The final data from the current tax filing season shows the one big beautiful bill delivered more individual tax relief than originally projected, with Piper Sandler analyst Dan Schneider noting in a client memo that while official government revenue estimates pointed to $106 billion in retroactive individual tax cuts being dispersed during the filing season, incoming data suggests the actual figure could reach $148 billion, composed of $48 billion in direct refunds and $100 billion in reduced taxes owed at filing.
Tim Stearns, president and founder of TJ Stearns in Arlington Heights, joined Dan Proft on Chicago’s Morning Answer to discuss what the windfall means for investors and what concerns he is hearing from clients nearing and in retirement.
Stearns said the tax refund season has been a genuine boon and clients are happy, but that the happiness itself creates a risk he is actively managing in consultations. The stock market is at or near all-time highs, which is producing a wave of FOMO among baby boomer clients who want to maximize their equity exposure at exactly the stage of life when they can least afford a significant and prolonged pullback. He said his cohort of clients was spoiled twice in recent memory, first when the market recovered quickly from the 2022 downturn, and again when the initial market reaction to the Iran conflict, a seven to eight percent drop, reversed just as rapidly. Neither episode conditioned investors appropriately for the possibility of a more sustained decline, and someone in their late sixties or early seventies who is heavily concentrated in equities does not have the time horizon to ride out a multi-year correction the way a forty-year-old does.
His core advice for clients at or near retirement is to hold meaningful positions in assets that are uncorrelated to the stock market, including certificates of deposit, cash value life insurance, and annuities, rather than treating a portfolio as simply stocks and bonds in varying proportions. For clients who insist on heavy equity exposure, he recommends adding hedges, covered calls, and stop-loss provisions so that a market reversal does not wipe out the financial foundation they spent a career building.
On intergenerational wealth transfer, Stearns described a recent three-way call he facilitated with a client and her daughter who was starting her first job, in which he walked the daughter through the case for maximizing Roth contributions immediately. He said tax brackets are at their lowest level since 1982, making this the optimal moment to pay taxes on contributions rather than on withdrawals, a principle he summarizes as paying on the seed rather than the crop. He said socializing young adults into disciplined savings habits early, even at modest contribution levels, produces compounding benefits over a career that dwarf whatever they forgo by not spending the money now.
On Illinois-specific planning concerns, Stearns said a significant number of clients nearing retirement are weighing relocation, with Florida the most common destination, driven in part by Illinois’s estate tax, which kicks in at four million dollars and represents a meaningful hit on estates that exceed that threshold. He noted that Illinois does not tax pension income, which provides some offsetting attractiveness for retirees with defined benefit pensions, but said he would not be surprised if that exemption is eventually eliminated given Springfield’s chronic fiscal pressures.
On exotic investment inquiries, Stearns said the most common question he is fielding currently involves SpaceX, with clients wanting to know how to access what they perceive as a once-in-a-generation investment opportunity. He said the answer involves significant due diligence given that it is not a publicly traded vehicle, and that he is cautious about clients in or near retirement taking on private equity risk generally, noting that redemption restrictions in many private equity vehicles have already cooled enthusiasm somewhat. He said his job at that stage of a client’s financial life is sometimes less about finding opportunities and more about stopping people from harming themselves at the blackjack table.