Most retirees know that required minimum distributions exist. Fewer understand how significant a tax event they can become — particularly for those who've done everything right: maximized contributions to 401(k)s and IRAs for decades, stayed invested through market cycles, and arrived at retirement with a portfolio worth celebrating.

Here's the uncomfortable truth: the IRS has been your silent co-owner in that pre-tax retirement account the entire time. RMDs are how they eventually collect. And if you have a large IRA, they can collect quite a bit — often at the worst possible time, stacked on top of Social Security income, pension payments, and investment distributions you were already managing.
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The good news is that RMDs are not a surprise. They follow a predictable schedule. That predictability is actually an advantage — if you start planning well before age 73, you have meaningful options to reduce what you'll owe.

Required minimum distributions are mandatory annual withdrawals from pre-tax retirement accounts — traditional IRAs, 401(k)s, 403(b)s, SEP IRAs, and most other employer-sponsored plans. Under SECURE 2.0 legislation, RMDs begin at age 73 for most people (rising to 75 for those born in 1960 or later).
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The amount you must withdraw each year is calculated by dividing your account balance by an IRS life expectancy factor from the Uniform Lifetime Table. As your account grows and the divisor shrinks each year, your RMD grows too — often faster than people expect.

For a retiree with a $2 million IRA, that 3.77% means roughly $75,000 in required withdrawals in year one alone — whether you need the money or not. Over time, that number compounds. By age 80, the required percentage climbs above 5%. By age 85, it can exceed 6.5%.
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For clients in our practice with large pre-tax balances, this isn't just a tax line item. It's a structural planning problem that intersects with nearly every other part of their financial life.

At that income level, this couple is firmly in the 22% but the dollar amount of tax paid only tells part of the story. Here are the second-order consequences that often catch retirees off guard:

Medicare IRMAA Surcharges
Medicare Part B and Part D premiums are income-tested. A single RMD that pushes your income over an IRMAA threshold can increase your annual Medicare costs by $1,000 to $5,000 per person — sometimes more. These thresholds are based on income from two years prior, which means you may not feel the impact until it's already locked in.

Social Security Taxation
Up to 85% of Social Security benefits become taxable once combined income crosses certain thresholds. For most HNW retirees, this threshold was crossed long ago — but RMDs can further amplify the effect by pushing more ordinary income into higher brackets.

Net Investment Income Tax (NIIT)
If your MAGI exceeds $250,000 (MFJ), your investment income — dividends, capital gains, rental income — may be subject to an additional 3.8% NIIT on top of regular capital gains rates. RMDs can push you over this threshold even in years when your investment income alone wouldn't.

Complaining about RMDs without a plan is just noise. Here are the strategies we use most often with clients who have large pre-tax balances and want to manage this proactively.

1) Roth Conversions Before Age 73
The most powerful tool in the pre-RMD window.

Every dollar you convert from a traditional IRA to a Roth IRA today is a dollar that will not be subject to an RMD tomorrow. Roth IRAs have no required minimum distributions for the original account owner during their lifetime, and growth inside the account is tax-free.

The optimal window for Roth conversions is typically between the year you retire and age 73 — a period when your income often dips below your working-years level, creating room in lower brackets to convert at a lower effective rate than you'd face once RMDs begin stacking on top of other income.

For a retiree with a $1.5 million IRA at age 65, converting $80,000–$100,000 per year over eight years can reduce projected RMDs by 40–50% and save six figures in lifetime taxes. The exact amount to convert each year depends on current bracket, projected future income, cashflow needs, Medicare thresholds, and the makeup of the rest of the portfolio.

2) Qualified Charitable Distributions (QCDs)
Satisfy your RMD while eliminating the income.

If you are 70½ or older and charitably inclined, a qualified charitable distribution is one of the most tax-efficient moves available. A QCD allows you to transfer up to $111,000 per person, per year (2026 limit, indexed for inflation) directly from your IRA to a qualified charity. The distribution counts toward your RMD but is excluded entirely from your taxable income.

Compare this to the alternative: taking your RMD as a distribution, paying ordinary income tax on it, then making a charitable contribution and hoping to itemize. For most retirees taking the standard deduction, the deduction provides no tax benefit — but the QCD delivers one regardless.

Critically, the QCD must go directly from the IRA custodian to the charity. You cannot take the distribution yourself and then donate it. If you are interested in using this strategy, the mechanics matter — it needs to be set up correctly.
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3) Portfolio Structure and Asset Location
Reduce the balance driving future RMDs.

The smaller your pre-tax IRA balance when RMDs begin, the smaller your RMDs will be. This sounds obvious, but it has meaningful implications for how to structure a portfolio in the decade leading up to age 73.

One approach is to intentionally spend down pre-tax accounts in early retirement before RMDs begin — covering living expenses from the IRA rather than a taxable brokerage account, even if it means paying some tax now. In many cases, paying a moderate rate today beats being forced to pay a higher rate later when Social Security, pensions, and investment income are all present.

Asset location also matters: holding slower-growing assets (bonds, stable income) inside the IRA and higher-growth assets (equities) in Roth or taxable accounts can reduce the future pre-tax balance growth rate, while allowing tax-free growth to compound on the Roth side.

One aspect of RMD planning that has become considerably more complex — and more urgent — since the SECURE Act of 2019 and its follow-on rules is the inherited IRA landscape. Prior to SECURE, most non-spouse beneficiaries could "stretch" inherited IRA distributions over their own life expectancy, allowing decades of continued tax-deferred growth. That option is largely gone.
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Today, most non-spouse beneficiaries are subject to a 10-year rule, requiring the entire inherited IRA to be distributed within 10 years of the original owner's death. For high-income adult children inheriting large IRAs, this can create a significant and compressed tax event.

