Convert to Roth

Besides collecting the one-time $1,000 from the government for babies born in 2025 through 2028 and the $250 from Michael and Susan Dell for some older kids living in certain zip codes, some people say a good use of a Trump account is to contribute every year until the child is 18, convert it to a Roth IRA in early adulthood, and enjoy 40+ years of tax-free growth.

It’s usually compared with a UTMA account, which can’t be converted to a Roth IRA. However, as we will see in this post, money in a UTMA account can still go into Roth accounts. The older the child is when you start, the sooner that will happen.

Ben Henry-Moreland at Kitces.com raised a few issues with converting a Trump Account to a Roth IRA in his article, Why Taxable Custodial Accounts Are Better Than OBBBA “Trump Accounts” For Kids’ Savings. Those include the kiddie tax, the 10% penalty on the conversion tax, and getting bumped into a higher tax bracket when the full balance is converted in one year. Let’s be generous to the Trump account and assume the child converts after graduating college at 22, pays the tax from after-tax salary, and spreads the conversion over a few years.

UTMA

If you contribute the same amount to a UTMA account and invest tax-efficiently, the child will have a similar balance at age 22, especially if you start after the child is already at least 5 years old. The UTMA account just doesn’t earn enough dividends to pay much tax until it grows well above $100,000.

Ben Henry-Moreland mentioned in passing that money in a taxable account can go into a Roth account:

A taxable account owner could choose to use funds from a taxable account to make Roth contributions, but those contributions would be subject to the annual contribution limit ($7,500 in 2026) …

I will expand on it and point out another path: Roth 401(k). Roth contributions aren’t limited to the $7,500 Roth IRA limit. The contribution limit in a Roth 401(k) is $24,500 in 2026 (soon to be $25,500 in 2027).

Unused Roth Contribution Room

How many 22-year-olds in their first job out of college max out both a Roth 401(k) and a Roth IRA? According to Vanguard’s latest How America Saves report, only 2% of participants under age 25 in its 401(k)-type plans contributed the maximum in 2025.

Most people in their first full-time jobs only contribute enough to earn the employer match. On a typical $60k salary, contributing 6% is $3,600. It leaves $24,500 + $7,500 – $3,600 = $28,400 of Roth contribution space unused.

We’re not even talking about employer plans that allow additional non-Roth after-tax contributions that can be converted to Roth (“mega backdoor Roth“). Or employers that have both a Roth 403(b) plan and a Roth 457 plan. The unused Roth contribution room is larger still if the child lands an employer like that.

Years to Roth Accounts

Assuming that parents contribute the maximum $5,000 every year until the child is 18, and the account earns an inflation-adjusted 7% return, here are the ending balances at age 22 and how fast it can go when the child uses the money to contribute an additional $28k per year to Roth accounts (all in today’s dollars):

If you start contributing $5,000 when the child is 8, the UTMA account grows to $97k in today’s dollars when the child is 22. It takes only 4 years to pour the UTMA money into Roth accounts. That isn’t much longer than spreading the Roth conversion of a Trump Account over a few years. Selling from the UTMA account incurs lower taxes because capital gains are taxed at a lower rate.

The older the child is when you start, the smaller the UTMA balance will be, and the sooner it can flow into Roth accounts. The child will pay lower taxes to move UTMA money into Roth accounts than to convert a Trump Account.

If you’re thinking of contributing the maximum to a Trump Account and converting it to Roth, it’s a better move to contribute the same amount to a UTMA, especially when the child is already a few years old. Have the child use it to fill unused Roth contribution room in early adulthood. The tax drag for only a few years is much less than the tax rate difference between capital gains in a UTMA and ordinary income in a Roth conversion. Once the money is in Roth accounts, it’s all the same tax-free growth and worth millions when the child retires.

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Retirement account contribution limits are adjusted for inflation each year. Most contribution limits and income limits are projected to go up in 2027.

Before the IRS publishes the official adjustments for the next year in late October or early November, I calculate them using the same method the IRS uses, as stipulated by law, based on the published inflation numbers. I’ve maintained a 100% accuracy record ever since I started doing these calculations.

2026 2027 401k/403b/457/TSP Elective Deferral Limit

The 401k/403b/457/TSP contribution limit is $24,500 in 2026. It will go up by $1,000 to $25,500 in 2027.

If you are age 50 or over by December 31, the catch-up contribution limit is $8,000 in 2026. It will go up by $500 to $8,500 in 2027.

If your age is 60 through 63 by December 31, you have a higher catch-up limit of $11,250 in 2026. It will increase by $500 to $11,750 in 2027.

If your prior year’s wages from the employer were over a certain amount, your catch-up contribution must go into a Roth subaccount in the plan. If your 2025 wages from the same employer were over $150,000, your catch-up contribution in 2026 must go into a Roth subaccount in the plan. If your 2026 wages from the same employer were over $155,000, your catch-up contribution in 2027 must go into a Roth subaccount in the plan.

Employer match or profit-sharing contributions aren’t included in these limits. If you work for multiple employers in the same year, or if your employer offers multiple plans, you have one single employee contribution limit for 401k, 403b, and the federal government’s Thrift Savings Plan (TSP) across all plans.

The 457 plan limit is separate from the 401k/403b/TSP limit. You can contribute the maximum to both a 401k/403b/TSP plan and a 457 plan.

2026 2027 Annual Additions Limit

The limit on total contributions from both the employer and the employee to all defined contribution plans by the same employer is $72,000 in 2026. It will increase to $75,000 in 2027.

The age-50-or-over catch-up contribution is separate from this limit. If you work for multiple employers in the same year, you have a separate annual additions limit for each unrelated employer.

2026 2027 SEP-IRA Contribution Limit

If you have self-employment income, you can contribute a percentage of your self-employment income to a SEP-IRA. The SEP-IRA contribution limit is always the same as the annual additions limit for a 401k plan. It’s $72,000 in 2026, and it will increase to $75,000 in 2027.

Because the SEP-IRA doesn’t allow employee contributions, unless your self-employment income is well above $200,000, you have a higher contribution limit if you use a solo 401k. See Solo 401k When You Have Self-Employment Income.

2026 2027 Annual Compensation Limit

The maximum annual compensation that can be considered for making contributions to a retirement plan is always 5x the annual additions limit. Therefore, the annual compensation limit is $360,000 in 2026. It will increase to $375,000 in 2027.

2026 2027 Highly Compensated Employee Threshold

If your employer limits your contribution because you’re a Highly Compensated Employee (HCE), the minimum compensation to be counted as an HCE is $160,000 in 2026. It will rise to $170,000 in 2027.

2026 2027 SIMPLE 401k and SIMPLE IRA Contribution Limit

Some smaller employers offer a SIMPLE 401k or a SIMPLE IRA plan instead of a regular 401k plan. SIMPLE 401k and SIMPLE IRA plans have a lower contribution limit than standard 401k plans. The contribution limit for SIMPLE 401k and SIMPLE IRA plans is $17,000 in 2026. It will go up to $17,500 in 2027.

Employers with fewer than 25 employees and larger employers that contribute more to the plan have a higher contribution limit. The regular contribution limit to their SIMPLE plans is $18,100 in 2026. It will go up to $19,100 in 2027.

If you are 50 or over by December 31, the catch-up contribution limit in a SIMPLE 401k or SIMPLE IRA plan is $4,000 in 2026 ($3,850 at smaller employers) for ages 50-59 and 64 and over, and $5,250 for ages 60 through 63. These numbers will stay the same in 2027.

Employer contributions to a SIMPLE 401k or SIMPLE IRA plan aren’t included in these limits.

2026 2027 Traditional and Roth IRA Contribution Limit

You need taxable compensation (“earned income”) to contribute to a Traditional or Roth IRA, but there’s no age limit. The Traditional IRA or Roth IRA contribution limit is $7,500 in 2026. It will stay the same at $7,500 in 2027.

If you are age 50 or over by December 31, the catch-up limit is $1,100 in 2026. It will stay the same at $1,100 in 2027.

The IRA contribution limit is shared between the Traditional IRA and the Roth IRA. If you contribute the maximum to a Roth IRA, you can’t contribute the same maximum again to a Traditional IRA, and vice versa.

The IRA contribution limit and the 401k/403b/TSP or SIMPLE contribution limit are separate. You can contribute the respective maximum to both a 401k/403b/TSP/SIMPLE plan and a Traditional IRA or Roth IRA.

