Effects of the Big Beautiful Bill: Interaction with Tax Measures

With more than 800 pages, the Big Beautiful Bill (BBB) can seem overwhelming. In this blog series, we break down specific segments focused on retirement planning and how they affect your clients. If a topic piques your interest, consider researching it further or reaching out to our team to talk strategy.

We previously discussed The Senior Bonus Deduction. Now let’s look at how the BBB interacts with tax measures.

Interaction with Tax Measures

One of the largest impacts of the Big Beautiful Bill revolves around the 2017 Tax Cut and Jobs Act, which was described as "the most sweeping tax overhaul in decades".

The BBB makes those tax cuts permanent.

This will keep the lower income tax levels largely in their current brackets.

This also makes the Federal Estate and Gift Tax exclusion equal $15 million per person for 2026, indexed for inflation.

But, what about the taxation of qualified funds from one generation to the next?

The extension of the exemption should not overshadow the large erosion of wealth for Americans over the next quarter of a century.

Below is a comparison of how a $1 million IRA would be taxed at death (Federal and State Income Tax to the beneficiary) compared to the $31 million estate with step-up in basis and nonqualified assets like closely held stock or investments.

This example demonstrates the need for you, the financial professional, to concentrate on middle-income Americans and the mass affluent.

Let’s talk strategy.

There are several effective strategies that can save millions in tax dollars for the average family in America. There are also several avenues that should be discussed with those holding qualified accounts (like 401(k)s and traditional IRAs, that receive special tax advantages under IRS rules), especially with the introduction of the BBB:

1. Discuss with your clients the difference between estate tax and income tax. The bill provides relief to the 40% estate tax but makes no adjustment to the income tax when qualified assets are passing through generations. It will be the largest erosion of wealth in America.
2. Look for opportunities to increase distributions with the newly provided deduction to fund life insurance up front. The insurance will pass to the named beneficiary tax free and estate tax free if owned correctly. The current economic environment is conducive to higher annuity payout factors and lower insurance premiums. Arbitrage between the income and the premium so net income is unaffected in many situations.
3. Use qualified charitable distributions effectively to drive dollars to those entities where clients want to leave a legacy. These distributions are above and beyond the existing and new deductions. They are also non-reportable income to the taxpayer which positively impacts IRMAA calculations.
4. Look to max fund life insured under a qualified reset strategy using today’s lower income rates and increased deductions. Even for higher-income Americans, the use of strategically planning distributions to Roth or life insurance makes sense in many situations.

You have a responsibility to discuss these options with your clients.

Now, with the Big Beautiful Bill, there are additional tools that can be deployed to help mitigate or eliminate the erosion of wealth due to income taxation. Talk to your Ash Retirement team for ideas on how to implement strategies.

And, if you missed it, check out the first blog in this series, The Senior Bonus Deduction.