Understanding the New Trump Accounts
With the enactment of the One Big Beautiful Bill Act in July 2025, Congress introduced a new class of tax-advantaged savings vehicles for minors known as Trump accounts. Here’s a breakdown of the key features.
What are they?
Trump accounts are custodial savings and investment accounts that can be established for U.S. children under age 18 to encourage long-term financial security. Contributions are made on an after-tax basis, and investments grow tax deferred until withdrawn. Withdrawals are generally prohibited until the year the child reaches age 18. These accounts are specifically targeted toward children.
Who is eligible?
Beginning July 2026, Trump accounts can be established for children who are U.S. citizens, have a valid Social Security number, and are under age 18. In addition, the new law creates a pilot program in which qualified account holders born between January 1, 2025, and December 31, 2028, are eligible for a one-time government contribution of $1,000. The Department of the Treasury may automatically enroll these children into the program. Children born outside of the 2025–2028 window, but who are still under age 18, qualify for a Trump account, though they will not receive the $1,000 seed grant. Trump accounts do not have income limits or restrictions.
What are the contribution limits?
Parents, relatives, and others may contribute up to $5,000 per child annually. The $5,000 cap will be adjusted for inflation in future years. Contributions are made with after-tax dollars.
Employers can set up plans under which contributions may be made to employees’ Trump accounts or the Trump accounts of employees’ dependents. Up to $2,500 may be contributed annually for each employee. Contributions made by an employer to a Trump account on behalf of an employee under such a plan are not included in the employee’s gross income.
Charities and governmental entities may also make contributions to Trump accounts under certain conditions. No such contributions by charities and governmental entities do not count toward the $5,000 annual limit. Also, the $1,000 federal seed contribution is excluded from the $5,000 annual contribution limit.
What is the tax treatment for these accounts?
Contributions from individuals are made with after-tax dollars, meaning they are not deductible but will eventually be able to be withdrawn tax-free. Employer, charitable, and government contributions, as well as the $1,000 seed grant, are not considered income at the time the contribution is made but will be included in income upon distribution.
Earnings on all contributions grow tax deferred. When the account holder reaches age 18 and is able to take distributions, the account may contain amounts that are not taxable upon distribution (amounts contributed by parents and relatives) as well as amounts that are taxable upon distribution (earnings, and any contributions made by an employer, charitable or governmental entity, or as a result of the $1,000 seed grant). The same general rules that apply to IRAs apply to Trump accounts, including:
- If there are non-taxable parent or individual contributions in the account, any distribution is considered to consist of a proportionate share of taxable and non-taxable amounts.
- Taxable distributions are taxed at ordinary income rates, and a 10% additional penalty tax applies if a distribution is made prior to age 59½ unless an exception applies.
- Exceptions to the 10% penalty include withdrawals for higher education costs and up to $10,000 for a first-time home purchase.
How are the funds invested?
Trump account funds are automatically invested in a mutual fund or exchange-traded fund that tracks the returns of a qualified index, such as one tracking the S&P 500. Account holders cannot choose between multiple funds or adjust the investment mix, and the allocation is fixed and limited to U.S. equities. Funds must have annual fees no higher than 0.1%.
What’s next?
The IRS is expected to issue additional regulations and guidance that clarify the administrative details of the new law.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
Mutual funds and exchange-traded funds are sold by prospectus. Consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional.
The performance of an unmanaged index is not indicative of the performance of any specific security. Individuals cannot invest directly in any index. Past performance has no guarantee of future results. Actual results will vary.
Tax and Spending Bill Signed into Law
President Trump signed into law the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, after months of deliberation in the House and Senate. The legislation includes multiple tax provisions that will guide individuals, business owners, and investors in planning their finances for many years to come. It makes permanent most of the 2017 Tax Cuts and Jobs Act (TCJA) tax provisions that were set to expire this year, while delivering some new deductions and changes.
