Hey everyone, Tony Leonardi, your CFP® professional from Newtown, Connecticut. Welcome back to another episode of A Smarter Way to Retire, because there really IS a Smarter Way to Retire.
It's now late January 2026, a lot of snow outside here in Connecticut, and tax forms are starting to arrive in your mailbox. And if you're like most retirees I've met in Connecticut and across the country, you're wondering, okay, it's that time of year. What's new this year? What do I need to be aware of?
So today we're covering the five biggest tax updates for 2025 tax season that could impact your retirement — from bracket creep to Medicare hikes — and how to turn them into opportunities. By the end of this post, you'll have a simple checklist to review and a plan to potentially save thousands in taxes.
A Real $1.1 Million Tax Surprise Story
Let me tell you about Mikey, 67. He's from Danbury, Connecticut. That's about $1.1 million invested. He's getting started on his 2025 taxes and he got a surprise last year. He got hit with about a $4,000 tax bill that he wasn't expecting because of market growth, capital gains, and portfolio income that pushed him into a higher tax bracket without him realizing it. After building his financial model and personal financial website, we were able to make some adjustments for him, including Roth conversions and some qualified charitable distributions (QCDs). And it looks like he'll be able to save around $3,200 in taxes this year, just from those couple of minor tweaks.
That's why having a good financial model is as close to a crystal ball as you're ever going to get. A good financial model helps keep you ahead of tax changes. And that's the key: staying ahead of tax changes. And this year we have some big tax changes to be aware of.
With the Big Bill last summer locking in rates and brackets, we avoided the sunset cliffs. But brackets do creep higher each year to keep up with inflation, and Medicare premiums jumped 6%. State taxes also add a layer of complexity depending on where you live. If you ignore these changes, small shifts can turn into big tax bills. The good news is proactive tweaks now can shield your nest egg from unnecessary taxes.
The 5 Biggest Tax Updates for 2025 Filing
Here are the five updates we're watching for this year.
- Bracket Creep & Inflation Adjustments
With the Tax Cuts and Jobs Act rates now permanent, the big bracket jumps are gone for now, but inflation is still quietly pushing up the tops of each bracket higher each year, usually 2 to 4 % each year. In 2026, the standard deduction rises to roughly $15,000 for singles and $30,000 for joint, and brackets inflated about 3 %. That sounds great on paper: more income taxed at lower brackets.
But here's the catch that most people miss: Those tops creep up slower than your portfolio might be growing, especially if you're still adding money or seeing strong returns. The result is you can slide into a higher tax bracket without even realizing it. And suddenly you're paying thousands more in tax each year.
As an example, I have a couple with about $180,000 in taxable income in 2024. They're comfortably in the 22 % bracket. 2025 inflation adjustments and market growth pushes their income up to $215,000. Now the top portion is taxed at 24 %. That's an extra $2,000 to $4,000 in federal tax alone over the prior year, plus state income tax.
So what's the move? Run a quick projection right now. If you're within $20,000 to $30,000 of that next cliff, you might want to consider converting some or all of that amount to a Roth IRA this year while rates are known and relatively low. One client in Fairfield did exactly this in January and will save a projected $18,000 over the next 10 years.
- Medicare IRMAA Thresholds
The final 2026 standard Part B premium is $185 per month, up about $10 from 2025. It's about a 6 % increase, but the Part D premiums are rising too. The real pain is in the IRMAA surcharges, those income-based add-ons. The thresholds are inflation-adjusted. So the first cliff starts at roughly $110,000 modified adjusted gross income for singles, $220,000 for joint. That sounds like relief, but because premiums rose faster than the thresholds in some years, more people get pushed into surcharges by RMDs or portfolio withdrawals. $20,000 in extra withdrawals can easily trigger $4,000 to $9,000 in annual Medicare surcharges for a couple.
So what do you do? Use QCDs, qualified charitable distributions, aggressively if you're charitable and you don't need your RMD income. Send part or all of your RMD directly to charity. It satisfies the RMD but never hits your modified adjusted gross income. One couple here in Newtown dropped two IRMAA tiers with a $40,000 QCD strategy. They saved $9,600 a year in premiums.
