39% tax 2026

Indexed Annuities and the TCJA Sunset: Key Implications
The approaching sunset of the Tax Cuts and Jobs Act (TCJA) at the end of 2025 will bring significant changes to tax rates, estate planning, and retirement strategies. Indexed annuities—insurance products that offer principal protection and growth linked to a market index—are among the tools that may play a more prominent role for those seeking tax deferral and estate planning advantages as tax laws revert to pre-2018 levels.

TCJA Sunset: What Changes in 2026?

Higher Income Tax Rates: The top marginal federal income tax rate is set to rise from 37% back to 39.6%. For high earners, the combined effect with the net investment income tax could push the top rate to 43.4%.

Reduced Estate, Gift, and GST Exemptions: The current lifetime exemption of $13.61 million per individual ($27.22 million per married couple) will drop by about 50% to roughly $7 million per person and $14 million per couple (adjusted for inflation).

Lower Standard Deduction: The standard deduction will be cut nearly in half, increasing taxable income for many households.

Indexed Annuities: Strategic Role After the TCJA Sunset
Tax Deferral Benefits

Indexed annuities allow for tax-deferred growth, meaning you do not pay taxes on earnings until you withdraw funds. This can be especially valuable as ordinary income tax rates rise post-2025, allowing you to control the timing of taxable events and potentially withdraw funds in lower-income years, such as retirement.

No Contribution Limits for Non-Qualified Annuities

Unlike IRAs and 401(k)s, non-qualified annuities (including indexed annuities) do not have annual contribution limits. This makes them attractive for high-net-worth individuals who have already maxed out other retirement accounts and are seeking additional tax-deferred growth.

Estate Planning and Trusts

With the estate tax exemption set to drop, more families may face estate taxes. Trust-owned annuities can be used to provide tax deferral within irrevocable trusts, reducing the annual tax burden on trust income and allowing for more efficient multigenerational wealth transfer.

For example, a trustee can purchase an annuity inside an irrevocable trust to defer taxes on growth, which is particularly useful for dynasty trusts or generation-skipping trusts established before the exemption drops.

Planning Considerations
Why Consider Indexed Annuities Now?

Mitigate Rising Taxes: As tax rates increase, tax-deferred vehicles like indexed annuities become more valuable for managing taxable income and smoothing out tax liabilities over time.

Estate Tax Exposure: With the exemption halved, more estates will be subject to federal estate tax. Using annuities in trust structures can help reduce the taxable estate and provide liquidity for heirs.

Flexible Retirement Income: Indexed annuities can provide guaranteed income streana

Connie Dello Buono
investment Fiduciary
4088541883
motherhealth@gmail.com