2026 2027 Deductible IRA Income Limit

The income limit for taking a full deduction for your contribution to a Traditional IRA while participating in a workplace retirement plan in 2026 is $81,000 for single filers and $129,000 for a married couple filing jointly. The deduction completely phases out when your income goes above $91,000 for singles and $149,000 for married filing jointly.

The full-deduction income limits will go up in 2027 to $83,000 for single filers and to $133,000 for a married couple filing jointly. The deduction will completely phase out when your income goes above $93,000 for singles and $153,000 for married filing jointly.

When you’re not covered in a workplace retirement plan but your spouse is, the income limit for taking a full deduction for your contribution to a Traditional IRA is $242,000 in 2026. The deduction completely phases out when your joint income goes above $252,000.

The full-deduction income limit will go up to $250,000 in 2027. The deduction completely phases out when your joint income goes above $260,000.

There’s no income limit if neither you nor your spouse is covered by a workplace retirement plan.

When you exceed the income limit for taking a deduction for contributing to a Traditional IRA, consider contributing to a Roth IRA instead.

2026 2027 Roth IRA Income Limit

The income limit for contributing the maximum to a Roth IRA depends on your filing status. The income limit in 2026 is $153,000 for singles and $242,000 for married filing jointly. These limits will go up to $158,000 for singles and $250,000 for married filing jointly in 2027.

You can’t contribute anything directly to a Roth IRA when your income goes above $168,000 in 2026 for singles and $252,000 for married filing jointly. These income limits will go up to $173,000 for singles and $260,000 for married filing jointly in 2026.

Your contribution eligibility is prorated in the income phase-out range. When you exceed the income limit for contributing to a Roth IRA, consider doing the backdoor Roth. See Backdoor Roth: A Complete How-To.

2026 2027 Healthcare FSA Contribution Limit

The Healthcare FSA contribution limit is $3,400 per person in 2026. It will go up to $3,500 in 2027.

Some employers allow carrying over some unused amount to the following year. The maximum amount that can be carried over to the following year is set to 20% of the contribution limit in the current tax year. As a result, the carryover limit is $680 per person in 2026. It will go up to $700 in 2027.

2026 2027 HSA Contribution Limit

You need to have a High Deductible Health Plan with no other coverage to contribute to a Health Savings Account (HSA). Not all high-deductible health insurance is HSA-eligible, except that all ACA Bronze or catastrophic plans automatically qualify.

Medicare or your spouse having a general-purpose healthcare FSA counts as having other coverage, which makes you ineligible to contribute to an HSA.

You don’t need taxable compensation (“earned income”) to contribute to an HSA.

The HSA contribution limit in 2026 is $4,400 for single coverage and $8,750 for family coverage. These limits will go up in 2027 to $4,500 for single coverage and $9,000 for family coverage. The new limits were announced in the spring. See HSA Contribution Limits.

Those who are 55 or older by December 31 can contribute an additional $1,000. If you are married and both of you are 55 or older by December 31, each of you can contribute the additional $1,000, but the contributions must go into separate HSAs in each person’s name.

2026 Saver’s Credit Income Limit

You may be eligible to receive a Retirement Savings Contributions Credit (aka “Saver’s Credit”) of up to $2,000 per person when you contribute to a retirement account or an ABLE account.

The income limits for receiving the credit in 2026 for married filing jointly are $48,500 (50% credit), $52,500 (20% credit), and $80,500 (10% credit). The income limits for singles are half of the limits for married filing jointly. The 2026 limits are $24,250 (50% credit), $26,250 (20% credit), and $40,250 (10% credit).

SECURE 2.0 Act and the 2025 Trump tax law reduced the scope of the Saver’s Credit. It will apply only when you contribute to an ABLE account starting in 2027. Contributions to retirement accounts will no longer qualify for the Saver’s Credit after 2026.

2027 Saver’s Match Income Limit

Contributions to a retirement account may qualify you for a Saver’s Match in 2027 when you have modest income. The Saver’s Match replaces the Saver’s Credit for retirement account contributions, but the income limits are lower.

All Together

Source: IRS Notice 2025-67, author’s calculations.

2026 2027 Tax Brackets and Standard Deduction

I also calculated the 2027 income tax brackets, standard deduction, capital gains tax brackets, and the gift tax exclusion limit. Please read 2026 2027 Tax Brackets, Standard Deduction, Capital Gains, QCD.

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At best, we will have three monthly CPI data points by mid-December out of the 12 needed to calculate the IRMAA brackets. I can only fill the missing nine data points with estimates. I’m not an economist. I’m not trying to predict future inflation based on economic indicators. I fill the empty slots with only mathematical extrapolation.

I use two sets of numbers: a lower set with 0% inflation for conservative projections and another set with some inflation for likely projections. A reader asked how close my past projections were to the actual brackets published the following year.

That’s a good question, but honestly, I haven’t tracked them until now. I went back and recalculated my projections using the same methodology but with only data available at the time.

I’m listing the numbers for only married filing jointly to keep it simple. The single brackets are exactly half of these numbers, except for the 3.2x bracket. The 3.2x brackets were fixed during these years.

* I haven’t seen the official 2027 numbers. All necessary data points are published, but it’s still unclear how the government will handle the missing CPI number for October 2025 when they didn’t collect price data during a shutdown. The actual column for 2027 uses my latest projections.

We had positive inflation in all previous five years. The 0% inflation projections were lower than the actuals, by design. The “some inflation” projections (currently using 3%) either matched or were slightly below the actual brackets. If you had used the higher set of projections, you’d be OK, but you were cutting it close unless you added a buffer below those numbers yourself.

Most people use the 0% inflation projections to be more conservative. I show the higher projections only to indicate how much headroom you potentially have, which is usually small ($2,000 or $4,000 for married filing jointly, $1,000 or $2,000 for singles).

I would go with the lower 0% inflation projections because the risk/reward tradeoff is lopsided. It’s not worth wringing out the last drop. See Use Pascal’s Wager When You’re Not Sure About Tax Rules for my general principle in dealing with uncertainty.

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What Is ID.me

ID.me is a private digital identity provider. It has obtained certifications required by some government agencies. In essence, ID.me ties an email address to a real person by matching an image of the person to a photo ID. Without the image, you can create a login and say who you are, but only submitting a driver’s license doesn’t prove who’s submitting it. ID.me requires seeing you via a selfie or a video call.

ID.me has landed contracts with the IRS, Social Security, VA, and now TreasuryDirect. After you log in with ID.me, ID.me tells the agency positively who just logged in.

How It Works with TreasuryDirect

I already have an ID.me account because the IRS requires it to use its IP PIN system (see Stop Tax Return Fraud: Sign Up for the IRS IP PIN Program). I tried my login at TreasuryDirect.

After I logged in through ID.me, it asked for my permission to share these pieces of information it has on me with TreasuryDirect. I wasn’t too concerned with sharing because I had already given these separately to TreasuryDirect when I opened the TreasuryDirect account.

ID.me sent me back to TreasuryDirect. TreasuryDirect asked for permission to retain the information sent over by ID.me. You won’t be able to use the TreasuryDirect website if you don’t give permission.

TreasuryDirect uses the Social Security Number sent by ID.me to search for accounts associated with it. Normal account access continues after you choose an account. You may not see this screen if you have only one account under your Social Security Number.

Log Out of ID.me

Logging out of TreasuryDirect does not automatically log you out of ID.me. As a best practice, I went to the ID.me website manually and clicked on the “Sign in” button on the top right. This brought me back into ID.me without any further authentication. Then I logged out of ID.me.

The ID.me session will probably time out eventually anyway, but I prefer not to keep it active for any longer than necessary.

Privacy Concerns

I already have an ID.me account because I was forced by the IRS to create one. It worked smoothly for me at TreasuryDirect.

However, if you don’t have an ID.me account yet, you may be concerned about giving your ID documents and selfie to a private company. It’s a serious concern, but TreasuryDirect is forcing your hand. You won’t be able to access your TreasuryDirect account after October 28, 2026 if you don’t create an ID.me account.

TreasuryDirect says this in its ID.me transition FAQs:

Will I be required to use ID.me to access my TreasuryDirect account online after October 28, 2026?

Yes. After October 28, 2026, ID.me will be the only method to log in to your TreasuryDirect account. You will have the option to use your traditional TreasuryDirect login between September 13, 2026, and October 28, 2026.

