Terry Gerton In the run up to the reconciliation bill, we talked a lot about the different federal benefit provisions that might be in there. Turns out most of them aren’t, but you want to make sure that folks know about some other features in there that will affect their financial planning. So let’s start. What’s at the top of your list?

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Thiago Glieger It was really good news to see that a lot of the benefits are going to stay untouched for now. But we’ve got other changes, like you mentioned, the first one being this idea that everyone was going to see a tax cliff. People were very, very worried that the tax rates were going to expire and go back to the old law, which meant that things like the 22% bracket, we’re going to go to 25. The 24% bracket, we’re going to go to 28%. So thankfully, that’s actually been extended, and we are still going to keep the same tax rates, which really just means that people have a little bit more time to do things like Roth conversions because they’re still in the tax rate this year that they were in last year. There’s some other things like the SALT deduction. And I’ll talk about what SALT is for just a second. The SALT stands for state and local tax deduction. This is essentially a deduction that the government says, look, we know that you’re paying for state and local taxes, so we’re going let you reduce your federal tax liability a little bit by the amount that you are paying in state and local tax. Okay, but there used to be a limit of $10,000 on this. This was a big, big change that came with this new bill. This limit has now jumped up to $40,000, which is a significant increase, and so we may see a lot of people really benefit from a higher deduction. Or in some cases, even, we might see people choosing to actually be able to do itemized deductions because the $20,000 or $30,000 that they may have at this point may be larger than the standard deduction. So they get to save a little bit on tax this year.

Terry Gerton So you have to do an itemized deduction to get the SALT.

Thiago Glieger That’s right. And that’s a big differentiator, right? We call that a below-the-line deduction, meaning you have to itemize, which not all of the deductions that came in this bill are that way. But this one is.

Terry Gerton That’s important to know, a little extra time for that extra benefit.

Thiago Glieger That’s right, that’s right.

Terry Gerton Anything else in that sort of general category?

Thiago Glieger There was an interesting idea where a lot of people like to put in IRA contributions, which is really great. Maybe they’re maxing the TSP, they want to save a little bit in an IRA as well. And that can be fine, except for whether or not you can deduct that contribution. Most people, they set up those IRA contributions as a monthly deposit. But the IRS has this little sneaky rule that says, you can do that and take the deduction until you earn over a certain amount. If you’re contributing to the TSP and you make over a specific amount, which the numbers are $79,000 for a person single-filer or $146,000 for married filing jointly, you can no longer deduct that contribution to the IRA. And what happens is, people go years making those contributions, not realizing they weren’t deductible. Then you’ve got to go back and you fix all those tax years, pull the money out, you owe taxes on the money. It’s a big mess, so you want to make sure you stay on top of it.

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Terry Gerton Well, that’s good guidance, making sure that people follow the rules and they don’t have to make the adjustments later. There’s some changes in here that are sort of by age group, right? Let’s talk about the older filers first.

Thiago Glieger Sure. And we got to say, you know, 65 is not considered old anymore. But that’s what they define seniors as, 65 years old. There used to be a senior deduction for 65; it is increased to $6,000 now. So they did increase the deduction. And this is what we would call an above-the-line deduction. So unlike the SALT deduction, you don’t have to itemize to take this extra $6,000 deduction. And it’s $6,000 per person for anyone over the age of 65. So if there’s two of you, you get a $12,000 deduction for merely filing jointly, which is pretty nice.

Terry Gerton No limitations on income basis for that.

Thiago Glieger There are some limitations on income because we are looking at phase-out. So anytime we have deductions, the IRS is going to say, if you make over a certain amount, you don’t get the full deduction anymore. And so in this case, it’s $75,000 for someone single and $150,000 for married filing jointly. So it essentially means if you make more than that, you’re going to get less and less of that $12,000 or $6,000.

Terry Gerton I’m speaking with Thiago Glieger. He’s a wealth advisor with RMG Advisors of Rockville, Maryland. OK, so let’s go to the folks with young folks.

Thiago Glieger I’m pretty excited about this one because anything we can do to get people saving for their kids earlier is better, right? So we did have the child care tax credit extended. So kids under 17 years old, they get a tax credit. And the difference between a deduction and a credit is that a credit kind of like a tax gift card, where now for any kids under 17, you get a $2,200 per-child tax credit, which is really nice. They also introduced this brand new account, Terry, which I thought was kind of interesting. Effectively, the government is going to make a $1,000 contribution into this account for any child born 2025 through 2028. And then the parents can put in an extra $5,000 a year. An employer can put in an extra $2,500 a year, which, if you ask me, I don’t know that the agencies will do that, but if you have a spouse that works in the private sector, their employer can do $2,500 per year. The money gets put into a stock index fund, so it’s going to have the opportunity of growing with the markets over time. It’s tax-deferred, and then when they do take the money out, you pay long-term capital gains, which is a lower tax than a regular salary or a retirement account. If you think about how a 529 works, a 529 education, it sounds very similar to that kind.

Terry Gerton So that’s pretty interesting, opportunities to start early and save regularly for your children. What about major planning purchases? The last time we talked, we talked about home renovations. Is there anything in here that sort of captures major purchases that might be like that?

Thiago Glieger Yes, and you know, my opinion on this is that it is unfortunate they got rid of some of these credits. So we had the EV and energy tax credit expiration. This was something that was very hotly debated, that you could get some sort of tax benefit for doing things like putting solar panels on your house or having efficient windows and doors to help with energy consumption. And so that is going away at the end of this year. In fact, as of September 2025, so right around the corner, the EV tax credit, which was the $4,000 or $7,000 that you could get for buying an electric vehicle, those are going away altogether. So if that was still a purchase anyone was thinking of making, you better rush to the lot because those things are going to go fast. And then of course, the credit for windows and home upgrades like solar, those are going out by the end of the year. So again, puts you a little bit on a time crunch and if you’re interested in doing that, we really want to make sure that we get those phone calls made.

Terry Gerton Are all of these provisions coming into effect in the 2025 tax year? So when you file your taxes in January, you need to be aware of all of these rules?

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Thiago Glieger Not all of the rules that we’ve talked about today; some of them are going to come into effect immediately, like this EV. That’s going to be in effect this year for your tax filing as soon as we start the following year. Some of these others have some start dates. For the most part, most of them are immediate, although there are some in the bill that won’t kick in until a few years from now.

Terry Gerton And so if you file your own taxes, whether you use the IRS’s Easy Pay app or you use some other kind of online service or app, will they take care of all these rules for you? So as you’re going through, you just answer the questions they ask you and you’ll be fine?

Thiago Glieger That’s a really good point, Terry. In most cases, I have faith that your TurboTaxes of the world and the big software like that, they’re going to catch some of these big ones, especially things like those deductions for 65-year-olds. There was another deduction for car interest that you can deduct where the interest paid on a car loan now becomes a deductible tax expense for you. So those are the kinds of things that I’m pretty certain they’re going to have that pre-built into their system very quickly, because this is such a big bill. If you are doing the old-school way, then you’re going have to be really careful about some of these rules. Make sure they’re applicable to you, whether you phased out or not, how much of the benefit you can get, and then make sure you get the applicable credit applied.

 

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