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.”
The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.
The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.
In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.
President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.
The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings.
Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.
Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.
Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed.
The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.
Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition.
Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time.
“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said.
One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load.
“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai.
Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies.
“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.
However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area.
“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai.
As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales.
“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai.
While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves.
“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”