If you do not sign up and/or connect your TreasuryDirect account(s) to ID.me by October 28, 2026, you can easily restore online access at any time by completing the ID.me setup process and linking your TreasuryDirect account(s).

Without an ID.me Wallet, you will still be able to manage your account by submitting paper forms. However, you will not be able to:

• Sign in to TreasuryDirect online.
• Make new purchases.
• Set up new reinvestments of marketable securities. (Existing reinvestments already in place will continue.)
• View or download your tax forms online.

If you need a copy of your Form 1099 for the current tax year, you can request one by mail after the forms become available in January of the following year by contacting TreasuryDirect Customer Support at 844-284-2676 (toll-free).

You won’t be able to make new purchases. You can sell your existing holdings only by submitting paper forms. TreasuryDirect says on its home page that those requests “may take ten months or longer to process.”

Change.org Petition

Waiting ten months or longer to sell existing holdings isn’t a real choice. Some users started a petition at Change.org about this issue. You can sign the petition if you don’t like being forced to create an ID.me account. The petition has received 204 signatures as I’m writing this.

Creating an ID.me Account

I’m not optimistic that TreasuryDirect will listen to the user protests and change course. If you decide to relent, you can create an ID.me account by going to the ID.me website and clicking on the “Sign in” button on the top right.

Be prepared to submit a government-issued photo ID, such as a driver’s license or a passport, and your Social Security card. As I remember it from when I created my account some time ago, ID.me sent me a link to take a selfie. Or you can join a video call with a verifier, who will match your face with your photo ID. The process wasn’t too difficult.

Securing ID.me Account

It’s crucial to secure your ID.me account because it’s linked to your Social Security Number. If someone logs in to ID.me as you, they will be able to access the IRS, Social Security, and TreasuryDirect as you.

ID.me offers several multi-factor authentication (MFA) methods. I would only consider the three strongest methods.

Using a hardware security key on a computer requires buying at least two security keys (one primary, one backup), which cost $29 each. You can use the same two security keys to secure your email accounts and Vanguard account. See PSA: Secure Your Email Account to Prevent Wire Fraud and Security Hardware for Vanguard, Fidelity, and Schwab Accounts.

The NFC Mobile Security Key method requires both the hardware security keys and the ID.me Authenticator app on a mobile phone. It isn’t more secure than using a hardware security key on a computer. The ID.me Authenticator app is one more thing to manage, and you probably don’t want it on a phone that you take everywhere anyway.

A passkey is a software version of a hardware security key. It’s stored in a passkey manager application. If you’re already familiar with using passkeys and a passkey manager app, it’s as secure as using a hardware security key, and you don’t have to buy hardware keys. Many other websites support passkeys now. It’s good to learn how to use passkeys anyway.

I use hardware security keys with ID.me because I already bought them. Otherwise, I would use a passkey stored in a passkey manager app.

Abandon TreasuryDirect

If you don’t want ID.me, you have until October 28, 2026 to do anything at TreasuryDirect using your existing login. Otherwise, you will have to use paper forms and wait 10 months or longer.

If you have marketable securities (Treasury Bills, Notes, Bonds, and TIPS), you can’t sell them before maturity. If they will mature soon, you can turn off automatic reinvestment and wait for the payouts every six months and at maturity. Make sure your linked bank account is correct and keep the bank account in good order until you receive every payment from TreasuryDirect. Print or save your current holdings to a PDF, and create calendar reminders for all expected interest and principal payouts.

If the Treasury Notes, Bonds, and TIPS in your TreasuryDirect account won’t mature for some years, you can start the transfer process to move them to a brokerage account such as Fidelity, Charles Schwab, or Vanguard. The transfer may take a year to complete, but at least it will happen before your holdings mature.

You can buy new Treasuries in a brokerage account with no fee. See How To Buy Treasury Bills & Notes Without Fee at Online Brokers.

If you have savings bonds, you can redeem them as long as they’re more than 12 months old since the issue date. Redeeming savings bonds triggers taxes on the accrued interest. You can save the page that displays the interest to a PDF, or you can ask TreasuryDirect to mail you the 1099 forms by calling customer service next year. Be prepared for long hold times if many users choose to call.

If you have savings bonds not yet 12 months old, you can start the paper Form 5512 now. The bonds will be over 12 months old by the time they get to it.

Wait for Login.gov

Social Security online accounts offer a choice between ID.me and Login.gov. Login.gov is a similar service run by the GSA, which is a government agency, not a private company. Login.gov is also used by Homeland Security for the Global Entry and TSA Pre programs.

There’s an initiative to make Login.gov available for all public-facing websites run by the federal government within two years. TreasuryDirect must have received the memo, but it still only offers ID.me at this time.

If you don’t want ID.me but you don’t want to redeem everything and abandon TreasuryDirect just yet, waiting for Login.gov is another option. You will lose access to your account between October 28, 2026 and whenever Login.gov becomes available. It can take a year or two.

***

You have three bad choices: (a) Give sensitive information to a private company picked by the government agency; (b) Sell everything and pay taxes; and (c) Lose access to your account for an unknown length of time. I really don’t like this, but I don’t think they will change.

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A reader suggested that I release my tax calculator for retirees under a separate title because it has outgrown its original purpose.

I initially made a calculator only for the taxable portion of Social Security benefits. Many questions from readers made me realize that they were also looking for the resulting taxes from their Social Security benefits and other income. I added the tax calculation and expanded the scope over time. It’s now a full-fledged tax calculator for retirees.

Why Another Tax Calculator

There are many tax calculators online already. However, most of them only look backward, not forward. The 2027 tax brackets will be known by September 2026, but most online tax calculators don’t update to 2027 until well into 2027. Because I track tax brackets even before the IRS officially publishes them, my tax calculator covers the next year sooner than any other, giving you an early start on planning.

TurboTax desktop software has a What-If Worksheet for planning (I wrote about it in Tax Planning with TurboTax What-If Worksheet). It works to some degree, but it’s missing some important pieces. Notably, it doesn’t include the ACA premium tax credit for early retirees. Nor does it include the effect on IRMAA for retirees on Medicare. The popular Dinkytown 1040 Tax Calculator and its licensed clones on AARP and other websites don’t calculate the ACA premium tax credit or the effect on IRMAA either.

Other tax software programs, such as FreeTaxUSA, don’t even do 2026 until November, when they release the 2026 version. The early releases are often still incomplete at that time. In general, tax software is intended for filing, not for planning.

AI is quite good these days, but as you see in Which AI Calculates Taxes Correctly?, a tax calculator is faster and more accurate than AI if you know which one to use.

Some niche tax calculators update early and are more complete. Case Study Spreadsheet and Excel1040 are two good ones I know. I wrote about Case Study Spreadsheet in Roth Conversion with Social Security and Medicare IRMAA. Both Case Study Spreadsheet and Excel1040 require more upfront setup, though. The calculator I made is less comprehensive but is easier to get the result quickly and accurately.

Why Retirees

I specifically made this tax calculator only for retirees.

Retirees’ taxes are simpler. They don’t have deductions and credits related to children and education, such as the Child Tax Credit, Child and Dependent Care Credit, American Opportunity Credit, or the Student Loan Interest Deduction. A general-purpose tax calculator meant for everyone forces retirees to wade through many irrelevant inputs. I believe in Less Is More. A more streamlined calculator is better than a cluttered one.

Meanwhile, retirees have a greater need for a tax calculator to set up withholding and estimated tax payments. They also have more control over the sources of their income. Taxable income can come from IRA withdrawals, capital gains, or Roth conversions. A tax calculator is helpful to compare different approaches.

Tax Planning A/B Comparisons

Besides getting a bottom-line number to set tax withholding and estimated tax payments, a good way to use this tax calculator is to compare different scenarios. Enter your income composition one way and save the results as a baseline Scenario A. Alter some inputs and save the results again as Scenario B. Open the saved Scenario A and Scenario B side-by-side and compare. You can save an unlimited number of scenarios:

• What if I withdraw more from the IRA instead of realizing capital gains?
• What if I increase Roth conversions?
• What if I sell from taxable investments?
• What if I receive less interest?
• What if I work a little?
• What if I die and my surviving spouse files as a single next year?

Whatever comes to mind, you can see how it affects your federal income tax.