RMD planning is not a one-time conversation — it's an ongoing process that starts ideally five to ten years before RMDs begin. If you are in your 60s and haven't addressed this yet, here are the most important questions to bring to your advisor:

What is my projected RMD at age 73 based on current account growth assumptions?
Running this projection forward gives you a clear picture of the size of the problem — and the runway you have to address it.

What Roth conversion amounts would keep me within my current bracket or below key IRMAA thresholds?
The answer changes every year based on income, bracket adjustments, and account performance. Annual calibration matters.

Am I giving to charity in a way that could be restructured as a QCD?
Many retirees are writing checks to their church, alma mater, or favorite nonprofit every year without realizing the same dollars could come from the IRA tax-free.

How is my portfolio structured, and are the right assets in the right accounts?
Asset location is a low-visibility lever that can meaningfully affect long-term tax efficiency without changing what you own — only where you own it.

Who are my IRA beneficiaries, and do the designations still reflect my intentions?
​Beneficiary designations override wills. They should be reviewed regularly, and the inherited IRA rules need to be understood by both you and your heirs.

RMDs are not a crisis — but they can become one if you arrive at age 73 with a large pre-tax balance, no strategy in place, and suddenly find yourself with taxable income that exceeds what you expected, pushes you into a higher bracket, triggers Medicare surcharges, and leaves less flexibility than you imagined.

The retirees who handle this well are not the ones who ignored it. They're the ones who sat down with a fee-only fiduciary advisor in their early-to-mid 60s, ran the projections, understood the trade-offs between converting now versus paying later, and made deliberate choices about how to structure their income in retirement.
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That window — between retirement and RMD age — is finite. Once RMDs begin, your options narrow considerably. But if you're reading this before they start, you still have time to act.

At what age do required minimum distributions begin?
Under current law (SECURE 2.0), required minimum distributions begin at age 73 for most retirement account holders. The RMD age is scheduled to increase to 75 for those born in 1960 or later.

Can I reduce or avoid Required Minimum Distributions?
You cannot entirely eliminate Required Minimum Distributions (RMDs) from traditional IRAs or 401(k)s without fully liquidating or converting the accounts. However, a total elimination isn't always optimal—especially if you are charitably inclined, as you will want to preserve pre-tax assets to fund tax-free Qualified Charitable Distributions (QCDs).

What is a Qualified Charitable Distribution (QCD) and how does it work?
A QCD is a direct transfer from your IRA to a qualified charity. If you are 70½ or older, a QCD counts toward your RMD but is excluded from your taxable income — up to $111,000 per person, per year (2026, indexed for inflation). The transfer must go directly from your IRA custodian to the charity; you cannot receive the funds first and then donate them.

How does a Roth conversion reduce future RMDs?
Converting pre-tax IRA dollars to a Roth IRA reduces the balance in your traditional IRA, which directly lowers future RMD amounts. Roth IRAs are not subject to RMDs during the original owner's lifetime. The optimal time to convert is typically the period between retirement and age 73, when income is often lower and tax brackets are not yet fully stacked with RMD income.
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What happens to my IRA when I die — can my heirs stretch the distributions?
For most non-spouse beneficiaries, the SECURE Act of 2019 eliminated the "Stretch IRA" strategy. Most heirs are now subject to a 10-year rule, requiring the inherited IRA to be fully distributed within 10 years. Converting to a Roth IRA before death means heirs receive tax-free distributions over that 10-year window rather than taxable ones.

If your household has a high private-sector earner and a South Carolina state employee, you may be sitting on the most powerful tax deferral strategy available to any American family — and 2026's higher limits make it even better.​

Most high-earning families think about tax planning the same way: maximize the 401(k), fund the HSA, maybe do a backdoor Roth, and call it a year. And for a household where both spouses work in the private sector, that's roughly correct.
But for a specific and surprisingly common type of household — one where a high-earning spouse works in private industry while the other works for the State of South Carolina — the playbook is dramatically more powerful. In 2026, thanks to updated IRS limits from Notice 2025-67, we're talking about the potential to defer well over $75,000 of earned income from federal and state taxes every single year, sometimes reducing the state employee's take-home paycheck to near zero while the family lives comfortably on the other spouse's income.
This isn't a loophole. It isn't aggressive tax planning. It's exactly what Congress intended when it created separate retirement plan structures for the public sector. The families who know about it and execute on it build wealth at a pace that would make their purely-private-sector peers envious.

The ORP is a defined contribution 401(a) plan. Unlike a 401(k), contributions here aren't voluntary — they're mandatory and set by the plan. The employee contributes 9% of salary on a tax-deferred basis, and the employer remits 5% directly to the participant's State ORP account. Because these are mandatory contributions, they do not count against the IRS's elective deferral limit under IRC Section 402(g). They stack on top of everything else, subject only to the 2026 415(c) ceiling of $72,000 — up from $70,000 last year.

Employee: 9% of salary (mandatory)
Employer: 5% remitted to ORP account
2026 415(c) Ceiling: $72,000

Through PEBA's Deferred Compensation Program (administered by Empower Retirement), state employees can voluntarily defer income into a 401(k) plan up to the annual IRS elective deferral limit. Both traditional pre-tax and Roth options are available. The 2026 limit increased to $24,500 — up $1,000 from 2025. This is the plan most people are familiar with, but for state employees, it's only the beginning.

2026 Limit: $24,500
Age 50–59 / 64+ Catch-Up: +$8,000
Age 60–63 SECURE Act 2.0 Catch-Up: +$11,250

Here is where most financial plans fall short for state employees: the governmental 457(b). This plan carries its own completely independent IRS contribution limit under IRC Section 457(e)(15) — a limit that does not coordinate with the 401(k) at all. A state employee can max both in the same year, in full, simultaneously. The 457(b) limit also increased to $24,500 in 2026. Beyond the deferral opportunity, the 457(b) carries a unique advantage in retirement: distributions before age 59½ are not subject to the 10% early withdrawal penalty if you're separated from service (retired), making it an exceptional bridge asset for early retirees.

