With President Donald Trump's tax and spending bill signed into law, financial advisors should brace for a second tax bill later this year that could include "Rothification" of retirement plans like 401(k)s and IRAs, says Jeff Bush of The Washington Update, referring to contributions that are taxed upfront.

First, though, lawmakers must pass a fiscal year 2026 budget resolution by Sept. 30. With the House "choosing to end early for its August recess, much of the debate is left for the very short legislative window in September," Bush said. "I anticipate a continuing resolution to buy additional time for Congress to pass the budget."

Complicating the budget process is the prospect of a government shutdown.

"The main debate among the parties right now is which party voters will blame most for a government shutdown," Bush said. "In reality, both parties will suffer if a government shutdown occurs. That being said, while a shutdown is always possible, I think it’s most likely we’ll see an extension of the budget deadline through a continuing resolution."

House Speaker Mike Johnson, R-Louisiana, told Bloomberg Government on Wednesday that "House Republicans are starting work on a follow-up to their recently enacted tax-and-spending law, aiming to pass provisions that were removed" by the legislation. Johnson said he aims to enact a second, smaller tax bill “in the late fall” using the budget reconciliation process.

Bush spoke with ThinkAdvisor about the megabill and the potential for additional legislation to include retirement planning changes via Secure 3.0. Now's a good time, he says, for advisors to talk with clients about the updated tax benefits.

Here are highlights of our conversation:

THINKADVISOR: There are prospects of another reconciliation bill that will include tax-related measures in calendar year 2025. What could be included in a second reconciliation bill later this year?

JEFF BUSH: The debate is all over the place at this point. I’m telling audiences that the Republicans are still working on the framework of a deal. Proposals have included many things — some that won’t make it into the final bill, others that might drop in at the last minute; you just never know.

What we do know about a second reconciliation bill is that it will reveal the promises made by the president, Senate Majority Leader John Thune and Speaker of the House Mike Johnson — promises made to secure votes for the tax bill that was signed into law on July 4.

Some of the things being discussed right now include:

  • Adjusting investors' basis in securities to reflect the impact of inflation
  • Pharmacy Benefit Manager reforms
  • Suggestions from POTUS to look at tax-free gains on sales of primary residences
  • Significant new spending cuts, likely targeting Medicaid and the Department of Education
  • Increasing the number of Medicare-supported Graduate Medicine Education residencies
  • Restoring the 100% deduction for gambling losses (something that was reduced to 90% in the 2025 tax bill)
  • Reversing the recent tax bill’s removal of enhanced Affordable Care Act premium subsidies.

THINKADVISOR: There's also talk of a SECURE 3.0 Act being included in the second reconciliation bill, correct?

BUSH: There are opportunities to refine certain aspects of the SECURE 2.0 Act, but I sense that Republicans are seeking more substantial changes.

Recently, there’s been a push toward the “Rothification” of retirement. While this may be a long-term benefit for investors, the reality is that it serves Washington’s interests.

Post-tax savings for retirement generate tax revenue upfront for Washington. This allows them to spend that revenue immediately, without waiting 20 or 30 years for individuals to retire. I expect the trend of “Rothification” to continue with any SECURE 3.0 Act.

Looking at it from an actuarial perspective, it’s even more problematic because we are currently double-dipping on revenues. Our industry knows well that the baby boom generation is now reaching its peak in retirement. Most of their retirement savings are tax-deferred in 401(k)s or traditional IRAs.

This means the government’s revenue from these sources is peaking just as we are encouraging, and sometimes forcing, post-tax retirement savings. This creates an additional revenue bump.

But what happens when the baby boom generation’s tax revenue diminishes? The government will face a loss in revenue. This issue is worsened by the country’s overall demographics and the funding shortfalls in Social Security and Medicare.

If the Republicans follow the same approach they used with the tax bill, I expect more opportunities for savings from increased limits for retirement contributions, along with further “Rothification.” Perhaps they will try to bring more consistency between IRA and 401(k) limits.

Other areas they are likely to consider (no promises):

  • More focus on lifetime income solutions
  • Expanding emergency savings programs
  • Expanding portability to make it easier to keep retirement savings consolidated
  • Long-term care integration

THINKADVISOR: Given updates to the tax code, what opportunities do you see for advisors to add value for clients between now and year-end?

BUSH: The tax changes mostly made minor adjustments to the code. There aren’t any major game changers planned for 2026. However, there are some opportunities advisors should recognize.

For high-income clients who are charitably inclined, consider accelerating their donations into the 2025 tax year instead of waiting until 2026. Starting in 2026, a new 0.5% floor on charitable contributions will be in effect, along with a maximum deduction of 35%. By donating more this year, filers can benefit from the deduction from dollar one and receive a full 37% credit depending on their earnings.

For clients considering a life insurance solution, a new report shows that mortality rates have not yet returned to pre-COVID levels. Eventually, insurers will need to factor in shorter life expectancies when setting prices. This creates urgency to wrap up these opportunities sooner rather than later. The same reasoning applies to long-term care solutions.

Roth conversions are a great way to diversify a client’s tax exposure in retirement. With the certainty provided in the new code, a longer-term plan for conversions is appropriate.

Review the totality of tax changes with your client's tax professional to determine if they can lower their remaining quarterly estimated tax payments for tax year 2025.

Businesses have some special factors to consider. Starting in 2026, corporations will face a 1% floor on philanthropic donations. Given each business’ unique cash flow situation, it might be beneficial for them to make larger donations in 2025.

Bonus depreciation, R&D expensing and interest rate deductions have all undergone changes, some of which are retroactive. All business owners should meet with their advisor and tax professional to assess how these changes will impact their effective tax rate. In most cases, they will be pleasantly surprised, and it may change their business planning between now and year-end.

Additionally, there are new or expanded opportunities to offer tax-friendly employee benefits that they should explore. Also, corporations may need to adjust their payroll reporting to account for tax-free tips and overtime pay.

Photo: Jeff Bush

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