What’s Included

This calculator covers pretty much everything relevant to retirees:

• Social Security benefits
• Muni bond interest
• Qualified dividends and long-term capital gains
• Rentals, interest, non-qualified dividends, short-term capital gains, capital loss
• Incidental self-employment
• Wages, pension, IRA distributions, Roth conversions
• Qualified Business Income deduction
• Net Investment Income Tax
• Above-the-line deductions
• Standard Deduction
• Cash donations made directly to charities
• Senior Deduction
• Auto loan interest deduction
• Itemized deductions
  • Non-cash donations and donations to Donor-Advised Funds
  • State and local taxes (SALT) paid
  • Medical expenses
  • Mortgage interest
• ACA Premium Tax Credit
• Medicare IRMAA

I picked these for their relevance to retirees. Everything included is updated to the 2025 Trump tax law (One Big Beautiful Bill Act). The less-used itemized deductions and ACA tax credit are collapsed by default. You can easily skip those if you don’t have them, but you can still dive in when you do.

What’s Not Included

Besides things not relevant to retirees, this calculator doesn’t calculate these items:

• Self-employment income plus wages exceeding the Social Security wage base
• Self-employment retirement contributions and health insurance deduction
• Alternative Minimum Tax (AMT)
• Foreign Tax Credit

This calculator covers incidental self-employment income, but it doesn’t cover more complicated scenarios, such as when you have both self-employment income and W-2 wages, the sum of the two exceeds the Social Security wage base ($184,500 in 2026), and limits your self-employment tax. Nor does it cover making retirement contributions based on self-employment income to SEP-IRAs, SIMPLE IRAs, or solo 401(k) plans, or taking a self-employment health insurance deduction.

AMT and Foreign Tax Credit are also more complicated, and many retirees don’t have them. Collecting inputs to calculate them would make the calculator more cluttered.

I’m considering creating a separate, longer version of this tax calculator to include these more complicated items.

In addition, the calculator only calculates the federal income tax. It doesn’t calculate state and local taxes.

Calculator

The calculator does 2025, 2026, and 2027. You can double-check the 2025 results against your filed 2025 tax return. When you see that the calculator is correct for 2025, you’ll have confidence that it’s also correct for 2026 and 2027. The 2027 calculations use my projected numbers in 2027 Tax Brackets, Standard Deduction, Capital Gains, QCD.

This calculator works better on a desktop computer or a newer tablet. All calculations are performed locally in your browser. Nothing is transmitted to any server.

Notes

Here are some notes for how the calculator expects to see various numbers.

Social Security

Enter the total gross Social Security benefits for the calendar year (not monthly) before any Medicare premium deductions. If you’re married filing jointly, include the total gross Social Security benefits for the calendar year from both spouses. If you start or stop benefits in the middle of a year, enter the total benefits expected for that year.

Dividends

Dividends can be qualified or non-qualified. As reported on Form 1040, ordinary dividends are the total of both qualified and non-qualified dividends. The calculator needs to break out qualified and non-qualified dividends separately.

Suppose you have $1,000 in total dividends (“ordinary dividends” on Form 1040 and Forms 1099-DIV), of which $800 is qualified dividends and $50 is 199A dividends. The $800 in qualified dividends goes into the “Qualified dividends and long-term capital gains” field. The difference between ordinary dividends and qualified dividends is non-qualified dividends, which is $200. Include only $200 in the next field, “Other investment income.” 199A dividends from REITs are included as a part of non-qualified dividends. $50 goes into the “199A dividends” field.

Capital Loss

Capital loss should be used to offset capital gains first. If there’s still capital loss left after offsetting all capital gains, use up to $3,000 to offset items in the “Other investment income” field.

Rentals

Rental income goes into the “Other investment income” field. It should be the net rental income after all expenses and depreciation. This calculator doesn’t cover the case of a net loss after expenses and depreciation.

Tax Withholding

If you have tax withheld from wages, IRA distributions, Roth conversions, or any other source, use the gross income before tax withholding. Tax withholding is a prepayment against your total tax for the year. It affects the residual amount you’ll pay at tax filing time, but it doesn’t affect your total tax number itself.

QCDs

Qualified Charitable Distributions (QCDs) go directly from your IRA to charities. They don’t count as your income. Nor do you receive a tax deduction for QCDs. Exclude any QCDs in the calculator. Only include IRA distributions that aren’t QCDs.

ACA Second Lowest Cost Silver Plan

If you’re on ACA health insurance, the government uses the full price of the Second Lowest Cost Silver Plan (SLCSP) to calculate the Premium Tax Credit you’re eligible for.

One way to get that number is to go back to your state’s marketplace (or healthcare.gov if your state doesn’t have a separate one). They usually have a “browse plans” option that doesn’t require logging in. Enter your zip code, household size, your age(s) as of 12/31 last year, and a very high income, like $300,000. That will give you full-price plans. Filter for Silver plans only and sort by premium from lowest to highest. Take the second lowest number. The calculator needs that number to calculate the subsidy.

Another way is to use the KFF subsidy calculator. Again, enter your state and zip code, household size, your age(s) as of 12/31 last year, and a very high income, like $300,000. The KFF calculator shows you a price for a Silver plan. That’s the full price of the second-lowest cost Silver plan.

Bug Reports and Feature Requests

If clicking on Calculate doesn’t produce any output, please try it in Incognito Mode. Sometimes your browser keeps an older version of the calculator, which creates conflicts with a later update. Incognito Mode solves that problem.

Please include the full output in the comments if the calculator gives you unexpected results. Please use the contact form if you aren’t comfortable posting numbers in public comments.

Please leave a comment if you have a suggestion for improvement. I apologize in advance for not wanting to make the inputs more granular in this version of the calculator. Making a streamlined calculator for retirees is a guiding objective. I want this calculator to be easy to use for 99% of retirees. I’m thinking of creating a separate, longer version of this calculator to cover things that apply to only a small percentage of retirees. The additional inputs and granularities can go into the longer version.

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This makes it difficult to transfer money to another person’s account because people don’t want to reveal their bank account number, fearing you might take their money. As a result, person-to-person transfers are typically done through third-party services such as Venmo, Zelle, PayPal, or Cash App. Both parties must use the same service. You can’t do it if you have Venmo and they have Zelle. Either you must also sign up for Zelle, or they must also sign up for Venmo.

Each third-party service has its limitations. They work for smaller transfers, but they often don’t work for larger ones. Bank of America limits Zelle transfers to $3,500 per day. If you want to transfer $5,000, you’d have to split it into two days. Many banks have even lower Zelle transfer limits than Bank of America.

Trusted Parties

Some people don’t mind sharing their bank account information with you when they know and trust you. Say you’re giving annual gifts to your adult children, or you’re paying a mom-and-pop landlord monthly. They’re willing to give you their bank account for you to deposit into. Even then, it’s not that easy to transfer money to their account.

Many banks only allow linking to accounts that you own. They require verification to confirm that you have control over the target account. It’s done traditionally by micro-deposits. Lately, many banks have moved to using instant verification services such as Plaid or Mastercard Data Connect (formerly Finicity). This requires logging into online banking at the target bank. Banks see who owns the target account in this process. They won’t allow the link when names don’t match.

Intra-Bank Transfers

Some banks support transfers between customers within the same bank. Many credit unions also have this feature. They call it member-to-member transfers. Suppose your child is attending college out of state. If both of you have accounts at the same bank or credit union, you can transfer to your child’s account internally.

It’s feasible to make this arrangement with a child. It’s difficult to do with your sister or a landlord unless you happen to use the same bank.

Bill Pay or Mail a Check

You can use Bill Pay to pay an individual. The Bill Pay provider will mail a paper check. Or you can mail a check yourself. Both are subject to delivery delays and potential loss or theft. That’s not a good way.

Wire Transfers

You can also send a wire transfer, but many banks charge a fee for wires. Even if you get free wires from your bank, many banks also charge a fee for receiving a wire. Making your family member or the landlord pay a $15 fee to receive money from you isn’t that great.

Push-Only ACH

Fortunately, some banks allow linking to another person’s bank account. They don’t require ownership verification for this type of link when they disallow withdrawing money from the target account. For instance, when you link an external account to Bank of America, it asks you whether you want the account to be “only transfers to” or “for transfers to and from.”

Selecting “for transfers to and from” requires ownership verification through Plaid. Selecting “only transfers to” doesn’t. If you use Bank of America, see the detailed walkthrough in How to Link an Account to Bank of America for ACH Push.

