Savers who’ve banked on high interest rates for the past couple of years may be in for a shock, some financial advisers say.
Not only will returns on their cash likely drop in the wake of the Federal Reserve’s recent rate cut, but thanks to the upcoming expiration of the Trump tax cuts at the end of next year, they could be taxed more on the interest they do earn.
“Income tax going up means less money in your paycheck,” said Brian Large, partner at Lenox Advisors. “Less interest on your cash means you’re losing return, plus, (that lower) interest will be taxable at a higher rate. This will affect savers across the board.”
What are the Trump tax cuts?
The Tax Cuts and Jobs Act of 2017 (TCJA), also dubbed the Trump tax cuts, was the largest overhaul of the tax code in 30 years. It included widespread tax reductions for businesses and individuals. Many of the benefits for individuals expire at the end of 2025.
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One of the most significant changes for most Americans included lower income tax rates. The top rate fell from 39.6% to 37%, the 33% bracket dropped to 32%, the 28% bracket dipped to 24%, the 25% bracket slid to 22%, and the 15% bracket fell to 12%. The lowest bracket remained at 10%, and the 35% tax bracket was unchanged.
If the income tax cuts aren’t extended, the affected brackets will revert to pre-TCJA levels.
“At end of day, almost everyone’s tax rate will go up,” said Mark Steber, chief tax officer at tax preparer…