Expiring provisions that are now permanent
| Tax brackets | The TCJA reduced the applicable tax rates for most brackets for the years 2018 through 2025, while increasing the income range covered by each bracket. The new legislation makes the TCJA rates and structure permanent. Individual marginal income tax brackets will remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. |
| Standard deduction | The new legislation makes permanent the larger standard deduction amounts established by TCJA, with an additional increase. For 2025, standard deduction amounts are: $31,500 for married filing jointly $23,625 for head of household $15,750 for single and married filing separately |
| Personal exemptions | The deduction for personal exemptions ($4,050 per exemption in 2017, the last year it was available) is now permanently eliminated. |
| Child tax credit | Prior temporary increases to the child tax credit, the refundable portion of the credit, and income phase-out ranges are made permanent. The child tax credit is increased to $2,200 for each qualifying child starting in 2025. |
| Mortgage interest deduction | The $750,000 ($375,000 for married filing separately) limit on qualifying mortgage debt for purposes of the mortgage interest deduction is made permanent. Interest on home equity indebtedness is now permanently nondeductible. A previously expired provision allowing for the deduction of mortgage insurance premiums as interest is reinstated and made permanent (subject to income limitations), beginning in 2026. |
| Estate and gift tax exemption | The larger estate and gift tax exemption amount (essentially doubled) implemented by the TCJA is made permanent, increased to $15 million in 2026 ($30 million for married couples), and will be indexed for inflation in subsequent years. |
| Alternative minimum tax (AMT) | The significantly increased AMT exemption amounts and exemption income phase-out thresholds implemented by TCJA are made permanent. |
| Itemized deduction limit | The overall limit on itemized deductions (the “Pease limitation”), previously suspended for 2018-2025, is now permanently replaced with a percentage reduction that applies to individuals in the highest tax bracket (37%) that effectively caps the value of each dollar of itemized deductions at $0.35. |
| Qualified business income deduction (Section 199A) | The new legislation permanently extends the deduction for qualified business income created by the TCJA and increases the phase-in thresholds for the deduction limit. A new minimum deduction of $400 is now available for certain individuals with at least $1,000 in qualified business income. |
Existing provisions with material changes
The One Big Beautiful Bill Act also makes some significant changes to other provisions, some temporary but others permanent. Two of the changes that received significant coverage leading up to passage and enactment include a temporary increase in the limit on allowable state and local tax (SALT) deductions and the rollback of existing energy tax incentives.
State and local tax (SALT) deduction
The new legislation temporarily increases the cap on the state and local tax deduction from $10,000 to $40,000. This increased cap is retroactively effective for 2025. The $40,000 cap will increase to $40,400 in 2026 and by 1% for each of the following three years.
The cap is reduced for those with modified adjusted gross incomes exceeding $500,000 (tax year 2025, adjusted for inflation in subsequent years), but the limit is never reduced below $10,000.
In 2030, the cap will return to $10,000.
Repeal and phase-out of clean energy credits
The new legislation significantly rolls back energy-related tax incentives. Provisions include:
- The Clean Vehicle Credit (IRC Section 30D), the Previously Owned Clean Vehicle Credit (IRC Section 25E), and the Qualified Commercial Clean Vehicles Credit (IRC Section 45W) are eliminated effective for vehicles acquired after September 30, 2025.
- The Energy Efficient Home Improvement Credit (IRC Section 25C) and the Residential Clean Energy Credit (IRC Section 25D) are repealed for property placed in service after December 31, 2025.
- The New Energy Efficient Home Credit (IRC Section 45L) will expire on June 30, 2026; the credit cannot be claimed for homes acquired after that date.
- The Alternative Fuel Vehicle Refueling Property Credit (IRC Section 30C) will not be available for property placed in service after June 30, 2026.
Gambling losses
The new law changes the treatment of gambling losses, effective as of 2026. Before the legislation, individuals could deduct 100% of their gambling losses against winnings (the deduction could never exceed the amount of gambling winnings); now, a new cap limits deductions to 90%.
Bonus depreciation and Section 179 expensing
Prior to this legislation, the additional first-year “bonus” depreciation was being phased out, with the maximum deduction dropping to 40% by 2025. The new legislation permanently establishes a 100% additional first-year depreciation deduction for qualifying property, allowing businesses to deduct the full cost of such property immediately. The 100% additional first-year depreciation deduction is available for property acquired after January 19, 2025.
Effective for property placed in service in 2025, the legislation also increases the limit for expensing under IRC Section 179 from $1 million (indexed for inflation) to $2.5 million, and it increases the phase-out threshold from $2.5 million (indexed for inflation) to $4 million.
New provisions
The One Big Beautiful Bill Act also contains multiple new tax deductions that are intended to represent a step toward fulfilling campaign promises made to end taxes on Social Security, tips, and overtime. These new deductions are temporary, but other changes, like allowing individuals who do not itemize deductions to deduct some amount of qualifying charitable contributions, are permanent.
Deduction for seniors
Effective for tax years 2025–2028, the legislation creates a new $6,000 deduction for qualifying individuals who reach the age of 65 during the year. The deduction begins to phase out when modified adjusted gross income exceeds $75,000 ($150,000 for married filing jointly).