2026 Limit: $24,500 (fully independent of 401(k))
Age 50–59 / 64+ Catch-Up: +$8,000 (must be Roth if income >$150k)
Age 60–63 SECURE Act 2.0 Catch-Up: +$11,250 (can remain pre-tax)
No 10% early withdrawal penalty if separated from service

Starting January 1, 2026, employees who earned more than $150,000 in FICA wages from the same employer in the prior year must make their 401(k) age-based catch-up contributions as Roth (after-tax) rather than pre-tax. This applies to the 401(k) catch-up. Importantly, the 457(b) traditional catch-up is NOT subject to this requirement and can still be made pre-tax regardless of income level — an additional reason to prioritize the 457(b) for high earners.

Let's put real figures behind this. Assume the state employee spouse earns $85,000 per year — a reasonable salary for a teacher, university staff member, state agency employee, or public health professional in South Carolina.
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Adding the mandatory ORP contributions on top of the age 60–63 scenario pushes a single household's annual retirement savings to over $83,000 — a figure that would be impossible to approach through private-sector employment alone.

Here's where this becomes genuinely elegant for the right household. When a high-earning private-sector spouse — an attorney, physician, executive, engineer, or finance professional — brings in $250,000, $350,000, or more per year, the family's lifestyle does not depend on the state employee's take-home pay in the slightest.

That creates a rare and powerful opportunity: the state employee's paycheck can be directed almost entirely into retirement accounts. After mandatory ORP contributions (which come out automatically at 9%), the employee elects maximum 401(k) and 457(b) deferrals through payroll. The result is a take-home paycheck that may be a few hundred dollars — or in some cases, essentially zero — while every earned dollar is either in a retirement account or covering mandatory deductions like health insurance premiums.

Spouse A is a medical device sales representative earning $310,000 in W-2 compensation. Their employer's 401(k) is maxed at $24,500 for 2026.

Spouse B is a public school teacher earning $72,000, enrolled in the State ORP. She elects maximum contributions to both the 401(k) and 457(b) through the SC Deferred Compensation Program. At age 44, she is below the catch-up threshold.
After mandatory ORP contributions (9% = $6,480) and voluntary 401(k) and 457(b) deferrals ($24,500 each), Spouse B's net paycheck is reduced to near zero. The family lives on Spouse A's income, which is more than sufficient.

Combined Household Pre-tax Retirement Contributions That Year:
$24,500 (Spouse A's 401k) + $6,480 (Spouse B's ORP employee) + $3,600 (Spouse B's ORP employer) + $24,500 (Spouse B's 401k) + $24,500 (Spouse B's 457b) = $83,580 total, of which $79,980 is the family's own earned income redirected into retirement accounts.
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At a combined marginal federal rate of 32–35% and South Carolina's 6.4% state income tax rate, this household is deferring approximately $30,000–$36,000 in taxes per year — money that stays invested and compounding rather than flowing to the IRS.

The entire premise of a traditional tax-deferred retirement account rests on a simple bet: that your tax rate in retirement will be lower than your tax rate today. For high-earning households in their prime working years, that bet is almost always correct and often dramatically so.

Working Years — Tax Rate Today: 32-37%
Combined household income pushes the family into the top federal brackets, plus South Carolina's 6.4% flat state income tax rate. Every pre-tax dollar deferred saves real money today.

Retirement - Tax Rate Later: 12-22%
Retirement income is controlled and flexible. With no W-2 income, the family draws from accounts strategically — often at rates a fraction of what they paid during their working years.

The spread between those two rates is the family's permanent gain. It doesn't disappear. It doesn't get clawed back. Every dollar deferred at 35% and withdrawn at 15% represents a permanent 20-cent-per-dollar benefit — in addition to decades of tax-deferred compounding growth inside the accounts.

For a household deferring $75,000 per year over 20 working years — and earning a conservative 7% annually inside those accounts — the result is a retirement account balance well into eight figures, most of it having never been touched by the IRS during the accumulation phase.​

Option A: State ORP (401a) + Full Voluntary Deferral Stack
Employees who opt into the State ORP trade the defined benefit pension (SCRS) for a portable, self-directed defined contribution account. In exchange, they gain full control over their investments and the ability to pair the ORP with the complete 401(k) and 457(b) deferral stack. For younger employees with long time horizons and high household income, this is typically the stronger wealth-building path. ORP balances are immediately vested and fully portable if the employee ever leaves state employment — a significant advantage for those who may not stay in public service for an entire career.

Option B: SCRS Pension + Voluntary Deferral Stack
Employees who remain in the South Carolina Retirement System (SCRS) receive a defined benefit pension — a guaranteed lifetime monthly income in retirement calculated using average final compensation, years of service, and a 1.82% benefit multiplier. Critically, SCRS members can still participate in the SC Deferred Compensation Program and contribute to both the 401(k) and the 457(b). The voluntary deferral opportunity is the same; what changes is the foundation underneath it. For employees with long projected tenure, older entry ages, or a strong preference for guaranteed lifetime income, SCRS may be the better primary plan — with the full voluntary deferral stack layered on top regardless.

The right choice depends on age, years of service, projected retirement date, risk tolerance, household income mix, and how a pension income stream fits into the overall retirement plan. It is one of the most consequential elections a state employee will ever make, and it deserves careful, individualized analysis — not a default decision made at new hire orientation under time pressure.

​The most common mistake we see is partial participation. The state employee maxes the 401(k) — because that's the plan everyone's heard of — and ignores the 457(b) entirely. In doing so, they leave $24,500 of deferral capacity (plus catch-up, if eligible) on the table every single year. Over a 20-year career, that's a six-figure missed opportunity in tax savings alone, before counting the investment growth lost inside those accounts.

