{"id":9366,"date":"2025-07-14T15:26:06","date_gmt":"2025-07-14T15:26:06","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/9366\/"},"modified":"2025-07-14T15:26:06","modified_gmt":"2025-07-14T15:26:06","slug":"what-the-new-tax-laws-mean-for-your-retirement-plan","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/9366\/","title":{"rendered":"What the New Tax Laws Mean for Your Retirement Plan"},"content":{"rendered":"

\u201cBarring Congressional Action, tax rates are set to revert to pre-Tax Cuts and Jobs Act levels at the end of 2025.\u201d<\/p>\n

I scribbled out that same general line on numerous occasions since the TCJA was enacted in 2017. While the TCJA cut taxes in a number of areas\u2014tax brackets, as well as the estate and gift tax\u2014most of its major provisions weren\u2019t permanent. They were set to \u201csunset\u201d at the end of 2025 unless Congress took action to renew them.<\/p>\n

But the Republican-led Congress voted to extend the tax cuts last week, and President Donald Trump signed the legislation into law on July 4.<\/p>\n

In addition to maintaining the TCJA\u2019s tax brackets\u2014the highest level remains 37%\u2014the legislation has numerous provisions that affect the financial and retirement plans for individuals. Here are some of the highlights, along with some of their planning implications.<\/p>\n

$6,000 Deduction for Older Adults<\/p>\n

Starting this year and running through 2028, people who are at least 65 will be able to take advantage of a new $6,000 deduction. The deduction will be available for both itemizers and nonitemizers, and it doubles to $12,000 for married couples filing jointly, assuming both partners are 65. For nonitemizers, it\u2019s important to note that the new deduction would stack on top of already-available standard deductions. In 2025, the standard deduction is currently $15,750 for single filers, plus there was already an additional $2,000 deduction for single people over age 65. Thus, the new deduction for single filers over 65 would amount to $23,750 ($17,750 plus the new $6,000 deduction), and $46,700 for married couples filing jointly, assuming both partners are 65. For married couples, the $46,700 comes from the baseline standard deduction of $31,500, plus the already-existing $1,600 per person extra deduction for married people over age 65, and the new $12,000 deduction for couples who are 65-plus.<\/p>\n

Higher-income seniors should take note, however: Income limits apply. The deduction is reduced for single filers with modified adjusted gross incomes of more than $75,000 and married couples filing jointly with MAGI of more than $150,000, and goes away entirely for singles with MAGI of more than $175,000 and married couples filing jointly with MAGI of $250,000 or more.<\/p>\n

Planning Implications: The deduction is available to both itemizers and nonitemizers, meaning that taxpayers won\u2019t need to strategize to be able to take advantage of it. However, the income limits are apt to limit its utility to higher-income seniors. For early retirees who have a lot of control over their taxable income levels because they\u2019re not yet receiving Social Security or subject to required minimum distributions, it might be tempting to try to keep modified adjusted income down to qualify for the full deduction. But it\u2019s wise to balance those aims alongside other worthwhile tactics in those early-retirement years, such as converting traditional IRA balances to Roth.<\/p>\n

Social Security<\/p>\n

Related to the new deduction, the Social Security Administration emailed Social Security recipients over the weekend, telling them that the legislation would eliminate Social Security taxes for most people receiving benefits. But as Mike Piper points out in his Oblivious Investor blog<\/a>, the legislation doesn\u2019t make any direct changes to how Social Security benefits are taxed. Instead, the email was referring to the fact that seniors taking the new deduction, outlined above, are more likely to find themselves under the thresholds for Social Security to be taxable.<\/p>\n

However, it\u2019s important to note that the 0% tax rate on Social Security applies to seniors with fairly low levels of taxable income. Whether Social Security benefits are taxed depends on an individual\u2019s \u201ccombined\u201d income, which consists of adjusted gross income, any tax-exempt interest, and 50% of Social Security income. The new deduction has the potential to reduce that combined income, and in turn to taxes on Social Security. For single filers with combined incomes of less than $25,000 and married filers with combined incomes of less than $32,000, their Social Security benefits will not be taxable. For people with incomes in excess of those amounts, at least a portion of their Social Security benefits will be taxable.<\/p>\n

Planning Implications: While the administration touted that the new legislation will eliminate Social Security taxes for most taxpayers, those with a decent amount of investment income are still apt to find a portion of their benefits are taxable, especially once required minimum distributions kick in at age 73. It may be tempting to curtail portfolio withdrawals in the pre-RMD years in an effort to limit taxable income to reduce or eliminate tax on Social Security. But as noted above, those are often good years to consider converting traditional IRA balances to Roth at a fairly low tax rate relative to what taxes will be when RMDs kick in.<\/p>\n

State and Local Taxes<\/p>\n

While not directly retirement-related, the deductibility of SALT taxes is of keen interest to upper-middle-income taxpayers in high-tax states. Previously, taxpayers could deduct only $10,000 of their state and local taxes, and that limit was the same for single filers as well as married couples filing jointly. The legislation increases that amount to $40,000 from 2025 through 2029. The \u201cmarriage penalty\u201d remains in place: Single filers and married couples filing jointly both can deduct up to $40,000.<\/p>\n