Fidelity

I use Fidelity for my banking (see 2 Ways to Use Fidelity as a Bank Account). I can link another person’s bank account to my Fidelity account. Like Bank of America, Fidelity asks whether the account is owned by me or by someone else.

Linking a bank account you own creates a bidirectional link: you can push money to that account or pull money from it. It requires ownership verification. Linking a bank account owned by someone else creates a push-only link: you can transfer money to that account, but you can’t withdraw from it. It doesn’t require ownership verification.

Fidelity will go through a banking industry process called “prenote” to confirm that the target account is valid. A prenote requires waiting at least 3 business days before sending the first transfer. Give it about a week of setup time before you need to transfer money. Once the link is fully set up, the transfer arrives on the same business day if you request it early enough in the morning, or on the next business day if you miss the cutoff. It’s almost as fast as a wire transfer, and it’s free to receive.

You can transfer up to $100,000 per day by EFT/ACH from a Fidelity account. It’s not possible to transfer that much by Venmo or Zelle.

Fidelity’s online interface only supports ad hoc transfers to another person’s account. You can’t schedule transfers for a future date or set up recurring transfers to another person, whereas you can set up scheduled or recurring transfers to your own accounts. If you need to set up scheduled or recurring transfers to another person, call customer service to see if they can set it up on their side.

***

Venmo or Zelle works well for buying things listed on Craigslist or Facebook Marketplace, or paying a gardener or a house cleaner. They don’t work as well for transferring larger amounts to a trusted party. Having an account that supports ACH to another person’s account makes it work in that scenario. The receiving side doesn’t require any special setup. They only need to give you their routing number and account number. It’s free on both sides.

If your bank also supports ACH transfers to another person’s account, please include its name in the comments so other readers know where to go besides Fidelity and Bank of America.

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My immediate reaction was that calculating taxes isn’t the best use of AI, because it falls under “verifiable facts” and “latest development” categories. The retirement plan contribution limits, tax brackets, the maximum deduction amounts, etc., are all verifiable facts. The IRS sets them every year, and they are what they are. Just go to the IRS website for the latest numbers, or Google. If you ask AI, it had better get the latest numbers online anyway, because AI’s training lags.

On the other hand, tax rules are complicated. After you have all the latest numbers from the IRS, you still need to apply the complex rules — what counts and what doesn’t, and which rates apply to which income. Online tax calculators usually don’t cover the current year until late in the year, and they can be either too simple or too complicated. It would be nice to have AI calculate taxes specifically for the types of income and deductions we have: not too simple with only limited inputs, and not too complicated with everything under the sun.

The Quiz

I thought I would test how well AI calculates taxes. I came up with this quiz question:

Jill, single, age 63, has these incomes in 2026:

• $30,000 from Social Security
• $10,000 from interest and pre-tax IRA withdrawals
• $37,000 from qualified dividends and long-term capital gains
• $1,000 from muni bond interest

Jill contributes $4,400 to her HSA and donates $1,500 in cash directly to charities. What’s Jill’s federal income tax for the 2026 tax year?

I designed this question carefully to cover several calculations. Slightly less than 85% of Social Security is taxable in this case. AI has to know how to calculate the exact taxable amount, and not just make a straight 85% of Social Security taxable. The gross income consists of ordinary income, tax-exempt income, and investment income taxed at preferential rates. The ordinary income component goes across two tax brackets. So does the investment income. One deduction is above-the-line, and the other is below-the-line.

I added these instructions to encourage AI to get the latest tax numbers from the IRS:

It’s important to calculate it accurately. Please use tax amounts only for 2026 and only from official IRS sources.

Initial Results

First, I ran the test case through my tax calculator in Calculator: How Much of My Social Security Benefits Is Taxable?. It gave this result:

$25,410 of your Social Security benefits is taxable, which means 15% of your benefits is tax-free.

Your 2026 federal income tax is approximately $1,640.

This is calculated from a taxable income of $50,910 (AGI $68,010 – Standard Deduction $16,100 – Senior Deduction $0 – charitable contribution deduction $1,000).

Then I sent the quiz to all four major AI chatbots: ChatGPT, Claude, Gemini, and Grok. I only used the free version in each one, with the free Thinking, Pro, or Expert mode enabled. I compared the answers to the correct result from my tax calculator.

My quiz was too hard! All four major AI models failed to give the correct answer. The $1,500 cash donation threw them off. It falls squarely in the “latest development” category. The charity donation deduction for non-itemizers is new. The AI models all have “donations are deductible only when you itemize” imprinted in their training. Claude, Gemini, and Grok all would have given the correct answer if I hadn’t included the cash donation. ChatGPT was off on how much of Social Security is taxable.

When you see AI not giving you a deduction, you can raise a question and ask it to double-check. I followed up with this statement:

I heard that cash donations are deductible for people using the standard deduction, starting in 2026, up to a limit.

I only said “I heard,” which may or may not be true. AI still has to verify. I also added this request for ChatGPT:

Another AI model calculated a different amount for how much Social Security is taxable. Please double-check your calculation to see who’s right.

Round 2

All four AI chatbots double-checked and revised their answers.

Source	Answer
My tax calculator	$1,640
ChatGPT 5.4 Thinking Mini	$1,640
Claude Sonnet 4.6 Extended	$1,640
Gemini 3 Pro	$1,411
Grok 4.20 Expert	$1,411

ChatGPT and Claude got the correct answer. Gemini and Grok mistakenly treated the cash donation deduction as above-the-line and used it to reduce the Social Security taxable amount.

I asked Gemini and Grok to clarify whether the HSA contribution and the charity donation should or shouldn’t be included in calculating the Social Security taxable amount. Gemini didn’t realize its mistake. It said both should be included. Grok refused to go further because I reached the message limit for not having an account. [A reader with a Grok account did the same chat with Grok and told me that Grok also said both should be included.]

Here are the full chat transcripts. They make an interesting read.

https://chatgpt.com/share/69bf73fb-db44-8004-9905-b77b56fbb6ce

https://claude.ai/share/ef62408a-6502-4d70-82be-6ea46a4a4cc3

https://gemini.google.com/share/795bdad9f5ad

[No sharable link for Grok because I don’t have an account.]

Impressions

I don’t think we can draw definitive conclusions based on only one test. I call these impressions.

1. Whether AI can calculate taxes correctly depends on the complexity. Three out of the four major AI chatbots would’ve given the correct answer in one go if the question didn’t include the new and tricky charity donation deduction. The explicit request to retrieve the latest information from official IRS sources and turning on the Thinking/Pro/Expert mode probably helped in improving accuracy.

2. AI works better when you make it a conversation. Don’t stop and say it’s useless when you spot some errors in the initial answer. Help the tool help you. Both ChatGPT and Claude reached the correct answer in Round 2 after I asked them to double-check.

3. It takes little effort to send the same question to two or more AI models. You don’t need to know which AI is correct when you get different answers. You can tell one AI that another AI said something different. It’ll re-examine.

4. AI was wrong because human sources were wrong. Gemini and Grok treated the donation deduction as above-the-line because many human sources incorrectly called it above-the-line. If you Googled, you would encounter those incorrect sources too. ChatGPT and Claude used more reliable sources and correctly identified the difference between above-the-line and not requiring itemizing deductions.

5. An online tax calculator is faster and more accurate if you know which one to use. That’s a big “if.” Only saying “Don’t use AI because it’s often wrong” doesn’t say where you will find more reliable sources.

As much as I’d like to see everyone use my tax calculator, let’s face it: 99.99% of people don’t know that I exist. They have little chance of finding the few sources that do it accurately because Google doesn’t rank tax calculators by timeliness or thoroughness.

Here’s a small challenge for you:

Pretend you’re not familiar with tax calculations. Find another way to answer the quiz question. Don’t say “I have a spreadsheet,” or “I use the super-duper Case Study Spreadsheet or Excel1040.” 99.99% of people don’t have those. Please tell me in the comments section how you could do it otherwise.

Short of finding the good sources, the results from AI aren’t that bad (see #1).

6. AI’s general approach was correct even when it was wrong in some nuances. All four AI chatbots followed these correct steps:

• Calculate how much of Social Security is taxable
• Calculate AGI
• Calculate taxable income
• Separate ordinary income and preferential investment income, and know how they stack
• Apply different tax brackets

This general approach is “common knowledge of an insider.” You can learn the steps from AI if you’re not familiar with tax calculations. That’s more valuable than just having a final number. When I saw that ChatGPT didn’t include details of some interim steps, I asked it to show its work. ChatGPT explained the details faster and better than I could (read the transcript).