The second most common mistake is treating these decisions in isolation from the household's overall tax picture. The private-sector spouse's income, their employer plan, the potential for backdoor Roth contributions, the timing of Roth conversions in future low-income years — all of these interact. The state employee's plan stack is powerful on its own, but it reaches its full potential when integrated into a coordinated household tax strategy built around your specific income trajectory and retirement timeline.

The third mistake: waiting. New state employees have just 30 days from their hire date to choose between SCRS and State ORP. That decision is largely irrevocable. Getting it right at the start — ideally with professional guidance before the clock starts running — is far easier than trying to correct it later during the narrow annual open enrollment window.

​South Carolina state employment isn't typically associated with high compensation — and that reputation is often fair. But for the right household, the benefits side of the ledger is exceptional. The combination of a 401(a), 401(k), and 457(b) creates a deferral opportunity that no private-sector employee can match, and when paired with a high-income spouse who funds the family's lifestyle, it produces a tax outcome that even sophisticated families find remarkable the first time they see it modeled out.

This is exactly the kind of planning we do at Oak Street Advisors — not just reviewing your investment accounts, but building a strategy around every income source, every account type, and every tax lever available to your household. If your family fits this profile, or you suspect you're leaving deferral capacity on the table, the conversation is worth having.

​Oak Street Advisors is a fee-only fiduciary RIA serving high-earning families in Mount Pleasant, Myrtle Beach, and across South Carolina. We specialize in tax planning for  retirees and HENRYs — and we never earn commissions or sell products.

Disclosure: This content is for informational and educational purposes only and does not constitute personalized investment, tax, or legal advice. Contribution limits referenced are for the 2026 tax year per IRS Notice 2025-67 and are subject to change. SC PEBA contribution rates are sourced from PEBA's fiscal year 2026 publications and are subject to change by the South Carolina General Assembly. The scenarios presented are hypothetical and for illustrative purposes only; individual results will vary. Investment returns are not guaranteed. Oak Street Advisors is a Registered Investment Advisor, currently registered with the SEC as of March 2026. Please consult a qualified financial and tax professional before making retirement plan decisions.

For savvy investors and financial advisors, navigating the complexities of retirement planning often involves strategic maneuvers to optimize tax efficiency. Among these, the "Reverse Rollover" stands out as an exceptionally powerful, yet often underutilized, technique to convert non-deductible IRA contributions into a tax-free Roth IRA. If you’ve made after-tax contributions to a Traditional IRA and are now facing substantial growth, this strategy could be your key to unlocking a truly tax-free future.

Before diving into the solution, it’s crucial to grasp the hurdle: the IRS’s Pro-Rata Rule. Imagine your Traditional IRA as a cup of coffee. The "coffee" represents your pre-tax contributions and accumulated earnings, while the "cream" symbolizes your non-deductible (after-tax) contributions. If you want to convert a portion of this mix to a Roth IRA, the IRS mandates that you must take a proportional "sip" of both the taxable coffee and the non-taxable cream. You can’t just extract the cream without also taking some coffee, making a fully tax-free conversion of your basis impossible if pre-tax dollars remain.

This is where many investors get stuck. They have faithfully made non-deductible contributions, filed Form 8606 to track their basis, but then see their IRA grow significantly. A direct Roth conversion would force them to pay taxes on a substantial portion of that growth, diminishing the benefit of their after-tax contributions.

This is where the genius of the Reverse Rollover comes into play. It’s a sophisticated maneuver designed to isolate your non-deductible contributions (the "cream") from your pre-tax growth (the "coffee"). The strategy involves two critical steps:

1. Transferring Pre-Tax Assets to a Qualified Plan: The first step is to roll over the pre-tax portion of your Traditional IRA (the original deductible contributions and all accumulated earnings) into a qualified employer-sponsored plan, such as a 401(k), 403(b), or 457(b). Many modern employer plans are set up to accept "incoming rollovers" from IRAs. This is a non-taxable event, as you are simply moving tax-deferred money from one tax-deferred bucket to another.

Crucially, IRS regulations (specifically Internal Revenue Code Section 408(d)(3)(A)(ii)) prohibit rolling after-tax contributions (your basis) into an employer-sponsored plan. This legal constraint is the linchpin of the strategy: it forces your non-deductible "cream" to remain behind in the Traditional IRA.

2. Converting the Isolated Basis to a Roth IRA: After the pre-tax funds have been successfully moved out, your Traditional IRA will contain only the non-deductible contributions (your "cream"). At this point, the cup is now full of just cream. When you convert this remaining amount to a Roth IRA, the conversion is entirely tax-free, because you are only moving money that has already been taxed. There’s no "coffee" left to trigger the Pro-Rata Rule.

To ensure a smooth and tax-efficient Reverse Rollover, keep the following in mind:

• Tracking Basis (Form 8606): You must have meticulously tracked your non-deductible contributions by filing Form 8606, Nondeductible IRAs, for every year such contributions were made. This form is your official record proving your after-tax basis to the IRS.  
• Employer Plan Acceptance: Verify that your employer's 401(k) (or other qualified plan) accepts "incoming rollovers" from Traditional IRAs.  
• Timing: The IRS looks at your aggregate IRA balances on December 31st of the year you perform the Roth conversion. Ensure all pre-tax funds are out of your IRAs before this date for the year of conversion.  
• Small Residual Amounts: Be aware that tiny amounts of interest or dividends might accrue in the IRA between the rollover and the conversion. While these would be taxable, they are typically negligible and won't undermine the overall strategy. ​
• Professional Guidance: This is a sophisticated strategy. Consulting with a qualified financial advisor or tax professional is highly recommended to ensure proper execution and compliance with all IRS regulations. They can help with IRA aggregation rules, tax reporting, and overall financial optimization.