Tip income deduction (“no tax on tips”)
Effective for tax years 2025–2028, for the first time, tip-based workers can deduct a portion of their cash tips for federal income tax purposes. Individuals who receive qualified cash tips in occupations that customarily received tips prior to January 1, 2025, may exclude up to $25,000 in reported tip income from their federal taxable income. A married couple filing a joint return may each deduct up to $25,000. The deduction phases out at a modified adjusted gross income of $150,000 for single filers and $300,000 for joint filers. This provision applies to a broad range of service occupations, including restaurant staff, hairstylists, and hospitality workers.
Overtime deduction (“no tax on overtime”)
A new temporary deduction of up to $12,500 ($25,000 if married filing jointly) is established for qualified overtime compensation. The deduction is phased out for individuals with a modified adjusted gross income of over $150,000 ($300,000 if married filing jointly). The deduction is reduced by $100 for each $1,000 of modified adjusted gross income exceeding the threshold. To claim the deduction, a Social Security number must be provided. The deduction is available for tax years 2025–2028.
Investment accounts for children (“Trump accounts”)
A new tax-deferred account for children under the age of 18 is created, effective January 1, 2026. With limited exceptions, up to $5,000 in total can be contributed to an account annually (the $5,000 amount is indexed for inflation). Parents, relatives, and employers, as well as certain taxable, nonprofit, and government organizations, may make contributions. Contributions are not tax-deductible. For children born between 2025 and 2028, the federal government will contribute $1,000 per child into eligible accounts. Distributions generally cannot be made from the account prior to the account holder reaching the age of 18, and there are restrictions, limitations, and tax consequences that govern how and when account funds can be used. To have an account, a child must be a U.S. citizen and have a Social Security number.
Charitable deduction for non-itemizers
The legislation reinstates a tax provision that was previously effective for tax year 2021. A deduction for qualifying charitable contributions is now permanently established for individuals who do not itemize deductions. The deduction is capped at $1,000 ($2,000 for married filing jointly). Contributions must be made in cash to a public charity and meet other specific requirements. This deduction is available starting in tax year 2026.
Car loan interest deduction (“no tax on car loan interest”)
For tax years 2025–2028, interest paid on car loans is now deductible for certain buyers. Beginning in 2025, taxpayers who purchase qualifying new vehicles assembled in the United States for personal use may deduct up to $10,000 in loan interest annually. The deduction is phased out at higher incomes, starting at a modified adjusted gross income of $100,000 (single filers) or $200,000 (joint filers).
There’s more …
The One Big Beautiful Bill Act includes broad and sweeping changes that will have a profound impact. While income and estate tax provisions are highlighted here, the legislation also makes fundamental changes impacting areas such as health care, immigration, and border security. There are also additional tax changes made by the legislation that are not mentioned in this summary. Additional information and details will be available in the coming weeks and months. As always, if you have questions about how these changes affect your specific situation, consider consulting a tax professional.
Many 2017 Tax Act Changes Scheduled to Expire After 2025
The Tax Cuts and Jobs Act was signed into law in December 2017. The Act made extensive changes that affected both individuals and businesses. Most provisions were effective for 2018. Many individual tax provisions are scheduled to sunset and revert to pre-existing law after 2025 unless Congress acts. Some key provisions of the Act scheduled to sunset are discussed below. Comparisons below are generally for 2025 and 2026 as currently scheduled if Congress does not act.
Individual income tax rates
2025. There are seven regular income tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
2026. There would be seven regular income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
Personal exemptions, standard deduction, and itemized deductions
2025. Personal (and dependency) exemptions are not available.
You can generally choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts are available if you are blind or age 65 or older. Standard deduction amounts are high.
Many itemized deductions are eliminated or restricted, but the overall limitation on itemized deductions based on the amount of your adjusted gross income does not apply.
- The deduction for state and local taxes is limited to $10,000 ($5,000 if married filing separately).
- The deduction for mortgage interest is available, but the maximum benefit is reduced for some individuals, and interest on home equity loans is deductible only if used for certain purposes.
- The deduction for personal casualty losses is eliminated unless the loss is incurred in a federally declared disaster.
2026. In general, personal (and dependency) exemptions would be available for you, your spouse, and your dependents. Personal exemptions would be phased out for those with higher adjusted gross incomes.
You would generally be able to choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts would be available if you are blind or age 65 or older. Standard deduction amounts would be much lower.
Itemized deductions would include deductions for: medical expenses, state and local taxes, home mortgage interest, investment interest, charitable gifts, casualty and theft losses, job expenses and certain miscellaneous deductions, and other miscellaneous deductions.
Many itemized deductions that were eliminated or restricted would be restored, but the overall limitation on itemized deductions based on the amount of your adjusted gross income would return.