An online tax calculator gives you a number but doesn’t explain the steps. AI is a better tool in teaching you how to fish than giving you a fish.

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The experiences I’m sharing below were all with the free version of ChatGPT. I used ChatGPT only because it came out first. There are at least four major AI chatbots now. I believe another AI would’ve done just as well. I’m currently experimenting with other AI models to see which one I like better for which tasks.

AI Detected Mysterious Power Usage

I bought a house without an agent last December, but I didn’t move in right away. The first month’s electricity bill came and showed that an empty house used more electricity than the house I lived in. I asked AI what could have caused such high usage. It gave me some likely causes and a method to find the culprit: turn off breakers one at a time and watch for large drops in consumption at the electric meter.

AI could read the handwriting on the breaker panel to tell me which breaker is more suspicious than another. It taught me how to read the current load from the electric meter to see whether the mysterious power consumption was on the breaker I just turned off.

Sure enough, I found it. The previous owner had ice-melting roof cables running 24/7 without any switch or sensor. My electricity usage dropped by 15 kWh per day after I unplugged the de-icing cables.

AI Reconfigured Water Heater Recirculation

Next came the natural gas bill. It also showed high usage while I had already set the thermostat to 60 when the house was unoccupied. I asked AI again. It quickly zeroed in on the water heater after it asked me about the gas appliances in the house. It turned out that the recirculation setting in the tankless water heater was set to “always on.”

Turning off recirculation would lower the natural gas bill, but it also would make me wait longer for hot water. I asked AI for a compromise. It said my water heater model supports an on-demand mode using wired push buttons (like doorbell buttons) to activate recirculation as needed. Wiring requires too much work. I asked AI for a wireless solution. It told me to make this:

A 12V power adapter powers a Shelly 1 smart switch, stored in a plastic project box, with a hole drilled on two sides to attach cable glands. Wireless motion sensors in the kitchen and bathrooms trigger the smart switch, which activates recirculation. I had never heard of any of these components before, except for the power adapter.

I sent AI this diagram of the control board from the water heater’s instruction manual to ask whether I could skip the 12V power adapter and use the 12V contact in the SIGNAL 1 terminal on the control board. It read the diagram and gave me good reasons why it could work, but it was safer to use an external power adapter and connect the switch to the SIGNAL 2 terminal.

AI’s solution worked. On-demand activation reduced natural gas consumption by 100 cubic feet per day versus running recirculation 24/7.

AI Dimmed Exterior Lights

I gave AI another problem that bugged me. My exterior lights on the sides of the garage door were too bright. I couldn’t simply change the bulbs because the lights don’t have bulbs. They use integrated LEDs. They were controlled by a dusk-to-dawn photocell. I couldn’t put them on a dimmer because there was no switch for them inside the house.

AI told me to look for a junction box where I could place a dimmer. I couldn’t find the junction box it wanted, but I found a switch for a porch light that was also downstream of the photocell. I asked AI whether I could merge the garage lights onto that switch. It gave me a cautious “maybe,” with a list of conditions to check behind the switch cover.

I took the cover plate off and sent a photo to AI. It read the wires and confirmed that moving the wires would comply with the National Electrical Code.

Long story short, AI guided me in rewiring the lights at the switch and installing a smart dimmer. Those exterior lights by the garage door aren’t too bright anymore.

AI Knows More Than the Average Person

All of the above may be too basic for some of you, but it was all new to me. I didn’t know what neutral wires looked like before I engaged with AI. I don’t think the average person could have helped me as much as AI. I could have asked an electrician, but AI is free and available 24/7.

AI also answered many questions in vastly different fields. It explained to me why two ducks flew in and out daily with a group of wild geese, and the geese weren’t hostile toward the ducks, because they were clearly different species. It also explained why the heads of mallard ducks look green, but the feathers are actually black or charcoal when you look at them on a table.

An electrician can help me with wiring, but I don’t think the average electrician knows about ducks. AI knows more than the average person because it represents the aggregate knowledge of the Internet.

AI Is Better Than Google

Google was a technology breakthrough in the early 2000s. Google made it much easier to find information on the Internet. Most readers of this blog found me directly or indirectly through Google. I’m grateful to Google for connecting all of us, but the user experience of AI is much better than that of the traditional Google search.

You Google something and find a source. The source may be addressing something related, but not necessarily exactly what you’re looking for. It may require some background knowledge that you don’t have. You Google again and find another source. The two sources may supplement each other, but also contradict. Sometimes you can leave a comment to ask for clarification. The author may or may not reply. I can’t possibly keep up if every reader of this blog asks me a clarifying question. I’m sure many people reading my posts left with unanswered questions.

The user experience with AI is much better. You can ask AI in long paragraphs and give more context. You can upload photos to explain and clarify. AI tailors the answer to your question and context. You can ask follow-up questions. AI remembers the conversation. You can pick up where you left off from days before.

The solutions to my problems in this post all happened over several days. AI pointed me in a direction. I went there and reported back what I found. It then gave me the next steps. It was like having an on-call consultant. I don’t think I could have achieved the same results as easily with traditional Google searches.

Google knows this. Google prominently features its Gemini AI when you use Google Search now. It has to do it to stay relevant.

Ask Follow-Up Questions

You get more out of AI when you keep asking follow-up questions. The more you ask, the more specific the answers will be to your exact needs and constraints.

AI didn’t come up with the entire solution to my water heater recirculation problem in one go. The conversion started with what was burning so much natural gas. After I turned off recirculation, the next question was why that setting was enabled and how I could still get the benefits without running it 24/7.

AI brought up wired buttons. I asked for a wireless alternative. AI gave me the smart switch. When I asked how I would power it, AI said to tap into 110V AC power. I read the switch’s manual, which said it could also use 12V DC. I asked AI whether 12V DC would be a better way. AI said “Yes!” although it didn’t give me this better way when I first asked.

I then asked how to tell which wire from the 12V adapter is positive and which is negative. AI said it’s easier if I use a barrel tip adapter. I asked where to put the switch and the wires. AI told me about the project box and the cable glands.

A full solution only emerged after these rounds of questions.

Don’t Dismiss AI for Inaccuracies

Some people dismiss AI, saying it’s just a probability-based text generator, and it can’t be trusted because it’s often wrong. Indeed, AI isn’t always accurate. The average Google search result or even the average professional in their field isn’t always accurate either. Someone was told by their accountant that only people over 65 who are receiving Social Security are eligible for the $6,000 senior deduction, which is false.

Looking up verifiable facts isn’t the best use of AI. AI is best at giving you the common knowledge of an insider. The less you know about a subject, the more you should use AI, because it fills your knowledge gap quickly. You don’t need 100% accuracy when the gap is so huge. A total market index fund or a 60/40 allocation is common knowledge for seasoned investors. We can debate whether they are the best, but they make a good baseline for people unfamiliar with investing.

Are AI’s solutions to my electricity usage, water heater, and lighting problems the best? Maybe not, but I only needed working solutions, not necessarily the best solutions. AI got me there quickly.

Dismissing AI only because it’s not always accurate is short-sighted and throwing the baby out with the bathwater.

AI for Finance, Investing, and Taxes

Many questions in finance, investing, and taxes don’t have definitive answers. The “best” move requires knowing the future.

AI doesn’t know the latest development. When the 2025 Trump tax law was still being crafted, AI’s answers were often wrong (so were many media reports). Again, asking AI about verifiable facts isn’t the best use of AI. AI does a better job of explaining things and applying knowledge to specific situations.

I asked AI this fairly complicated question from the Bogleheads forum about Traditional versus Roth contributions for a self-employed person and the interplay with ACA health insurance. Here are the answers from ChatGPT and Claude:

https://chatgpt.com/share/69b1cc1c-b69c-8004-b118-6eb8b2ea32b0

https://claude.ai/share/7f1e5c63-e00b-44f2-8f3b-e23bbfb7405c

I posted the question verbatim to AI before any human answered it on the forum. AI couldn’t have cheated. If I rate how I would answer the question myself at 100, I would rate AI’s answers at 90+. Those were only AI’s initial answers. The answers will improve with more follow-up questions. I’m sorry to say that the first two replies from humans on the forum weren’t as good as AI’s answers. The discussion would be more productive if humans used AI’s answers as a baseline and built upon them.