​The Reverse Rollover is a prime example of how strategic financial planning can significantly impact your long-term tax burden. For those with substantial non-deductible IRA contributions and a desire for tax-free retirement income, understanding and implementing this strategy can be a game-changer. Don't let the "coffee" obscure the "cream" – use the Reverse Rollover to clarify your path to a truly tax-advantaged retirement.

• Reassess eligibility based on 2026 income projections
• Estimate income conservatively to reduce repayment risk
• Stay proactive in reporting income changes to the Marketplace
• Explore employer coverage or off-Marketplace plans if subsidies disappear

 
The "Big Beautiful Tax Bill" marks a return to pre-pandemic ACA norms, removing many consumer-friendly enhancements that expanded access and affordability. Individuals and families who have come to rely on the broader safety net provided by recent expansions should begin preparing now for a less generous subsidy environment in 2026

One of the most notable changes is the expiration of the expanded eligibility that had been temporarily implemented under the American Rescue Plan Act and extended by the Inflation Reduction Act. These laws had removed the upper income limit (previously 400% of the Federal Poverty Level or FPL), enabling more middle- and upper-income households to qualify for PTCs. Starting in 2026, the PTC will once again only be available to those earning between 100% and 400% of the FPL.​

As a fee-only, fiduciary financial planning firm specializing in comprehensive tax planning, we are uniquely positioned to help clients and prospects navigate these upcoming changes to Premium Tax Credits. Our dynamic income withdrawal strategies allow us to carefully manage taxable income levels in retirement and pre-retirement years—helping clients remain under key subsidy thresholds while still meeting their spending needs.

WE WORK CLOSELY WITH CLIENTS TO:

• Strategically time Roth conversions, capital gains harvesting, and IRA withdrawals to optimize PTC eligibility
• Minimize long-term tax liabilities through multi-year tax projections
• Avoid costly IRMAA surcharges on Medicare premiums with proactive income management
• Analyze the trade-offs between ACA subsidies, Social Security timing, and other tax-sensitive decisions​

If you're concerned about losing access to Premium Tax Credits or facing larger healthcare premiums, our team can develop a personalized plan to help maintain your coverage affordability while staying on track toward your long-term financial goals.

The recently passed “Big Beautiful Bill” (BBB) includes a provision creating a so-called “Trump Account” for all U.S. citizens born between 2025 and 2028. Each eligible child will receive a $1,000 contribution from the government, which must be invested in an index fund tracking the broad stock market, such as the S&P 500.

These accounts can also be opened for any child under age 18, but they will not receive the $1,000 starting deposit from Uncle Sam.

Parents are allowed to contribute up to $5,000 per year on behalf of the child. However, due to the account’s tax treatment, this is unlikely to be a smart financial move.

HERE'S HOW THE RULES WORK:

• At age 18, the child can withdraw up to half of the account balance, but only for qualified purposes such as college education, purchasing a home, or starting a business.
• At age 30, there are no restrictions on withdrawals. However, only withdrawals used for qualified purposes will be taxed as long-term capital gains. Any other use will be taxed as ordinary income.

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And there’s the catch: the account is never truly tax-free. Withdrawals are either taxed as earned income or taxed at the (currently) lower long-term capital gains rate if used for qualified expenses.

This raises an important question:

Why would a parent contribute to this account rather than keep the money in a standard taxable investment account, which would almost certainly qualify for long-term capital gains treatment upon sale?

Given that the account only offers broad market index funds—already highly tax-efficient investments—there seems to be little incentive to lock up funds in this restrictive account when a parent could instead retain full control and flexibility in a regular brokerage account.

Using historical data, the S&P 500 has averaged approximately 10% annual returns over the long term. Adjusting for average annual inflation of roughly 2.5%, the real annual return is closer to 7.5%.

Using the compound interest calculator at investor.gov, here’s what happens to the initial $1,000 government contribution:
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• At age 18, it would grow to about $3,675.80 in today’s dollars. With half available for qualified expenses, that’s $1,837.90—barely enough to cover a semester or two of textbooks, let alone meaningfully contribute toward buying a home or launching a business.
• By age 30, the account would grow to approximately $8,754.96 before taxes. Helpful, but far from life changing.
• If left untouched until retirement at age 65 the balance adjusted for inflation could grow to just over $110,000

One provision in the bill does stand out: employers can contribute up to $2,500 per year income tax-free.
For self-employed parents, this creates a potential tax planning strategy:
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• Parents who employ their children for legitimate business work can contribute up to $2,500 to the child’s Trump Account.
• Currently, no earnings requirement applies to employer contributions. Even if a child earns only $600 for the year, parents can still contribute the full $2,500.
• These contributions are not treated as wages, meaning no income tax, Social Security tax, or Medicare tax is due on those dollars. 

For the right family business situation, this provision could generate significant tax savings, allowing parents to shift income to their child’s account and potentially benefit from the child’s lower tax bracket when withdrawals are made; however, in the end any withdrawal will be subject to income tax as either ordinary income or long-term capital gains at the child’s rate in the year withdrawn.

​While the initial $1,000 government gift is a nice gesture, parents should think carefully before making additional contributions. The account’s restrictive withdrawal rules and its tax treatment make it far less attractive than a standard taxable investment account. However, self-employed parents may find valuable tax planning opportunities by leveraging the employer contribution provision.

Okay, is it all right to start panicking now?

Many investors are asking themselves this question as the markets go through another bumpy ride. Market pundits who, just a few weeks ago were telling us that there would be a market surge, are now predicting a bearish decline. Others are saying the obvious: companies and traders don’t like the anticipated effect of new tariffs on the American business community.

