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As you may know, there was recent tax legislation put into place which has many caveats that could potentially affect your tax planning.
In today’s blog, we are going to dive in and break down some of these recent changes in addition to discussing what we think can be the most impactful policies for the broadest cohort of people.
And the timeliness of this discussion is important as some of these changes, as it stands right now, are only available for a limited time, with some provisions phasing out by 2028 or 2029.
With that, we want to be sure to say that Rockline Wealth Management does not offer tax services and the discussion throughout this blog should not be seen as tax advice. You should always consult your tax professional when planning for your individual situation.
One of the biggest changes we see in this new tax legislation is the temporary expansion of the state and local tax, or SALT, deduction, a provision that could mean significant savings for retirees in high-tax states.
If you own a home in places like New York, California, or New Jersey, this is a change that can potentially be very impactful.
The SALT deduction allows you to deduct state and local taxes—such as property taxes, state income taxes, and some local taxes—from your federal taxable income.
For many years, this deduction had the potential to provide meaningful relief for taxpayers in states with higher tax rates.
With this recent legislation, the cap on the SALT deduction has now temporarily been lifted from $10,000 per year to $40,000 for taxpayers with a modified adjusted gross income (MAGI) below $500,000.
This is a substantial increase on the cap and depending on one’s situation, it could make a real difference in your annual tax liability.
The expanded cap starts to phase out for taxpayers with incomes above $500,000 where it is reduced by 30% of the amount exceeding the threshold, eventually being reduced back to the $10,000 limit.
As it stands right now, the expanded SALT deduction isn’t a permanent change but rather set to last through 2029, after which the cap could theoretically revert to its previous $10,000 limit.
And while the SALT deduction offers what could be a valuable tax break for many, it’s only one part of the broader policy that could ease the tax burden on seniors.
There’s another provision in the bill that targets the taxation of Social Security benefits.
The introduction of the $6,000 “senior deduction,” is one which could potentially help retirees reduce or even eliminate federal taxes on their Social Security benefits.
If you’re age 65 or older, this deduction could directly impact your tax bill—and for married couples where both spouses qualify, you may be able to claim up to $12,000 combined.
The $6,000 deduction per eligible individual is available whether you itemize your taxes or not, so it’s accessible to a range of retirees.
For single filers, the full deduction is available if your modified adjusted gross income (MAGI) is $75,000 or less.
And for married couples filing jointly, the full $12,000 deduction applies if your combined MAGI is $150,000 or less.
If your income is above these thresholds, the deduction phases out gradually based on your income.
This change has the ability to result in thousands of dollars in annual savings, making a real difference for retirees who are managing expenses like healthcare, housing, and everyday living costs.
Similar to the SALT Cap, it’s important to remember that, as it stands today, this opportunity is temporary and in this case, only available through the 2028 tax year.
Next up is Car Loan Interest where the new ruling allows you to deduct up to $10,000 in interest paid on a loan used to purchase a qualifying vehicle.
To qualify, the vehicle must be assembled in a U.S. factory and only vehicles meeting this final assembly rule are eligible for the deduction; leases and vehicles assembled outside the U.S. do not qualify.
As with the previsions listed earlier, income limits play a crucial role in determining eligibility.
The deduction begins to phase out at $100,000 of income for single filers and $200,000 for couples filing jointly.
In simpler terms, the phase out decreases above these income limits and disappears entirely at $150,000 of income for singles and $250,000 of income for joint filers.
In focusing on the younger generation, another provision introduced by this legislation is the expansion of coverage by 529 Plans.
For anyone not aware, a 529 Plan is a tax-advantaged savings plan for educational expenses.
The recent expansion of eligible expenses for these 529 plans now covers things like the cost of obtaining professional credentials, homeschooling expenses, tutoring, and other supplemental educational services.
Also introduced for the younger generation was a new form of investment account that certain children will be eligible for.
Children born between January 1, 2025 and December 31, 2028 will be eligible for an Individual Retirement Account, initially funded by the government, which is set to launch in 2026.
These accounts will receive a one-time $1,000 Government Contribution and have annual contribution limits of $5,000.
These accounts are designed as a type of IRA for children under 18, with features that set them apart from existing savings plans.
And what makes these accounts unique is the range of funding sources permitted.
Not only can family members contribute, but employers, government programs, and charitable organizations can also make contributions.
This feature distinguishes these accounts from most other IRA vehicles, where employer contributions for minors are rare and often treated as income.
Any funds contributed are essentially locked in until the child turns 18, at which point the account automatically converts to a Traditional IRA.
So, from that point on, the account follows the same rules as any other Traditional IRA, including annual contribution caps and withdrawal restrictions.
Also important to note is that the investment options in these new accounts may be limited before the child turns 18, as a precaution to help potentially reduce risk.
Once the account converts to a Traditional IRA, the investment choices expand to match those of standard retirement accounts.
Another potential advantage is that contributions to these accounts do not affect the IRA contribution limits for parents or grandparents.
This means you could theoretically help fund your grandchild’s future without sacrificing your own retirement savings strategy.
For retirees who have the means to do so, this could also potentially be another method of transferring wealth to the next generation.
To expand on the idea of wealth transfer, the new legislation also brought change to the Federal Estate Tax Exemption.
The number was set to drop almost in half in 2025 to about $6 million to $7 million per person which may have been cause of potential scrambling over the last couple of years.
With these changes, the limit was increased permanently to $15 million per person or $30 million per married couple and will adjust for inflation starting in 2026.
The Final Word:
With these changes, it could be an opportune time to meet with your team of trusted advisors including your Financial Advisor, your Accountant, and your Estate Planning attorney.
As you consider your next steps, keep in mind that everyone’s situation is different.
And because the eligibility rules and phase-outs can be complicated, it could be good idea to check with a tax advisor to ensure you’re planning properly for your goals and needs.
They can help you review your income streams, assess your eligibility, and plan your withdrawals or distributions to optimize your tax position for the next few years.
Thanks for reading!
Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Islip Terrace, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
All information presented is believed to be factual at the date of publication. This blog should not be viewed as advice for any individual and is intended for general informational purposes only.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio.
Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The opinions expressed and material provided are for general information and should not be considered a solicitation of financial advice or for the purchase or sale of any security.
Real-life and fictional examples given in this blog should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.
Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.