First, your 2017 taxes will not be affected. And remember, nothing has passed into law yet, so time will tell if we even end up with any kind of tax reform.
Currently, there are two versions of tax reform: one proposed by the house and the other by the senate. They seem very close:
· Both plans would make no changes to the rules with 401(k) plans.
· Both plans would cut corporate tax rates and would eliminate state and local tax deductions. This probably isn't a big issue for those of us who live in states that don't have state income taxes.
· The child tax credit would increase. Probably not helpful for retirees but may be helpful for their children.
· Charitable donations stay in place, tax deductible. The standard deduction goes up, and good news, the alternative minimum tax is eliminated.
Now, for the differences:
· The house plan keeps the mortgage deduction unchanged. The senate plan would reduce the mortgage deduction from $1 million to $500,000. For most folks, it probably would still end up being a non-event.
· The house plan has fewer tax brackets. Yay. Things could get simpler. Unfortunately, the senate doesn't reduce the number of individual tax brackets. Boo. Hiss.
· The house plan would eliminate medical expense deductions. The senate plan would keep them.
So, on the surface these changes don't look like they're going to have too much of an impact on most retirees. That said, from a 2017 tax planning perspective, there are a couple of moves you might want to consider.
First, if you still have a mortgage, pre-pay on your mortgage to get the maximum interest deduction this year in case the deduction goes away next year. Second, get as many medical expenses paid in this year in case the deduction goes away in 2018.
Besides the two suggestions we've already discussed, your best course of action is to not make any significant changes to your financial strategy based on what you think may or may not happen with a new tax law. The smart choice is to wait and see what actually gets passed into law and then reassess what moves, if any, would make sense for you.
Keeping your taxes as low as possible puts you one step closer to experiencing your version of an incredible retirement doing what you want when you want.