The tariffs are the story of the day, as they basically throw sand in what had been smoothly-functioning global supply chains for U.S. manufacturers. The long-term goal is to make it painful for manufacturing companies to outsource work to other countries, and (secondarily) to make American-manufactured goods cheaper compared with tariff-ed imported products. We can’t know what the longer-term impact will be, but companies like Apple, Nike, Ford and General Motors, are suddenly looking at higher costs, diminished profits and perhaps also lower sales in the short term. Adding to the uncertainty is the fact that virtually all of the countries targeted with new tariffs are contemplating what must be plainly named as revenge duties on American goods and services.

Interestingly, the actual tariff calculation on the U.S. side seems not to be precisely targeted at manufacturing, but a somewhat simplistic formula where the U.S. trade deficit with another country is divided by that country’s exports to the U.S. As an example cited by one economist, the U.S. experienced a $17.9 billion trade deficit with Indonesia last year, and Indonesia exported $28 billion worth of goods and services to the U.S. market. Divide $17.9 by $28 and you come up with the shockingly enormous 64% additional tariff announced on Indonesian imports.

For most investors, the fine details are irrelevant; market downturns cause a sinking feeling in the pit of the stomach that is one part fear, one part dread, and one part an unhappy calculation that 2% of the value of a portfolio can be lost in a single day. We want that awful feeling to go away, and the easiest way to do that is to sell everything so that further declines are irrelevant to our pocketbooks and (often more importantly) our emotional stability.

But of course there is another awful feeling, what people experienced when they sold during the steep decline associated with the Covid pandemic and stayed on the sidelines, feeling comfortably insulated from further declines while the markets unexpectedly zoomed back upward. The lost opportunity comes at an emotional as well as monetary cost.

If we could know for certain that the markets will continue to decline and by how far, and if we could know for how long, and if we could know when to get back in so as not to miss the inevitable recovery (based on history, there has always been one), then the course of action would be very straightforward. Unfortunately, no person alive can tell you with certainty the answer to any one of these variables, much less all three. The markets have been very generous the last few years, and the markets tend to take back some of their generosity from time to time. The tariffs have triggered another give-back period, and the markets today seem to be speaking directly to the White House.​

One way or another, the American economy will get through this period, and the trade war, like all wars, will end. Our only real decision at this point is: should we follow the investing course that has always been long-term generous in the past? Or should we abandon the only strategy that has worked over time because we don’t want any longer to wake up with that feeling in the pit of our stomachs? Panic if you must, but don’t let emotions rule your financial decisions.

The Social Security Fairness Act, signed into law in January 2025, repealed the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), restoring full Social Security benefits for public sector employees and their spouses. This repeal eliminates longstanding reductions in benefits for workers with government pensions and opens up new eligibility for spousal and survivor benefits. Affected individuals are encouraged to contact the SSA to explore restored benefits, retroactive payments, and the implications for their financial planning.
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This landmark legislation addresses decades of financial inequity experienced by public sector employees and their families, marking a significant victory for fairness and advocacy efforts led by groups such as teachers' unions and public employee associations.

When originally implemented, the Windfall Elimination Provision adjusted the Social Security benefits for individuals who received pension benefits from jobs not covered by Social Security. This group consists mainly of teachers and certain government workers whose jobs did not withhold Social Security funds from their paychecks or require their employers to make matching employer Social Security contributions. Instead, those funds were directed to the pension plans for those workers.

The benefit calculation for Social Security is typically computed using a formula that applies different percentages to a person’s Average Indexed Monthly Earnings (AIME). For most people, the formula is:

• 90% of the first portion of AIME
• 32% of the next portion
• 15% of the remaining portion

For those affected by WEP, the first percentage was reduced from 90% to as low as 40%, depending on the number of years they paid into Social Security.

Example 1: For an individual with an AIME of $1,000, the standard benefit calculation would be 90% of the first $1,000, resulting in $900. Under WEP, this could be reduced to 40%, resulting in a $400 per month benefit.
The Government Pension Offset was established to avoid so-called “double dipping” where the employee received both a government pension and Social Security benefits. The GPO reduced Social Security spousal or survivor benefits by two-thirds of the amount of the individual’s government pension.

Example 2: If someone received a monthly government pension of $3,000, their Social Security spousal or survivor benefit would be reduced by $2,000 (two-thirds of $3,000). The reduction could be significant, sometimes reducing the Social Security benefit to zero, depending on the size of the government pension.

Example 3: If an individual receives a government pension of $2,400 per month, their Social Security spousal benefit of $1,200 would be reduced by two-thirds of the pension amount ($1,600), resulting in a reduced benefit of $0.

The effects of these provisions also impacted the spouses of the affected workers, denying or reducing the spousal benefits offered by the Social Security system. With repeal, spouses who previously had been denied benefits due to GPO can now receive full spousal benefits. Widows and widowers may also be eligible for survivor benefits that previously had been reduced or eliminated.
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The Social Security Fairness Act not only restores benefits to those directly impacted by WEP and GPO but also holds the potential for retroactive payments. While the specifics of retroactive payments are still being clarified, affected individuals should inquire about how far back these payments may go and any potential limitations.

The repeal of WEP and GPO has significant implications for financial planning. Individuals who now qualify for restored benefits should account for the additional income in their retirement planning. This might include:

• Adjusting tax planning to accommodate higher income levels.
• Re-evaluating withdrawal strategies from retirement accounts such as IRAs or 401(k)s.
• Considering the impact of restored Social Security benefits on overall estate planning.

With the passage of the Social Security Fairness Act, it is important that affected individuals contact the Social Security Administration (SSA) to see if they now qualify for benefits or if their spouse may be entitled to additional benefits.

Here are some steps you can take:

1. Gather Relevant Documents: Collect details of your government pension, previous Social Security statements, and any relevant employment records.
2. Contact the SSA: Use the toll-free number to call the SSA or go online to schedule an appointment at a local office.
3. Inquire About Eligibility: During the appointment or phone call, ask about your eligibility for restored benefits, the application process, and any retroactive payments you may be entitled to.
4. Stay Informed: Keep an eye out for updates from the SSA or other reputable sources to ensure you take full advantage of the changes.