- The deduction for state and local taxes would no longer be limited to $10,000 ($5,000 if married filing separately).
- The deduction for mortgage interest would still be available, but the maximum benefit would be increased for some individuals, and home equity loans could once again be used for any purpose.
- The deduction for personal casualty losses would be available without regard to whether the loss is incurred in a federally declared disaster.
Personal exemptions, standard deduction, itemized deductions
| Personal and Dependency Exemptions (you, your spouse, and dependents) | ||
| 2025 | 2026 | |
| Exemption | No personal exemption | Yes, $5,200 each (plus inflation adjustment for 2026) |
In 2026, personal exemptions would generally be available in addition to either the standard deduction or itemized deductions.
Additional aged/blind
| Standard Deduction | ||
| 2025 | 2026 | |
| Married filing jointly | $30,000 | Cut by about one-half |
| Head of household | $22,500 | Cut by about one-half |
| Single/married filing separately | $15,000 | Cut by about one-half |
| Single/head of household | $2,000 | About the same |
| All other filing statuses | $1,600 | About the same |
| Itemized Deductions | ||
| 2025 | 2026 | |
| State and local taxes | Yes, limited to $10,000 ($5,000 for married filing separately) | Yes, income (or sales) tax, real property tax, personal property tax |
| Home mortgage interest | Yes, limited to $750,000 ($100,000 for home equity loan, but only if used to buy, build, or substantially improve the taxpayer’s home that secures the loan), one-half those amounts for married filing separately; the $1,000,000/$500,000 limit still applies to debt incurred before December 16, 2017 | Yes, limited to $1,000,000 ($100,000 for home equity loan and can be used for any purpose), one-half those amounts for married filing separately |
| Charitable gifts | Yes, 50% of adjusted gross income limit raised to 60% for certain cash gifts | Yes |
| Casualty and theft losses | Federally declared disasters only | Yes |
| Job expenses and certain miscellaneous deductions | No | Yes |
Child tax credit
2025. The maximum child tax credit is $2,000. A non-refundable credit of $500 is available for qualifying dependents other than qualifying children. The maximum refundable amount of credit is $1,700. The amount at which the credit begins to phase out is high, and the earned income threshold is $2,500.
2026. The maximum child tax credit would be $1,000. The child tax credit would be phased out if modified adjusted gross income exceeds certain much lower amounts. If the credit exceeds the tax liability, the child tax credit would be refundable up to 15% of the amount of income earned more than $3,000 (the earned income threshold).
Credit phaseout threshold
| Child Tax Credit | ||
| 2025 | 2026 | |
| Maximum credit | $2,000 | $1,000 |
| Non-child dependents | $500 | N/A |
| Maximum refundable | $1,700 | $1,000 |
| Refundable earned income threshold | $2,500 | $3,000 |
| Single/head of household | $200,000 | $75,000 |
| Married filing jointly | $400,000 | $110,000 |
| Married filing separately | $200,000 | $55,000 |
Alternative minimum tax (AMT)
2025. The alternative minimum tax exemptions and exemption phaseout thresholds are high.
2026. The alternative minimum tax exemptions and exemption phaseout thresholds would be much lower. Many more taxpayers would be subject to the AMT.
Special provisions for business income of individuals
2025. An individual taxpayer can deduct 20% of domestic qualified business income (excludes compensation) from a partnership, S corporation, or sole proprietorship. The benefit of the deduction is phased out for specified service businesses with taxable income exceeding $197,300 ($394,000 for married filing jointly). The deduction is limited to the greater of (1) 50% of the W-2 wages of the taxpayer, or (2) the sum of (a) 25% of the W-2 wages of the taxpayer, plus (b) 2.5% of the unadjusted basis immediately after acquisition of all qualified property (certain depreciable property). This limit does not apply if taxable income does not exceed $197,300 ($394,000 for married filing jointly), and the limit is phased in for taxable income above those thresholds.
2026. There would be no deduction for qualified business income.
Estate, gift, and generation-skipping transfer tax
2025. The gift and estate tax basic exclusion amount and the generation-skipping transfer tax exemption are $13,990,000.
2026. These amounts would be reduced by about one-half.
Federal 2024 Tax Filing Season Began January 27
IRS began accepting and processing 2024 tax-year returns on Monday, January 27, 2025.
Tips for making filing easier
To speed a potential tax refund and help with tax filing, the IRS suggests the following:
- Make sure you have received Form W-2 and other earnings information, such as Form 1099, from employers and payers. The dates for furnishing such information to recipients vary by form, but they are generally not required before February 1, 2025. You may need to allow additional time for mail delivery.
