It’s Never too Early to Get Ahead of Changes

by Jason Hamilton, CFP^®

At the start of each New Year, many of us sit down and spend a few minutes thinking about our finances for the year to come. As you prepare to do so this year, please don’t overlook the following potential changes as the Tax Cuts and Job Act (TCJA) sunsets at the end of 2025.

The Tax Cuts and Job Act (TCJA) which overhauled the federal tax code six years ago has many of the tax law changes expiring at the end of 2025. While all of them may not affect you and your family, some will certainly have the potential to impact your finances. Four of the biggest tax laws expected to sunset are as follows:

• Income Tax Rates are expected to return to their previous levels before TCJA. This means the highest federal tax rate will go back up to 39.7% with increases in almost each of the marginal tax brackets. Planning for this ahead of changes should prove beneficial to you. For example,  planning for Roth IRA conversions while in a lower tax bracket or accelerating other taxable income could save you thousands of dollars in taxes.
• Deductions & Tax Credits could have dramatic changes with sunsetting provisions of the TCJA tax law. The act nearly doubled standard deductions, which drastically decreased the number of filers who had itemized returns. In 2024 your standard deduction for married couples filing jointly is $29,200, the upcoming changes could revert this deduction back to pre-TCJA levels of approximately $13,000. If you are able to itemize deductions, you’ll want to be smart about how you do so.
• Charitable Giving Deductions under the TCJA increased to 60% of your adjusted gross income (AGI). Starting in 2026 the deduction could potentially drop to 50% of your AGI. Creative accelerations of gifts against accelerated income could benefit some individuals.
• Estate & Gift Tax Exemptions are set to potentially rattle some very large family’s lifetime exemptions. Currently, each individual can pass $13.61M tax-free to others, doubled for married couples. With the potential change coming at the end of 2025 and a worry that this provision has a look back into 2025, the new annual exemption may be just $7M for each individual. Now is certainly the time to start planning and locking in the larger exemption amounts via gift trust arrangements or otherwise if you haven’t already done so. 

Starting in 2024, the Secure Act 2.0 allows for 529 plan beneficiaries to make direct rollover contributions to their Roth IRA so long as the 529 plan has been open for 15 years. Your yearly contributions can’t be greater than the annual IRA contribution limits with a $35,000 total lifetime contribution allowed to your Roth from a 529 plan.

Other contribution limits to note for 2024 are the following: IRA contributions of $7,000 (plus a $1,000 catch-up if 50 or older); 401(k), 403(b) and most 457 plans will have a $23,000 annual contribution limit with an additional $7,500 allowed for those 50 and older. For those who are inclined to make gifts to individuals each year, you can pass $18,000 annually to as many individuals as you would like. For a married couple, this means a split gift of $36,000 is possible to a child or any other individual.

Lastly, as you are electing HSA contributions for the year, the annual amount allowed is now $4,150 for individuals and $8,300 for families with an additional $1,000 as a catch-up contribution allowed for those age 55 or older.

Please reach out to your advisor if any of these important notes have you feeling a little on edge. We’re here to help make sure we maximize your finances for you. Happy New Year!
 

We provide the information in this newsletter for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, investment, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, expressed or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.