Taxes on the Rise: 6 Planning Tips to Help You Save Money

Alyssa J. Chance, JD, CLU®, CFP® is a sophisticated planning strategies attorney at Northwestern Mutual.

Big tax changes are on the horizon. That’s because key provisions of the Tax Cuts & Jobs Act (TCJA) are set to expire at midnight on Dec. 31, 2025. And unless Congress intervenes, there’s a good chance some of these changes will increase your income taxes come 2026.

As of right now, if you earn $11,600 per year or more, your income tax rates will increase between one and four percentage points depending on the tax bracket. And, at the same time, your standard deduction is expected to be cut roughly in half. In other words, it’s a double whammy because right as your tax rates go up, the income threshold required to get into a higher tax bracket comes down.

6 Opportunities to Take Advantage of Today’s Lower Tax Rates

While higher taxes may be coming, you have a window of opportunity to take advantage of today's lower rates. So let’s explore how you can make the most of the situation at hand.

1. Stay informed

Staying informed is your first line of defense. If you do nothing else, at least you won’t be caught off guard should your tax rates go up (and your paychecks get smaller) in 2026. So, if you haven’t yet, check out our recent article, 11 Big Tax Changes on the Horizon. It’ll give you a better idea of what’s ahead. And stay tuned for more information on this topic. Tax changes like these (especially during an election year) can be a political football, so things may change between now and the end of 2025.

2. Review your retirement savings

One thing you can do is review your retirement savings options—this includes your 401(k) (or other types of employer-sponsored plans) and IRA. With today’s low tax rates, now may be the time to take advantage of Roth retirement contributions. With Roth accounts, you’ll pay taxes now on the money you contribute while rates are low, but your money grows tax-free, and you generally won’t pay income tax on withdrawals in retirement as long as you're 59½ or older and have owned your Roth account for at least five years.

If you’re looking to do even more, nonqualified annuities and permanent life insurance are also great options. These tools provide other ways to put after-tax money to work for your retirement or other long-term goals. That’s because your premiums are paid with after-tax dollars, while the growth is tax-deferred. With permanent life insurance, your financial advisor can help you tap into the policy’s cash value in a tax-advantaged way at any point in time.

If you’d like to evaluate your retirement savings strategy in light of the TCJA, reach out to your Northwestern Mutual financial advisor. Together, you can review your options in the context of your broader financial plan and life goals to make the best decision for your unique situation.

3. Accelerate income before 2026

In most years, tax pros look for opportunities to defer your income (more on that in a moment). But with tax rates expected to rise, now may be the time to do the opposite: accelerate your income. While doing so means your taxable income may increase in the next couple of years, it’s smart to pay taxes while rates are low.

One way to accelerate income is through a Roth conversion. If you have money in a traditional IRA or employer-sponsored plan, you haven’t paid taxes on it yet. Instead, you’ll pay income tax on your withdrawals in retirement. But by converting some or even all of your pretax retirement account(s) to Roth before 2026, you can accelerate that income and lock in today’s lower tax rates. But there are many factors to consider—so it’s important to talk to your financial advisor and tax professional about the pros and cons of a Roth conversion. And while you’re chatting, ask about other opportunities to accelerate your income.

4. Defer income starting in 2026

If your taxes do go up in 2026, it may be time to defer income again. The idea here is to pay taxes on your money later when rates are (hopefully) more favorable. One way you can do this is by making traditional (pretax) contributions to your 401(k) or other retirement account. If you decide to switch from making Roth (post-tax) to traditional contributions to your employer-sponsored plan, you may even offset some of the pain that higher tax rates will inflict on your paycheck.

5. Use a bunching strategy

Bunching deductions can be a great way to minimize taxes. If you’re like most Americans, you haven’t filed an itemized return since the TCJA came into effect. That may be partly thanks to the fact that the law doubled the standard deduction. But 2025 could be the last year you receive this larger standard deduction, so it could make sense to wait to bunch deductions until 2026. Sometimes you can do this by deferring medical expenses, charitable contributions, and state and local tax (SALT) tax payments from the end of one year to the beginning of the next. If you think bunching is right for you, set a reminder on your calendar in early 2025 to follow up on this topic with your financial advisor and tax professional.

6. Find sources of tax-free income

Another planning opportunity to consider may be holding municipal bonds within your taxable investment accounts. That’s because the returns on municipal bonds are not subject to federal income tax. Your financial advisor can help you figure out what role (if any) municipal bonds should play in your portfolio.

Plan for the TCJA With Northwestern Mutual

To better understand how these tax changes will impact your life and financial plan, schedule a meeting with your Northwestern Mutual financial advisor. They have access to the latest financial planning tools and a team of tax and legal experts to help in staying current on the TCJA and other similar topics that impact your money.

The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.

This information was compiled by The Northwestern Mutual Life Insurance Company. It is intended for the education purposes of Northwestern Mutual Financial Representatives, their customers, and the legal and tax advisors of those customers. Northwestern Mutual and its Financial Representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.