- Go to irs.gov to find the federal individual income tax returns, Form 1040 and Form 1040-SR (available for seniors born before January 2, 1960), and their instructions.
- File electronically and use direct deposit.
- Check irs.gov for the latest tax information.
Key filing dates
Here are several important dates to keep in mind:
- January 10. IRS Free File opened. IRS Free File Guided Tax Software, available only at irs.gov, allows participating software companies to accept completed tax returns of any taxpayer or family with an adjusted gross income of $84,000 or less in 2024 and hold them until they can be electronically filed with the IRS starting January 27. Also beginning January 27, Free File Fillable forms were available to taxpayers of any income level to fill out and e-file themselves at no cost.
- January 27. IRS began accepting and processing individual tax returns. Also, Direct File (a web-based service that works on mobile phones, laptops, tablets, or desktop computers) opened to eligible taxpayers (check at irs.gov; not all tax situations are covered) in 25 states to file their taxes directly with the IRS for free.
- April 15. Deadline for filing 2024 tax returns (or requesting an extension) for most taxpayers.
- October 15. Deadline to file for those who requested an extension on their 2024 tax returns.
Tax refunds
The IRS encourages taxpayers seeking a tax refund to file their tax return as soon as possible. The IRS expects to issue most tax refunds within 21 days of their receiving a tax return if the return is filed electronically, the tax refund is delivered through direct deposit, and there are no issues with the tax return. To minimize delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.
IRS Releases 2025 Standard Mileage Rates
The IRS has increased the optional standard mileage rates for computing the deductible costs of operating an automobile for business purposes for 2025. However, the standard mileage rates for medical and moving expense purposes remain the same for 2025. The standard mileage rate for computing the deductible costs of operating an automobile for charitable purposes is set by statute and remains unchanged.
For 2025, the standard mileage rates are as follows:
- Business use of auto: 70 cents per mile (up from 67 cents for 2024) may be deducted if an auto is used for business purposes. If you are an employee, your employer can reimburse you for your business travel expenses using the standard mileage rate. However, if you are an employee and your employer does not reimburse you for your business travel expenses, you cannot currently deduct your unreimbursed travel expenses as miscellaneous itemized deductions.
- Charitable use of auto: 14 cents per mile (the same as for 2024) may be deducted if an auto is used to provide services to a charitable organization if you itemize deductions on your income tax return. Your charitable deduction may be limited to certain percentages of your adjusted gross income, depending on the type of charity.
- Medical use of auto: 21 cents per mile (the same as for 2024) may be deducted if an auto is used to obtain medical care (or for other deductible medical reasons) if you itemize deductions on your income tax return. You can deduct only the part of your medical and dental expenses that exceed 7.5% of the amount of your adjusted gross income.
- Moving expense use of auto: 21 cents per mile (the same as for 2024) may be deducted if an auto is used by a member of the Armed Forces on active duty to move, pursuant to a military order, to a permanent change of station (unless such expenses are reimbursed). The deduction for moving expenses is not currently available for other taxpayers.
Maximizing Your 401(k) in 2025 if You Are Dreaming of Retirement!
About 70% of U.S. private-sector workers have the option to contribute to a retirement plan such as a 401(k), 403(b), or 457(b) plan provided by an employer. Unfortunately, many of them don’t take full advantage of this tax-friendly opportunity to save for the future.1
The SECURE Act and SECURE 2.0 Act (federal legislation passed in 2019 and 2022, respectively) sought to improve Americans’ retirement security by expanding access to workplace retirement accounts and encouraging workers to save more. As a result, some older workers will be allowed to make bigger contributions to their retirement accounts in 2025.
That’s good news if you are one of the many Americans who have experienced bouts of unemployment, took time out of the workforce for caregiving, helped pay for pricey college educations for your children (or yourself), or faced other financial challenges that prevented you from saving consistently. You may have some catching up to do. And regardless of your age, the responsibility for saving enough and investing wisely for retirement is largely in your hands.
Starting out strong
The funds invested in tax-deferred retirement accounts accumulate on a tax-deferred basis, which means you don’t have to pay any required taxes until you withdraw the money. Instead, all returns are reinvested so they can continue compounding through the years. This is the main reason why young workers can really benefit from saving as much as they can, as soon as they can.
Many companies will match part of employee 401(k) contributions, so it’s a good idea to save at least enough to receive full company matches and any available profit sharing (e.g., 5% to 6% of salary). But to set yourself up for a comfortable retirement, you might elect to automatically increase your contribution rate by 1% each year (if that option is available) until you reach your desired rate, such as 10% to 15%.
