESS that Biden and the Democrats gave us. Thank you for your attention to this matter!”
Trump sent the post from Air Force One after departing the Middle East as the House Budget Committee was meeting to approve the legislation, one of the final steps before the bill can move to the House floor for a vote.
House Speaker Mike Johnson has set a goal to pass the bill next week before the House recesses for its Memorial Day break.
However, the the bill failed the initial committee vote — typically a routine, procedural step — with members of the party still sparring over the scope of the cuts to Medicaid benefits and how much to raise the limit on the state and local tax deduction.
Narrow majorities in the House mean that a small group of Republicans can block the bill. Factions pushing for steeper Medicaid cuts and for an increase to the SALT write-off have both threatened to defeat the bill unless their demands are met.
“No one group gets to decide all this stuff in either direction,” Representative Chip Roy, an ultraconservative Texas Republican advocating for bigger spending cuts, said in a brief interview on Friday. “There are key issues that we think have this budget falling short.”
Trump’s social media muscle and calls to lawmakers have previously been crucial to advancing his priorities and come as competing constituencies have threatened to tank the measure.
But shortly after Trump’s Friday post, Roy and fellow hardliner Ralph Norman of South Carolina appeared unmoved — at least for the moment. Both men urged continued negotiations and significant changes to the bill that could in turn jeopardize support among moderates.
“I’m a hard no until we get this ironed out,” Norman said. “I think we can. We’ve made progress but it just takes time”
While CPA firms far and wide have made major technology investments over the years, the vast majority of accountants say they’re not being used to their full potential.
This finding comes from a recent survey undertaken by CPA.com and payment solutions provider Bill. The 400-person poll found that nearly all respondents, 97%, say they use technology inefficiently and that additional training is needed to maximize return on investment. Further illustrating the point, 43% of respondents said that technology is making them do more manual work, not less, something. Becky Munson, an Eisner Amper partner specializing in outsourced accounting services, believes this reflects a failure of training and change management, as she has seen many who disliked a technology change develop manual workarounds specifically to avoid using the new solutions.
“We see employees make workarounds with tech stacks, which makes headaches that I think align with this 43%. We train people on new things, we ask them to use them, and they keep doing what they were doing before and only use the technology as much as they have to [in order to] move things along while you have people well trained on the software keeping up,” she said in a webcast on Thursday about the survey.
Ariege Misherghi—senior vice president and general manager of accounts payable, accounts receivable and the accountant channel—said the issue isn’t just because of firms but also vendors that don’t provide enough support, and may not necessarily understand the profession in the first place.
“Too often I think tools aren’t fully aligned with the workflows they’re meant to support. In SaaS they talk about product-market fit, but in this profession it’s not just that but also product-firm fit, and maybe product-profession fit. Not every tool marketed to accountants was built by people who truly understand how this profession works: the rhythms, the regulations, the stakes, the relationships, all of that. And even the greatest tools can fall short if they’re not implemented with a deep understanding of how firms really operate,” she said.
And sometimes the inefficiencies come from both sides at once: the survey found that only 37% of firms require clients to use their tech stack, something that Munson said “breaks my heart” as “it is so low.” A streamlined, established tech stack is needed to achieve true economies of scale, but to get there firms need to standardize their data, and to do that firms need to make sure their clients’ data is also standardized, which usually means integrated tech stacks.
“If you have all these different clients with all these different technologies, even if your own tech stack is standardized the systems they use is different, so the kind of data you will get will be different, and the work you need to do to make it work with your data is different, and your team spends a lot of time spinning their wheels,” she said. “Once you get standardized, where everything back and forth from clients is the same, you get to see how well the teams can do their work.”
One source of inefficiencies is a rushed implementation. Munson said that, too many times, firms are so eager to get a solution working that they don’t pay attention to all its capacities, just the ones they need right now, but once the basics are down firms still don’t circle back on the rest of the features and how they can be used to drive efficiency.
“Most of us have been through an implementation, either in the practice or with a client, where you’re just like ‘anything to get it working. Forget about all the fancy things it does. We just needed to do the basics right,’ and then we never circle back on those better, more efficient processes. We get to sort of minimal viable, and then we forget to come back and give it an extra polish. And so what we see there is the processes get written for that basic piece, and we never update,” she said.
But this is part of what both speakers believed was the larger problem of firms getting lost in the details of their tech stacks and not taking a broader, more holistic approach, which would enable more efficiencies. The key component to managing technology effectively, Munson said, is looking not at individual solutions here and there but thinking of the system as a whole.
“Often, what happens is something’s wrong or something is troublesome in some way. And so [we say] what can we do to fix that one thing? And we don’t think about it holistically and get all the right folks in there so that we’re solving for the right pain points,” she said.
Misherghi agreed, and added that this holistic extends not only to the technology a firm already has but the solutions they plan to purchase in the future. When evaluating what technology they need, she said leaders need to think not in terms of specific point solutions to particular problems but things that can support the entire workflow—plus, the onboarding, training and ongoing support from the vendor.
