Over the last several years, some significant tax law changes have occurred starting with the passage of the Tax Cuts and Jobs Act (TCJA).  Going into effect in 2018, the TCJA marked the single largest overhaul of the tax code since the 1980s. To complicate the planning efforts of taxpayers, this overhaul also came with an expiration date where a significant amount of its provisions are subject to “Sunset” at the end of 2025 (discussed in more detail below). Then, there was the SECURE Act 1.0 and the SECURE Act 2.0 (effective 2020 and 2023, respectively), which introduced significant changes to the retirement account landscape with provisions still to be rolled out. Below, we will highlight some of the upcoming changes coming about through the SECURE Acts, along with the tax law changes that could come about if the TCJA sunsets.

The SECURE Acts

While not an exhaustive list, below are some of the prominent changes going into the next couple of years under SECURE Act 1.0 and 2.0:

• In 2024, a lifetime limit of up to $35,000 can be rolled over from a 529 to a Roth IRA (Subject to certain limitations and requirements, such as the annual Roth contribution limit which is currently $7,000).
• In 2024, Roth 401(k) accounts are no longer subject to required minimum distributions (RMDs).
• In 2025, beneficiaries must start taking RMDs from an inherited IRA if the original owner was also subject to RMDs.
• In 2025, individuals ages 60 through 63 can make increased catch-up contributions of up to $10,000 to a workplace retirement plan like a 401(k). Currently, the catch-up amount for people 50 and older is $7,500.
• In 2026, individuals deemed ‘highly paid employees’ will have their catch-up contributions to their retirement plans treated as Roth contributions.

Even with these changes under the SECURE Acts, the major planning topic of discussion (and uncertainty) over the next 18 months is what the tax law is going to look like in 2026.

The Tax Cuts and Jobs Act

When the TCJA became effective in 2018, it made some permanent changes such as cutting the corporate tax rate to a flat 21%, but the majority of the changes were only temporary.  As the law is currently written, without some type of action from Congress, a significant amount of changes under the act are set to expire (or “sunset”) on December 31, 2025. In event of a sunset, the tax code will revert to the way it was back in 2017 (adjusted for inflation) which would include increased tax rates, the removal of the pass-through deduction and cutting the estate exemption amount in half. Below are some of the major provisions set to change in the event the TCJA sunsets (again, not an exhaustive list):

• The Gift, Estate, and Generation-Skipping Transfer (GST) exclusion amount per person will be reduced to $5 million, adjusted for inflation (approx. $7 million, currently $13.61 million).
• Personal income tax rates would go up to pre-January 1, 2018, levels with tax brackets of 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Currently, they are 10%, 12%, 22%, 24%, 32%, 35%, 37%.
• The standard deduction would be cut roughly in half.
• The State and Local Tax (SALT) deduction would revert back to an unlimited deduction. Currently, capped at $10,000.
• The mortgage interest deduction (MID) limit increases $1 million of mortgage debt. Currently, $750,000.
• The charitable deduction of cash donations to public charities would decline to 50% of Adjusted Gross Income (AGI). Currently, 60%.
• Itemized deductions for high-income taxpayers would be subject to the Pease Limitation, reducing itemized deductions by up to 80% once a taxpayer’s income exceeds a certain threshold.
• The Qualified Business Income (QBI) deduction of 20% for owners of certain pass-through businesses would no longer be available.
• Alternative Minimum Tax (AMT) exemptions and phaseouts will revert to lower pre-TCJA amounts, exposing more taxpayers to AMT.

When this article was originally published, the future of the TCJA ultimately hinged on how the 2024 elections would play out.  Now, with the elections behind us and the Republicans winning the presidency and control of both houses of Congress, we have more clarity, relatively speaking. Since the TCJA was originally passed under the first Trump administration with a Republican-controlled Congress, it stands to reason that some form of the current tax law could be extended if not made permanent. Of course, while this path seems more likely than not, unfortunately, there are still no guarantees.  Please contact us if you have any questions.

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