​The repeal of these provisions is a historic step in ensuring fairness for public sector employees and their families. According to advocacy groups, millions of retirees across the nation stand to benefit from the changes. If you or someone you know might be affected, take the time to explore your potential benefits and secure what you’ve earned.
By understanding the implications of the Social Security Fairness Act, you can take proactive steps to ensure you and your loved ones receive the benefits you deserve.

What are the major benefits and potential downsides of purchasing a basic life insurance policy?
Basic life insurance policies, especially term life, offer affordability and simplicity. They are straightforward to purchase and provide essential financial protection for dependents in case of the policyholder's death. However, the downside is that term life insurance only provides coverage for a set period, which might not meet lifelong needs, and it does not build cash value or a savings component; however, if the difference in premiums between whole life and term life is invested with discipline, you'll typically see higher returns and account balances over the long run.

Who should consider purchasing a basic life insurance policy?Young families need to protect against income loss and provide for dependents in the event of untimely death. Those with financial dependents who would face hardship without their support, homeowners with mortgages to ensure the mortgage can be paid off if they pass away, and individuals with debt to cover outstanding obligations and avoid passing financial burdens to family members are all good candidates for basic life insurance.

About hybrid whole life/long-term care policies: a hybrid whole life/long-term care (LTC) insurance policy combines the benefits of traditional whole life insurance with long-term care coverage. This type of policy provides a death benefit like standard whole life insurance and includes a provision for long-term care expenses. If the policyholder requires long-term care, they can access a portion of the death benefit to cover these costs. The policy typically stipulates specific conditions under which LTC benefits can be accessed, such as the inability to perform a certain number of activities of daily living (ADLs) or a severe cognitive impairment.

The primary advantage of a hybrid policy is its dual functionality: it ensures that policyholders have access to funds for long-term care if needed while still providing a death benefit if the LTC benefits are not fully utilized. This can offer peace of mind, knowing that funds are available for both health care needs and beneficiaries. Additionally, hybrid policies often come with level premiums, meaning the cost remains predictable over time, unlike standalone long-term care insurance, which can have variable premiums.
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However, there are also some drawbacks to consider. Hybrid policies are more expensive than standalone whole-life or term life insurance due to the added long-term care coverage. The LTC benefits may also be capped, potentially limiting the amount available for care. Moreover, accessing the LTC benefits reduces the death benefit, which might leave less for beneficiaries. Lastly, the complexity of these policies can make them harder to understand and compare against other options, necessitating careful evaluation and professional advice to determine if they are the right fit for an individual's financial and health care planning needs.

A SIMPLE IRA is a retirement plan specifically designed for small businesses with 100 or fewer employees.

FEATURES
Easy Setup and Administration
SIMPLE IRAs are straightforward to establish and maintain, with minimal administrative requirements.

Employee Contributions
Employees can contribute a portion of their salary to the plan through salary deferrals, up to annual limits.

Employer Matching Contributions
Employers are required to make either matching contributions (up to 3% of employee compensation) or non-elective contributions (2% of employee compensation) to the plan.

​​BENEFITS
Tax Advantages
Contributions to a SIMPLE IRA are tax-deductible for employers and tax-deferred for employees until withdrawal.

​Employee Retention
Offering a retirement plan like a SIMPLE IRA can help attract and retain talented employees by providing valuable retirement benefits.

A SEP IRA is a retirement plan that allows employers to contribute to traditional IRAs set up for themselves and their employees. SEP IRAs are typically optimal for solo business owners who have fluctuating profits from year-to-year.

FEATURES
Simplified Setup
SEP IRAs are easy to establish and have minimal administrative requirements, making them suitable for small businesses.

Employer Contributions Only
Unlike a SIMPLE IRA, where employees can make contributions, SEP IRAs are funded solely by employer contributions.
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Flexible Contribution Limits
Employers can contribute up to 25% of an employee's compensation or a maximum dollar amount, whichever is less, each year.

BENEFITS
Tax Advantages
Employer contributions to a SEP IRA are tax-deductible and grow tax-deferred until withdrawal, providing potential tax savings for the business.

Employer Flexibility
SEP IRAs offer flexibility in contribution amounts, allowing employers to adjust contributions based on business performance and financial goals.

A 401(k) plan is a retirement savings account sponsored by an employer. It allows employees to save and invest a portion of their paycheck before taxes are taken out. For small businesses with a single owner-employee, a Solo 401(k) plan, also known as an Individual 401(k) or Self-Employed 401(k), is an excellent option.

FEATURES
Higher Contribution Limits
As both the employer and employee, the business owner can contribute both elective deferrals and employer contributions, allowing for potentially higher retirement savings.
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After-Tax Contributions
In addition to pre-tax contributions, some Solo 401(k) plans allow for after-tax contributions, providing additional flexibility and potential tax benefits. After-tax 401(k) accounts can facilitate the Mega Backdoor Roth contribution strategy -- which can allow employees to save tens-of-thousands each year in a Roth account within the plan.

Profit Sharing
The employer can contribute a portion of the business's profits to the plan as an employer contribution, which can vary from year-to-year based on the business's performance.

BENEFITS
Tax Advantages
Contributions to a Solo 401(k) plan can be tax-deferred or Roth (after-tax), and earnings grow tax-deferred or tax-free until withdrawal penalty-free after age 59 & 1/2.

Flexibility
The business owner has control over investment choices and contribution amounts, allowing for customization based on individual retirement goals.

Retirement Savings
With higher contribution limits compared to traditional IRAs, Solo 401(k) plans enable business owners to save more for retirement.