“Don’t just look for features, right? Look for solutions that support your workflows from providers that understand you. For firms, onboarding and training and optimization can’t be an afterthought. They’re essential to realizing value. I think this is where vendor partnerships matter. Firms seeking the strongest results aren’t just using software, they’re collaborating with their providers, they’re staying educated, they’re making sure their tools evolve alongside their needs. The best outcomes happen when your technology partner acts like part of your team, not just part of your toolkit,” she said.
Misherghi said that the more successful firms she’s seen think less in terms of performing particular tasks but designing an entire system that, through automation, can do those tasks for them. It is less about plugging holes and more about developing a full infrastructure. The survey found that 74% of participants have a detailed plan to add new services in the next 12 month; Misherghi noted that, among these firms, 86% have a detailed technology roadmap, which is “a wonderful mark on the evolution of the profession we’re seeing.”
She said a good tech roadmap is more like a service design blueprint versus a shopping list. Successful firms, she said, are not just chasing features but designing intentional workflows and systems capable of scalable service delivery. Similarly, she stressed that the provider should be more than just a vendor but a strategic co-architect that can help with growing pains.
Misherghi said this approach will become especially relevant as AI becomes more common, as integrations will be key to their effective use, which means thinking in terms of the whole system to understand where those integrations should take place. Right now, she said, people think of AI in terms of analyzing data or extracting fields, but with the rise of AI agents will require firms to focus more on coordinating between them.
“I think the next big leap is when those systems don’t just talk to each other, they act on each other’s behalf. I think the next big inflection point will be moving from automated steps to autonomous workflows, where AI agents aren’t just analyzing data or extracting fields but actually orchestrating tasks across tools based on firm policies and context and that will change the role of the accounting profession: its less time doing the work and more time designing the system for how everything works together. So the firms that will be thriving are those who are building strong infrastructure now because that is what AI needs to deliver on its core value,” she said.
A key House committee on Friday failed to advance House Republicans’ massive tax-and-spending bill after hard-line conservatives bucked President Donald Trump and blocked the bill over cost concerns.
The House Budget Committee rejected the bill 21-16, with Republican Reps. Chip Roy, Ralph Norman, Josh Brecheen, and Andrew Clyde joining Democrats to vote against it. The four hardliners demanded deeper cuts to Medicaid and other government programs.
It’s incredibly rare for bills to fail at this step in the process, with the committee vote typically serving as a rubber-stamp to the bill before it moves to the House floor.
Rep. Chip Roy
Stefani Reynolds/Photographer: Stefani Reynolds/B
The setback could be temporary and the panel can still approve the bill once the GOP differences are resolved.
Republican Lloyd Smucker, who switched his vote to “no” to allow the committee to bring it up again, told reporters the committee will hold another vote on Monday.
Trump, whose social media muscle and calls to lawmakers have previously been crucial to advancing his priorities, inserted himself in the debate less than two hours before the vote, berating dissidents and urging them to fall into line.
“We don’t need ‘GRANDSTANDERS’ in the Republican Party,” Trump said in a social media post on Friday. “STOP TALKING, AND GET IT DONE! It is time to fix the MESS that Biden and the Democrats gave us. Thank you for your attention to this matter!”
The bill’s failure exposes the power a small group of lawmakers can wield as Republicans seek to push Trump’s “one big, beautiful bill” through the House with very narrow margins. GOP infighting threatens to kill the bill, or at least significantly delay Republicans’ plans to pass the bill next week.
Republican holdouts spelled out their demands during Friday’s committee meeting, including accelerating new work requirements for able-bodied adults on Medicaid to take effect immediately rather the 2029 deadline set in the legislation. The ultraconservatives also want a faster phase-out of clean energy tax credits.
It wasn’t immediately clear how House Republicans will re-group to address the divisions and advance the bill.
“I’ll let you know this weekend if we’re going to return first thing Monday. That’s the goal at this point,” Budget Chairman Jodey Arrington said after the vote.
House Majority Leader Steve Scalise, who is helping to broker a deal among Republicans, said party leaders are in touch with the Trump administration to address some of the changes demanded by hardliners.
“We are all in agreement on the reforms we want to make,” Scalise said. “We want to have work requirements. We want to phase out a lot of these green subsidies. How quickly can you get it done?”
House Speaker Mike Johnson on Thursday pledged he would work through the weekend to broker a compromise between moderates, who are seeking an increase in state and local tax deductions, and ultra-conservatives, who say they won’t support it without more spending cuts.
Members from both factions — the SALT Republicans representing high-tax districts and the fiscal hawks who want steeper budget reductions — have threatened to block the bill if House leaders don’t acquiesce to their demands.
“No one group gets to decide all this stuff in either direction,” Roy, an ultraconservative Texas Republican advocating for bigger spending cuts, said in a brief interview on Friday. “There are key issues that we think have this budget falling short.”
Both Roy and Norman urged continued negotiations and significant changes to the bill that could in turn jeopardize support among moderates.
“I’m a hard no until we get this ironed out,” Norman said. “I think we can. We’ve made progress but it just takes time.”
If the legislation passes the House, it would then head to the Senate where it would likely undergo significant changes. Several members, including Senator Josh Hawley of Missouri, have stated opposition to the Medicaid cuts in the House bill.