Saving to the max
If you have extra income that you would like to save, keep in mind that the employee contribution limit for 401(k), 403(b), and government 457(b) plans is $23,500 in 2025, with an additional $7,500 catch-up contribution for those age 50 and older, for a total of $31,000.
New for 2025, workers age 60 to 63 can make a larger “super catch-up” contribution of $11,250 for a total of $34,750. Like all catch-up contributions, the age limit is based on age at the end of the year, so you are eligible to make the full $11,250 contribution if you turn 60 to 63 any time during 2025 (but not if you turn 64).
You might also want to find out if your employer’s plan allows special after-tax contributions. If so, consider yourself lucky because this feature is not common, especially at smaller companies.
In 2025, the combined total for salary deferrals (not including catch-up contributions), employer contributions, and employee after-tax contributions is $70,000 or 100% of compensation, whichever is less.
You generally must max out salary deferrals before you can make additional after-tax contributions. For example, if you are age 60, and you contribute the maximum $34,750 to your 401(k), and your employer contributes $15,000, you may be able to make a sizable after-tax contribution of $31,500 for a grand total of $81,250.
SIMPLE retirement plans (offered by smaller companies) operate under different rules and have lower limits: $16,500 in 2025 plus an additional $3,500 catch-up for employees age 50 and older or an additional $5,250 for employees age 60 to 63. (Certain SIMPLE plans may have higher limits.)
All these contribution and catch-up limits are indexed annually to inflation.
Choosing between traditional or Roth
Traditional (or pre-tax) contributions are deducted from your paycheck before taxes, resulting in a lower current tax bill, and withdrawals are taxed as ordinary income. Roth contributions are considered “after-tax,” so they won’t reduce the amount of current income subject to taxes, but qualified distributions down the road will be tax-free (under current law).
A Roth distribution is considered qualified if the account is held for five years and the account owner reaches age 59½, dies, or becomes disabled. (Other exceptions may apply.)
Withdrawals from pre-tax retirement accounts prior to age 59½ and nonqualified withdrawals from Roth accounts are subject to a 10% penalty on top of ordinary income taxes. However, because Roth contributions are made with after-tax dollars, they can be withdrawn at any time without tax consequences.
When deciding between traditional and Roth contributions, think about whether you are likely to benefit more from a tax break today than you would from a tax break in retirement. Specifically, if you expect to be in a higher tax bracket in retirement, Roth contributions may be more beneficial eventually.
But you should also consider that generally you will have to take taxable required minimum distributions (RMDs) from traditional accounts once you reach age 73 (or 75, depending on year of birth), whether you need the money or not. Roth accounts are not subject to RMDs during your lifetime, which can make them useful for estate planning purposes. This also provides flexibility to make withdrawals only when necessary and could help you avoid unwanted taxes or Medicare surcharges.
Splitting your contributions between traditional and Roth accounts could help create a wider range of future options.
Lastly, there’s another new rule that could impact your contribution decisions over the coming years. Starting in 2026, all your catch-up contributions would have to be Roth contributions if you earned more than $145,000 during the previous year.
1) U.S. Bureau of Labor Statistics, 2024
Year-End Charitable Giving
The tax benefits associated with charitable giving could potentially enhance your ability to give and should be considered as part of your year-end tax planning.
Tax deduction for charitable gifts
If you itemize deductions on your federal income tax return, you can generally deduct your gifts to qualified charities. This may also help increase your gift.
Example: Assume you want to make a charitable gift of $1,000. One way to potentially enhance the gift is to increase it by the amount of any income taxes you save with the charitable deduction for the gift. At a 24% tax rate, you might be able to give $1,316 to charity [$1,000 ÷ (1 – 24%) = $1,316; $1,316 x 24% = $316 taxes saved]. On the other hand, at a 32% tax rate, you might be able to give $1,471 to charity [$1,000 ÷ (1 – 32%) = $1,471; $1,471 x 32% = $471 taxes saved].
Note, the amount of your deduction may be limited to certain percentages of your adjusted gross income (AGI). Your deduction for gifts to charity is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your AGI, depending on the type of property you give and the type of organization to which you contribute. Charitable deductions that exceed the AGI limits may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years.
It is important to retain proper substantiation of your charitable contributions. In order to claim a charitable deduction for any contribution of cash, a check, or other monetary gift, you must maintain a record of such contributions through a bank record (such as a cancelled check, a bank or credit union statement, or a credit-card statement) or a written communication (such as a receipt or letter) from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution. If you claim a charitable deduction for any contribution of $250 or more, you must substantiate the contribution with a contemporaneous written acknowledgment of the contribution from the charity. There are additional requirements if you make any noncash contributions,
Year-end tax planning
When making charitable gifts at the end of the year, you should consider them as part of your year-end tax planning. Typically, you have a certain amount of control over the timing of income and expenses. You generally want to time your recognition of income so that it will be taxed at the lowest rate possible, and time your deductible expenses so they can be claimed in years when you are in a higher tax bracket.