Next time you have a question, start with AI. Use AI less for verifiable facts and not for the latest development, but more for how to apply knowledge to your specific situation. The less you know about a subject, the more AI will help. It gives you a good baseline. Keep asking follow-up questions. The more you ask, the better the answers will be. Supplement the good baseline from AI with human sources when necessary, but start with AI.

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Net Worth

The total net worth represents all financial resources available at a point in time. We break it down into two categories: liquid investments (“paper assets”) and real estate. The value for real estate is net of any mortgage balances. We include home equity in total net worth because it is an available financial resource. We love our home, but when necessary, we can sell and buy a less expensive home or use the proceeds to fund assisted living. We use the historical purchase cost as the value for real estate. You can also use the property tax assessment value or a reasonable estimate.

We further break down liquid investments between taxable investments and retirement accounts. You can add a third category to break out Traditional versus Roth accounts if you’d like.

We get these values from Fidelity’s Full View, which aggregates both Fidelity and non-Fidelity accounts. I updated my post Fidelity Full View + Analysis: Track Your Portfolio Across All Accounts with Fidelity’s latest user interface, also known as the New Full View. The New Full View doesn’t have all the features of the Old Full View, but it still works for our purpose.

We round to the two most significant digits in these numbers. $1.3 million or $250k is good enough. It’s not necessary to go more granular.

Investment Allocation

Next, we look at the investment portfolio’s asset allocation at the highest level: stocks versus fixed income, and U.S. stocks versus international stocks. This tells us how it changed from the previous year and whether we need to rebalance.

We get these numbers from Fidelity’s Analysis feature, which I described in the second half of Fidelity Full View + Analysis: Track Your Portfolio Across All Accounts. Analysis examines the investment holdings from all accounts in Full View. You can use other tools or a spreadsheet.

Income

This is our tax return boiled down to its simplest form. What are the major sources of income? How much do we pay in taxes? How much is it as a percentage of our total income?

We get the income numbers from Microsoft Money, which was discontinued many years ago but still runs in Windows 11. Any other income and expense tracking software works as well. Taxes for the prior year are from the actual federal and state tax returns. Taxes for the year that just ended are estimated.

Again, use no more than two most significant digits, as in $25k, not $24,736.

Expenses

Now we come to the expenses side. We include property taxes but not income taxes as expenses. Income taxes are largely a function of income. The quickest way to lower taxes is to lower income. Income and taxes are already covered in the previous section.

We keep income and expenses in only three or four major categories. Fewer categories present a clearer view without distraction from too many details. The expenses data also come from Microsoft Money. Again, many other income and expense tracking software work too.

Baseline Retirement Projections

We run a baseline projection in Fidelity’s retirement calculator. I updated my post, Fidelity Retirement Planning Tool: High-Level Model, Not Tactical, with Fidelity’s latest user interface. The retirement calculator uses accounts in Full View assigned to the retirement goal.

The baseline assumptions include our best guesses for income, expenses, and major events. The retirement calculator projects a trajectory of the investment portfolio when market returns are significantly below average or merely below average. I look at the projected values in today’s dollars at major age milestones. Comparing with projections from last year tells us whether we’re off track.

Projections by definition are educated guesses. Anything beyond the single most significant digit in the numbers is meaningless.

Pessimistic Retirement Projections

We run the projections again in my wife’s account with a more pessimistic set of assumptions: lower income, higher expenses, and unexpected events. We do it in two accounts because Fidelity’s retirement calculator doesn’t allow saving two scenarios in one account.

The pessimistic assumptions serve as a stress test for the future outlook. What if our best guesses are off significantly? We want our plan to survive these adverse conditions. Running these projections revealed the two fundamental drivers of financial success in retirement.

Summary

Finally, we summarize the previous sections. This recaps the previous year and guides the current year.

We intentionally keep the annual financial review short and simple because we believe it’s most useful to have a big picture. We use Fidelity’s tools and Microsoft Money as data sources, but you can also populate the review with data from other sources.

If you find this format helpful, you can download the template from Google Drive. It’s set as view-only. Please use File -> Download to download it in PowerPoint or ODP format and modify it as desired.

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Before the Settlement

It used to be that a home seller agreed to pay a commission to a real estate agent to sell a home, and the seller’s agent advertised on the home listing that they were willing to share their commission (typically 50:50) with any agent who brought a buyer. The commission rate was usually 6% of the home’s price (5% in some expensive areas).

If a buyer didn’t use an agent, the listing agent wouldn’t share anything. This created an incentive for buyers to use an agent in the same way as credit card rewards created an incentive to use credit cards. When the price was the same whether you used an agent, you might as well use one and get whatever little benefits that may exist.

After the Settlement

The class action settlement required that a buyer and the buyer’s agent sign a written agreement to establish the commission upfront before touring a home. The agreement typically says that the buyer is obligated to pay the commission unless another party covers it. As a result, most sellers lower the seller’s agent’s commission to 3% and anticipate that a buyer will ask for another 3% to cover the commission to the buyer’s agent.

It’s business as usual on the surface. The seller still builds an expected 6% commission into the price. The seller’s agent still receives 3% and the buyer’s agent still gets another 3%. Some consumer advocates were hoping that the NAR settlement would change the landscape in residential real estate and lower commissions. That hasn’t happened for the most part. Redfin reported that the average buyer’s agent commission has risen slightly since the new NAR rules went into effect.

Real estate agents don’t lower their commissions to compete for business from buyers because most buyers don’t choose an agent by price. Buying a home is a big decision, and most buyers want a “good” agent or the “best” agent. The industry sows FUD to make buyers suspect that only unknowledgeable or inexperienced agents are willing to discount their commission, and that not using a “good” agent or the “best” agent will only cost them in other ways more than the difference in commissions.

However, the incentive for a buyer to use an agent is weakened after the rules changed. If a buyer doesn’t use an agent, the buyer can offer a lower price and still make it appealing to the seller.

I did just that. I bought a home without an agent, from out of state, over a video walkthrough by FaceTime. I paid less and still beat competing offers.

Agent’s Roles for the Buyer

Before you consider going alone without a buyer’s agent when you buy a home next time, you should understand the roles of a buyer’s agent and be prepared to fill those roles in another way.

Personal Shopper

A buyer’s agent acts as a personal shopper for the buyer, especially when the buyer isn’t familiar with the area. When I bought my first home with an agent before the Internet age, I didn’t know which homes were for sale. Only agents had access to listings. She drove me in the back of her Mercedes from one house to another.

The Internet replaced this role. When I worked with an agent before the NAR settlement, the agent never brought to my attention any listing I didn’t already know from my saved searches on Zillow and Redfin. Instead, I pointed out to her which listings I was interested in and asked her to set up showings.

Education

A buyer’s agent educates a buyer on the legal terminology in the buying process. What’s an offer? What’s a counteroffer? What’s earnest money, and when does it become non-refundable? Which contingencies do you need in a contract, and what happens when the deadline passes? Who pays for what title insurance? What’s an ALTA settlement statement, and how do you read it?

You must educate yourself on these things when you don’t use a buyer’s agent. They’re not that difficult to learn. AI can help.

Resource Recommendations

Real estate agents have contacts for everything. If you need a loan, they refer you to a loan officer or a mortgage broker to get you approved. After you go under contract, they call in an inspector. If the home needs repairs, they have contractor contacts for estimates or to perform the repairs before you move in.

These resources are only referrals. The agent doesn’t cover the cost. You still have to pay each service provider. Keep in mind that an agent’s referrals are optimized for responsiveness, not quality or price. If a picky inspector finds a lot of problems with a home and scares off buyers, that inspector won’t get repeat referrals next time. Time is of the essence in a real estate transaction. The goal of an agent is to keep the deal moving toward closing without delay.

When you go without an agent, you should gather these resources yourself ahead of time. You can find service providers on Google Reviews. Line up contacts to call when you need a loan, an inspection, insurance, a repair estimate, and so on.

Opinion for Quality and Value

Buyers often ask their agent whether a home they’re interested in is “good” or how much their offer price should be. They want their agent to help them avoid a bad purchase or overpaying.