A defined benefit plan is a retirement plan in which the employer promises a specified retirement benefit amount to employees upon retirement, based on a predetermined formula. While traditionally associated with larger corporations, defined benefit plans can also be suitable for solo business owners seeking substantial retirement savings and tax benefits.

FEATURES
Guaranteed Retirement Income
Unlike defined contribution plans, where retirement income depends on contributions and investment returns, defined benefit plans offer a predetermined retirement benefit, providing certainty in retirement planning.

Tax Advantages
Contributions to a defined benefit plan are typically tax-deductible, helping reduce current taxable income for the business owner.

Contribution Flexibility
Contributions to a defined benefit plan are calculated based on factors such as age, expected retirement age, and desired retirement benefit, allowing for customization to meet retirement goals.
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BENEFITS
High Contribution Limits
Defined benefit plans often allow for significantly higher contribution limits compared to other retirement plans, enabling business owners to accumulate substantial retirement savings over time.

Retirement Security
With a guaranteed retirement benefit, business owners can better plan for their financial future and ensure a steady stream of income in retirement.

Tax Efficiency
Contributions to a defined benefit plan can result in significant tax savings, making it an attractive option for business owners looking to minimize tax liabilities while saving for retirement.

​Different circumstances call for different types of homeowners insurance coverage. There are eight options for homeowners insurance available and you want to ensure you have the appropriate coverage for your individual needs. Having the wrong coverage could leave you with catastrophic liabilities that could endanger your financial security or independence. 

This is the most basic form of homeowners insurance. HO-1 policies provide actual cash value coverage only on your home’s structure -- and does not cover damage to attached structures to your home or personal property and doesn’t cover homeowner liability. H0-1 only covers 10 named perils, which is an insurance term meaning events or circumstances that result in property damage. Therefore, if damage is caused by an event not listed in the 10 named perils, the insurance company will not cover the damage. This type of coverage is rarely offered or sought out in this day in age because of the lack of coverage.

HO-1 10 named perils:
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1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Aircraft
6. Vehicles
7. Smoke
8. Vandalism and mischief
9. Theft
10. Volcanic eruptions

HO-2 coverage is a step up from HO-1 and is typically referred to as broad form of coverage. HO-2 covers your house with the replacement cost value and personal property with actual cash value. HO-2 is typically less expensive and has less comprehensive than HO-3 and HO-5 coverage. HO-2 provides coverage on a 16 named peril basis. The 16 named perils include the 10 named perils listed in HO-1 coverage plus an additional six perils.

​HO-2 6 additional perils:
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1. Falling objects
2. Freezing of plumbing, HVAC, or appliances
3. Weight of snow or ice
4. Accidental overflow or discharge of water and steam
5. Damage from artificially generated electricity
6. Sudden or accidental cracking, bulging, or burning

HO-3 is referred to as “special form” coverage and is the most common homeowners insurance coverage for residences. HO-3 works on an open peril’s basis, meaning all risks are covered except risks listed as an exception to the open perils. HO-3 offers replacement cost value on your house and actual cash value on personal property.

Some HO-3 excluded perils:
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• Neglect
• War
• Power failure
• Mold, fungus, or wet rot
• Flooding
• Earthquake
• Birds, vermin, rodents and pets
• Wear and tear
• Nuclear hazard
• Pollution

Earthquake and flood insurance coverage can usually be added separately. HO-3 policies typically allow the insured to upgrade their personal property coverage to replacement cost value instead of actual cash value for a higher premium.

HO-4 is only for people who rent their living dwelling. This coverage does not insure the rented unit itself. HO-4 covers the renter’s personal property on a 16 named perils basis. These are the same 16 perils listed in H0-2 coverage.  HO-3 also covers the renter’s liability and additional living expenses if they’re unable to reside in the residence after a covered event. The renter also has the option to select the amount of coverage on their personal property as well as upgrade to an open perils basis vs. the named 16 perils.

Also referred to as “comprehensive coverage” because this policy offers the highest amount of insurance coverage out all policies. HO-5 covers your dwelling, added structures, and personal property on an open perils basis. HO-5 policies do carry the excluded perils listed in HO-3 policies. This extensive coverage does come at cost as the HO-5 policy is the most expensive coverage and may not be needed by all homeowners.

Better known as “Unit Owners Form” , HO-6 coverage is tailored to condo and cooperative apartment owners. This is also referred to as “walls-in” or “studs-in” coverage because HO-6 policies cover only inside the walls of the insured’s unit. Typically, a homeowner's association will carry their own insurance coverage on the building that the unit is in. It is important to know what is and what is not covered by the homeowner's association insurance to ensure there are no gaps in your coverage. HO-6 policies also cover personal property, personal liability, and loss-of-use with coverage on a 16 named perils basis. Additionally, these policies cover unit or “walls-in” on a replacement cost value and personal property being covered by actual cash value. 

​HO-7 policies cover mobile homes, manufactured homes, sectional homes, and RVs. HO-7 offers an open perils basis on the structure of the home and a named perils basis on personal property. HO-7 carries the same traits as HO-3 policy but is intended for the use of mobile homes that would not qualify for another type of HO coverage.

​This type of coverage is for older or historic homes where the replacement cost of the home exceeds the market value. An example of an “older” home would be a home that is a historical landmark or a home that is not built up to today’s codes and would have to be replaced up to current codes. This type of policy covers your house and personal property on a 10 named perils basis and has standard liability coverage. The 10 named perils are the same offered in the HO-1 policy. HO-8 policies provide actual cash value reimbursements rather than replacement cost.   

Replacement Cost – The amount needed to repair your home or personal property at current market rates. Replacement cost will replace damaged property with a similar item. 

Actual Cash Value – The amount needed to repair your home or personal property but takes depreciation into consideration. Actual cash value will reimburse you for the value of the item minus depreciation due to age or use.