- RMDs
They're staying. RMD age stays at 75, but the 10-year rule is biting a little bit harder. The good news is that RMD age stays at age 75 for anyone born 1960 or later. No change there. The bad news: the 10-year emptying rule for inherited traditional IRAs is now fully in effect and hitting harder with market gains. Heirs must empty the entire account within 10 years of your death, and every dollar is taxed as ordinary income in their often higher tax bracket. With markets and portfolios higher than ever, a $500,000 inherited IRA can easily cost kids $150,000 to $200,000 in taxes. I'm working now with a few adult kids of parents who passed away recently, and they're getting hit hard by the 10-year rule. Do your kids a favor and plan in advance. You don't need to pay the IRS more after you're gone.
So the move is plan ahead and stress-test your financial model with Monte Carlo simulations. See what your IRA is projected to be at death and what your heirs would owe. If your kids are open to a discussion, find out what tax brackets they're in. Have a discussion with them about your plan, how much they can expect in inheritance, and what effect that would have on them in terms of taxes and their long-term plan. Most families avoid this conversation. I understand it's a tough conversation to have, but I would encourage you to have a true family wealth plan, a multi-generational family wealth plan, rather than these individual silo plans that don't necessarily work very well together. This is exactly why we named our practice Leonardi Family Wealthcare. If you need some help starting this conversation with your kids, let me know — I'm here to help.
Then consider the life insurance legacy plan that I've mentioned several times before, where you take RMDs that you don't need, you pay the tax, fund permanent life insurance, your heirs could get millions tax-free, no 10-year rule, no forced withdrawals, and creditor-protected here in Connecticut and many other states. You have to qualify for the insurance and crunch the numbers beforehand. It's not magic, it's just math. And if the math works in your favor, trust the math. It could be amazing for your family.
- Estate Tax Exemption
The gift and estate tax exemption is locked in at $15 million. So the federal exemption is officially $15 million per person in 2026, indexed for inflation after that. Married couples, $30 million. That's locked in permanently thanks to the bill last year, but Washington loves to tinker. And we know that "permanent" doesn't really mean permanent in DC. We're already hearing 2026 election chatter about lowering the exemption or changing the step-up in basis rules. Connecticut matches the federal exemption at $15 million, but if you have property in lower exemption states like Massachusetts or Rhode Island, you could still trigger a state tax. So your move is gift strategically now while the rules are favorable. $19,000 per person per year tax-free, or super-fund 529s for your grandkids — $95,000 upfront equals five years of gifts all at once — to move appreciating assets out of your taxable estate at discounted values. You want to move highly appreciating assets to your non-taxable estate. If you're a business owner and you don't know what a GRAT or an IDIT is, reach out to me for a review of your plan. You could be leaving lots of money on the table.
- Crypto Reporting
New in 2026, IRS Form 1099-DA requires brokers to report crypto and digital asset transactions. Penalties for non-compliance are steep, and the IRS is watching closer than ever. If you hold any crypto, NFTs, or stablecoins, every trade is now tracked. Use tools like CoinTracker or Koinly to stay compliant. Review holdings as part of your overall plan. Crypto volatility can wreck retirement sequencing if not managed properly. One client moved crypto into a self-directed IRA to defer taxes. It's worth exploring if you're a believer.
So these are the five updates we're watching closely this year. Rates stay favorable, but proactive moves can save you thousands, as they did for Lisa, a 70-year-old here in Newtown faced with IRMAA and bracket creep. We implemented Roth tweaks and QCDs last year. She's projected to save $12,000 in taxes this year, and now her probability of retirement success is up to 96 %. That's the power of modeling.
Don't let taxes catch you off guard. Review these changes today and make sure you have a good comprehensive financial model to help you make smart decisions — because there **is** a Smarter Way to Retire.
Do you want to see how these impact your numbers? Take my free 2-minute retirement readiness quiz and get a copy of my book, complimentary. You can find that link at LeonardiFamilyWealthcare.com/quiz or book a complimentary 15-minute call with me. I'll run your tax projections with your real numbers. You can find my calendar on my website, LeonardiFamilyWealthcare.com. Look for my contact and Calendly tabs.