It’s wishful thinking. The best you can hope for is that an agent won’t push you to buy or overpay. It’s against an agent’s economic interest to stop you when you’re already inclined to buy a home, because they only get paid when you move forward. The higher your offer price, the more likely the seller will accept it. It doesn’t matter to the agent which house you buy or how much you pay, as long as you buy one, the sooner the better.

You must make your own judgement. Hire an appraiser to assess a home’s fair value when you’re seriously considering making an offer. Lenders order an appraisal for their own protection when you apply for a loan. Nothing stops you from appraising the property before making an offer. The opinion from a trained, neutral third-party appraiser is much more reliable than the opinion from an agent with a conflict of interest.

An appraiser I used charges $400 for a “desktop appraisal.” The appraiser finds recent comparable sales in the area and adjusts for various factors to calculate an appraised value. It doesn’t require a site visit, and the seller won’t know that you did an appraisal. The price for an appraisal is small potatoes when it guides you to how much you should offer for the property. When you save 3% from a buyer’s agent’s commission, you can afford to pay for a pre-offer appraisal.

Negotiator

Many agents say they’ll help you negotiate the best deal. That’s dubious. Bargaining hard to risk losing a deal is bad for business.

When I made an offer through an agent at one time, the seller countered it by another $30,000. My buyer’s agent said the seller’s counteroffer was “a really generous offer and an excellent value for the home.” She cited market trends, how the property was extremely well cared for, and said that the yard was a big bonus. When I decided to back off for other reasons, the seller came back with an offer that was $25,000 below my original offer.

Going with the agent’s recommendation would’ve cost me $55,000 right there. An agent’s incentive lies in moving toward a transaction, not away from it. It’s wishful thinking to count on an agent to negotiate a good deal for you.

Door Opener

You can go to open houses without an agent. If a listed home doesn’t hold an open house, you need someone to open the door and let you tour the home. A buyer’s agent performs this role. They have apps for requesting a showing time and receiving a code for the key box.

You’ll have to go through the seller’s agent when you don’t use a buyer’s agent. Industry practice doesn’t allow a buyer to tour a home unaccompanied. The seller’s agent can’t just give you a code and let you into the home alone. The agent has to go there him- or herself or send someone from the office.

Sellers’ agents don’t like the additional work because they perceive unrepresented buyers as unserious tire kickers. Tire kickers with a buyer’s agent at least only waste their own agent’s time. You’ll need to convince the seller’s agent that showing the home to you is worth their time and effort. Understanding the roles of a buyer’s agent for the seller and the seller’s agent will help you do that.

Agent’s Roles for the Seller

Why did sellers’ agents share their commission with a buyer’s agent before the NAR settlement? Why do sellers still agree to pay a commission to a buyer’s agent after the NAR settlement when they’re not required to do so?

A buyer’s agent helps the seller sell their home. That’s why the seller is paying a commission.

Qualify Buyers

Buyers’ agents only work with qualified buyers. If a buyer doesn’t qualify to buy a $1 million home, there’s no point for the agent to show $1 million homes to the buyer. When I worked with an agent before, the first order of business was sending me to her lender contact to size me up with a mortgage pre-approval. Sellers know that every buyer a buyer’s agent brings to the home is at least in the realm of buying it.

When you don’t use a buyer’s agent, you must show the seller’s agent that you’re qualified. Obtain a loan pre-approval or proof of funds up front. Offer to send it when you first contact the seller’s agent. The seller’s agent wants to sell the home and earn the commission. They’ll be more motivated when they see you’re a qualified buyer.

Persuade Buyers

The offer-and-counteroffer example I mentioned above illustrates that a buyer’s agent plays an important role in persuading the buyer to purchase the home. A buyer may be skeptical if the same justifications come from the seller’s agent, but they’re more trusting when they hear good things about the home from their own agent, who they think is on their side.

Both the seller’s agent and the buyer’s agent are helping the seller sell the home. Paying a commission to a buyer’s agent is like the seller planting a mole by the buyer’s side. The buyer’s agent is officially the Selling Agent in industry lingo. Let that sink in: a buyer’s agent is the Selling Agent for the seller.

When you don’t use a buyer’s agent, you need to show the seller’s agent that you don’t need much persuasion. You can know so much about a home these days without setting foot in it. Show that you’ve done your homework, you’re ready to make an offer, and seeing the home is only the last step.

Offer to use the seller’s agent to process paperwork if you decide to make an offer. Many agents give sellers a discount if they do both sides of the transaction. A typical arrangement in my area is that the seller pays a 3% commission to list the home, with another 3% reserved for the buyer’s agent. If the listing agent represents both the buyer and the seller, the seller pays 4% instead of a total of 6%. The prospect of earning another 1% motivates the seller’s agent to show the home to you.

Putting Everything in Action

My wife and I wanted to buy a home. We drove around based on current and past home listings to get familiar with the area. We went to open houses.

We narrowed it down to a few specific neighborhoods and floor plans — how large, how many stories, and which rooms we want on the main floor. We set up custom searches with filters on Redfin to notify us of new listings in a hand-drawn area on the map. I established contact with an appraiser and an inspector in advance.

When Redfin emailed us new listings, we checked the website of the local MLS, which had more detailed information than Redfin. The MLS website gave a breakdown by each floor, for example:

• Floor 1: 1,534 sq. ft.
• Floor 2: 1,014 sq. ft.
• Total: 2,548 sq. ft.
• Lot Size: 0.17 Acres

• 3 Total Bedrooms
  • Floor 1: 1
  • Floor 2: 2
• 3 Total Bathrooms
  • Floor 1: 2 Full
  • Floor 2: 1 Full
• Other Rooms:
  • Floor 1: 1 Living Room; 1 Kitchen; 1 Laundry Room;
  • Floor 2: 1 Family Room;

These data points, Google Maps, and the listing photos gave us a good idea of what the listed home was like. We didn’t bother asking to see a home unless it met all our specific requirements. If a home checked all the boxes, we looked up the county’s property tax assessment value using the APN from Redfin. The property tax assessment value served as a sanity check in case the listing price was wildly inflated.

It took some time for a home that met all our criteria to come on the market. It was listed on a Monday morning while we were traveling out of state. I sent this text message to the seller’s agent right away:

Hi [name], I’m interested in your listing at [address]. The photos look great. We’ve been to that neighborhood. We’re pretty sure we’ll make an offer if everything checks out. The only thing is we’re out of town until Sunday. Can we schedule a showing for next Monday? We’re not working with an agent. We can send proof of funds.

The agent replied and offered to do a video showing over FaceTime on Tuesday morning. The video walkthrough confirmed that the home had everything we were looking for. I texted the appraiser and ordered a desktop appraisal.

The appraisal came back at a value higher than the listing price, but it was still lower than the county’s assessed value for property tax. The market price in my area is typically higher than the county’s assessment. I knew that the listing price was intentionally set low to attract more interest and encourage bidding.

I downloaded the real estate purchase contract form from my state Division of Real Estate’s website. I made an offer at the appraised value, with a stipulation that the seller would credit 2% of the purchase price to the buyer at closing. This made it easily comparable to other offers that would ask for 3% to cover a buyer’s agent’s commission. I attached proof of funds.

My formally written offer, which was above the listing price right out of the gate, with full terms and proof of funds, indicated to the seller that I was a serious buyer and I knew the value of the home. The seller also received several competing offers. The prospect of earning a 4% commission instead of 3% motivated the seller’s agent to advocate on my behalf. The seller accepted my offer on Friday after a round of “best and final offers.” It took only four days from listing to contract, before we returned from our travel and physically toured the home. We couldn’t have pulled it off if we weren’t well prepared.

Here’s how my offer came down against the next highest bid (I indexed the purchase price to $500,000 to make the math easier):

The competing buyer and their agent lost because they were weighed down by the 3% commission to the buyer’s agent. With a 3% headroom to play with, my offer basically split it three ways among the seller, the seller’s agent, and me. The seller received $4,700 more in net proceeds. The seller’s agent earned $5,200 more in commissions. I paid $4,700 less. Win-win-win.

If the seller didn’t receive competing offers, I wouldn’t have offered the extra 1% to the seller, and I would’ve saved even more.

I sent in my inspector after we went under contract. The inspection report came back without major issues. We closed on the purchase.

***

The real estate industry class action settlement created opportunities for prepared buyers to purchase a home without a buyer’s agent. The seller, the seller’s agent, and the buyer all benefit when there’s one less mouth to feed.

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