For example, if you expect to be in a higher tax bracket next year, it may make sense to wait and make the charitable contribution in January so that you can take the deduction next year when the deduction results in a greater tax benefit. Or you might shift the charitable contribution, along with other deductions, into a year when your itemized deductions would be greater than the standard deduction amount. And if the income percentage limits above are a concern in one year, you might consider ways to shift income into that year or shift deductions out of that year, so that a larger charitable deduction is available for that year. A tax professional can help you evaluate your individual tax situation.
A word of caution
When making charitable contributions, be sure to deal with recognized charities and be wary of charities with names that sound like reputable charitable organizations. It is common for scam artists to impersonate reputable charities using bogus websites as well as misleading email, phone, social media, and in-person solicitations. Check out the charity on the IRS website, irs.gov, using the Tax-Exempt Organization Search tool. And remember, don’t send cash; contribute by check or credit card.
Qualified Charitable Distributions from an IRA
Individuals must be 701/2 or older to make tax-free charitable donation up to $105,000 in 2024. Among the requirements are that the payments must be paid directly from the IRA to a qualified charitable organization and receive an acknowledgement from the charitable organization. The acknowledgment must state the date and the amount of the contribution. The acknowledgement must also state whether the donor received anything of value for the payment.
Can You Access Your Retirement Plan Money After a Disaster?
If you have been affected by Hurricane Helene, Hurricane Milton, or another recent federally declared major disaster, you may be relieved to hear that over the past few years, it has become easier to access your work-based retirement plan and IRA money. Following is a summary of the rules for qualified disaster recovery distributions and disaster-related plan loans. For more information, please contact your retirement plan or IRA Administrator.
Penalty-free distributions
Since 2019, many work-based plan participants affected by disasters have had the option to take a hardship withdrawal from their plan accounts to help recover from qualified losses. Generally, hardship withdrawals are subject to a 10% early-distribution penalty for those younger than 59½, as well as ordinary income taxes.
In 2022, the SECURE 2.0 Act ushered in a new provision allowing retirement savers to take qualified disaster recovery distributions of up to $22,000 in total, penalty-free, from their retirement accounts. Plans include (but are not limited to) 401(k) plans, 403(b) plans, 457(b) plans, and — unlike hardship withdrawals — IRAs.
The distribution must be requested within 180 days of the disaster or declaration, whichever is later. Although ordinary income taxes still apply to qualified disaster recovery distributions, account holders may spread the income, and therefore the tax obligation, over three years.1
Moreover, account holders have the option of repaying the amount distributed, in whole or in part, to any eligible retirement plan within three years, thereby avoiding or reducing the tax hit.2 (Note that if a work-sponsored plan does not accept rollovers, it is not required to accept repayments.)
An individual is qualified for a disaster recovery distribution if their primary residence is in the disaster area and the individual has suffered a disaster-related economic loss. Examples of economic loss include:
- Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, or wind
- Loss related to displacement from the individual’s home
- Loss of livelihood due to temporary or permanent layoff
This is not a comprehensive list; other losses may also qualify.
Although work-based plans are not required to offer qualified disaster recovery distributions, an individual may treat a distribution as such on his or her tax returns. Qualified disaster recovery distributions are reported on Form 8915-F.
Plan loans
Rather than taking a distribution and having to report it as taxable income, work-based plan participants (but not IRA account owners) may also be able to borrow from their plan accounts.
Typically, plan loans are limited to (1) the greater of 50% of the participant’s vested account balance or $10,000, or (2) $50,000, whichever is less. In addition, loans generally need to be repaid within five years. However, with respect to a qualified disaster, employers may raise the loan limit to as much as the full amount of the participant’s balance or $100,000, whichever is less (minus the amount of any outstanding loans). Employers may also extend the period for any outstanding loan payments due in the 180 days following a disaster for up to one year; the overall repayment period will adjust accordingly.
Employers are not required to offer plan loans or modify plan provisions due to a disaster.
For more information on qualified disaster recovery distributions and disaster loans, please speak with your IRA or retirement plan administrator, and consider seeking the guidance of a qualified tax professional.
For more information about disaster assistance available from the IRS, please visit www.irs.gov/newsroom/tax-relief-in-disaster-situations.
For information specific to Hurricanes Helene and Milton, please visit www.usa.gov/disasters-and-emergencies.
For general information about disaster financial assistance available from the federal government, please visit www.usa.gov/disaster-financial-help.
