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.

The question of whether the provisions of the TCJA are allowed to sunset, are extended, or some combination of both will ultimately depend upon the results of the November 2024 presidential and congressional elections. There may be pressure for tax rate increases when faced with the backdrop of growing fiscal deficits and concerns over the federal debt. Still, tax changes might seem less likely if the election results in a divided government. Plus, with the increased political polarization in Washington, the prospects for any bipartisan tax legislation seem hard to imagine. All of this to say it is impossible to know with any certainty what the tax picture will look like in 2026. In light of this uncertainty, is there anything you can do in the meantime?  In the next blog of this series, we will discuss what actions to consider now in the event the TCJA was to Sunset. Please contact us if you have any questions.

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