However, the deduction phases out for higher-income taxpayers: Single filers with modified adjusted gross incomes in excess of $250,000 and married couples filing jointly with MAGI in excess of $500,000 will see their deductions curtailed.<\/p>\n

Planning Implications: Taxpayers who had grown complacent about not itemizing their deductions because their standard deduction was higher may want to look alive in the years ahead. The combination of the higher SALT deduction, the new $6,000 deduction for people over age 65, and any charitable contributions may well be enough to lift them over the standard deduction starting with this year. In other words, save those receipts for charitable contributions and other deductible outlays! It\u2019s also important to remember that the higher SALT tax cap expires at the end of 2029, reverting to $10,000 thereafter.<\/p>\n

Tax expert Jeff Levine points out that high-income taxpayers with modified adjusted gross incomes in the neighborhood of $500,000 to $600,000 ought to take extra care to keep a lid on taxable income if they wish to take advantage of the higher SALT deduction. He notes that due to the phaseout, the extra tax break on SALT effectively goes away for married couples with modified adjusted gross incomes of more than $600,000.<\/p>\n

Charitable Giving<\/p>\n

On the topic of charitable giving, the legislation included a few related provisions. The first relates to a new charitable gift deduction for nonitemizers: $1,000 for singles and $2,000 for married couples filing jointly. The provision is designed to ensure that people making small gifts earn some tax credit for their contributions, even if they\u2019re claiming the standard deduction. However, that deduction is only available starting in 2026.<\/p>\n

In addition, the bill puts a \u201cfloor\u201d under deductible charitable contributions, also beginning in 2026. Taxpayers will only be able to deduct their contributions to the extent that they\u2019re in excess of 0.05% of their adjusted gross incomes. For example, if a couple has AGI of $200,000, they can only deduct charitable contributions that exceed $1,000.<\/p>\n

Planning Implications: \u201cBunching\u201d charitable contributions will continue to be a worthwhile strategy, both to clear the standard deduction hurdle as well as to get over the \u201cfloor\u201d established by the new legislation. And seniors who are older than 70.5 will want to look at qualified charitable distributions<\/a>, which don\u2019t count as itemized deductions and therefore aren\u2019t subject to the \u201cfloor\u201d on charitable gifts that goes into place next year.<\/p>\n

Estate Tax<\/p>\n

The estate tax exclusion remains exceptionally high under the new legislation. It\u2019s currently $13,990,000 per person in 2025 and will go up to $15 million per individual in 2026. While the estate tax exclusion in TCJA was set to expire at the end of this year, the new exclusion amounts do not expire. (That\u2019s not to say that Congress couldn\u2019t vote to change them; it certainly could.)<\/p>\n

Planning Implications: Thanks to the very high exclusion amounts in place today, it\u2019s likely that most estates will not owe estate tax. But several states have estate taxes, and the exclusion amounts are generally lower than is the case for the federal exclusion today. Moreover, estate planning is about much more than limiting the taxes your heirs pay. You still need to designate powers of attorney, appoint guardians for minor children, and draft wills, for example. If you\u2019d been putting off drafting or updating an estate plan because of the uncertainty that the TCJA expiration created, you\u2019ve just lost your excuse.<\/p>\n

Gifting<\/p>\n

As always, the lifetime gift-tax exclusion falls in line with the estate tax exclusion amount: $13.99 million in 2025, going up to $15 million next year. The annual gift-tax exclusion amount (the amount each person can gift to another in a year without having to file a gift tax form) won\u2019t change in a meaningful way under the legislation: It\u2019s $19,000 per recipient for 2025, with inflation adjustments thereafter.<\/p>\n

One new development on the gifting front is the birth-based custodial accounts (\u201cTrump account\u201d) set to be established for children born between 2025 and 2028. The government will fund these accounts with $1,000 for newborns, and parents can contribute an additional $5,000 per year until the child reaches the age of 18.<\/p>\n

Planning Implications: As with the estate tax, most people are unlikely to ever owe gift tax, owing to the very high lifetime exclusion amounts.<\/p>\n

Regarding whether to fund a \u201cTrump account\u201d for a child or contribute to some other vehicle such as a 529 plan, the 529 looks a bit better from a tax standpoint. In contrast with 529 plans, which typically offer tax breaks on contributions, contributions to Trump accounts don\u2019t come with any sort of deduction or credit. Earnings in the Trump accounts will compound on a tax-sheltered basis; when the funds are withdrawn, they\u2019ll be dunned at the capital gains rate. Meanwhile, 529 plans also enjoy tax-sheltered compounding, but withdrawals are tax-free when used for qualified education expenses. The main thing the Trump accounts have going for them is flexibility: Unlike 529s, which generally must be used for education to receive the full gamut of tax breaks, proceeds from the Trump accounts can be used for other purposes. Thus, they look like reasonable ancillary vehicles if you\u2019re saving for children whose education funds are already well in hand, or if you expect that they won\u2019t need the funds for education.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cBarring Congressional Action, tax rates are set to revert to pre-Tax Cuts and Jobs Act levels at the…\n","protected":false},"author":2,"featured_media":9367,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[28,147,530],"class_list":["post-9366","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-personal-finance","tag-personalfinance"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/9366","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=9366"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/9366\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/9367"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=9366"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=9366"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=9366"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}