1) Alternatively, an individual may elect to report the entire distribution in the year it is made.
2) Taxpayers may file an amended tax return for taxes previously paid on the distribution(s).
Here are some things to consider as you weigh potential tax moves between now and the end of the year.
1. Defer income to next year
Consider opportunities to defer income to 2025, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.
2. Accelerate deductions
You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as qualifying interest, state taxes, and medical expenses before the end of the year (instead of paying them in early 2025) could be effective on your 2024 return.
3. Make deductible charitable contributions
If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but the deduction is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your adjusted gross income (AGI), depending on the type of property you give and the type of organization to which you contribute. (Excess amounts can be carried over for up to five years.)
4. Bump up withholding to cover a tax shortfall
If it looks as though you will owe federal income tax for the year, consider increasing your withholding on Form W-4 for the remainder of the year to cover the shortfall. Time may be limited for employees to request a Form W-4 change and for their employers to implement it in time for 2024. The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are taken from your paycheck. This strategy can be used to make up for low or missing quarterly estimated tax payments.
5. Save more for retirement
Deductible contributions to a traditional IRA and pretax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2024 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so. For 2024, you can contribute up to $23,000 to a 401(k) plan ($30,500 if you’re age 50 or older) and up to $7,000 to traditional and Roth IRAs combined ($8,000 if you’re age 50 or older).* The window to make 2024 contributions to an employer plan generally closes at the end of the year, while you have until April 15, 2025, to make 2024 IRA contributions.
*Roth contributions are not deductible, but Roth qualified distributions are not taxable.
6. Take required minimum distributions
If you are age 73 or older, you generally must take required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (special rules may apply if you’re still working and participating in your employer’s retirement plan). You must make the withdrawals by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 25% of any amount that you failed to distribute as required (10% if corrected in a timely manner).
7. Weigh year-end investment moves
You shouldn’t let tax considerations drive your investment decisions. However, it’s worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all those gains by selling losing positions. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.
- Qualified Charitable contributions
A qualified charitable distribution (QCD) is a tax-free transfer from an IRA directly to a qualified charity. You must be at least 70.5 years old. Distributions from SEP or SIMPLE IRA do not qualify. The maximum that qualifies in 2024 is $105,000. An acknowledgement for the QCD must be received from the charity.
Required Distributions: Changes You Need to Know
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) changed the rules for taking distributions from retirement accounts inherited after 2019. The so-called 10-year rule generally requires inherited accounts to be emptied within 10 years of the original owner’s death, with some exceptions. Where an exception applies, the entire account must generally be emptied within 10 years of the beneficiary’s death or within 10 years after a minor child beneficiary reaches age 21. This reduces the ability of most beneficiaries to spread out, or “stretch,” distributions from an inherited defined contribution plan or an IRA.
In 2022, the IRS issued proposed regulations that interpreted the revised required minimum distribution (RMD) rules. Final regulations have now been issued and are generally applicable starting in 2025. They basically adopt the proposed regulations, while reflecting some changes made by the SECURE 2.0 Act of 2022 and including certain changes in response to comments received on the proposed regulations. Under these regulations, some beneficiaries could be subject to annual required distributions as well as a full distribution at the end of a 10-year period. Account owners and their beneficiaries may want to familiarize themselves with these changes and how they might be affected by them.
RMD basics
If you own an individual retirement account (IRA) or participate in a retirement plan like a 401(k), you generally must start taking RMDs for the year you reach your RMD age. RMD age is 70½ (if born before July 1, 1949), 72 (if born July 1, 1949, through 1950), 73 (if born in 1951 to 1959), or 75 (if born in 1960 or later). If you are still working for the employer that maintains the retirement plan, you may be able to wait until the year you retire to start RMDs from that account. Failing to take an RMD can be costly: a 25% penalty tax (50% prior to 2023) generally applies to the extent an RMD is not made.
The required beginning date (RBD) for the first year you are required to take a lifetime distribution is no later than April 1 of next year. After your first distribution, annual distributions must be taken by the end of each year. (Note that if you wait until April 1 to take your first-year distribution, you will have to take two distributions for that year: one by April 1 and the other by December 31.)
Lifetime distributions are not required from Roth accounts and, as a result, Roth account owners are always treated as dying before their RBD. Prior to 2024, these two special rules for Roth accounts applied to Roth IRAs, but not to Roth employer retirement plans.
When you die, the RMD rules also govern how quickly your retirement plan or IRA will need to be distributed to your beneficiaries. The rules are largely based on two factors: (1) the individuals you select as beneficiaries of your retirement plan, and (2) whether you pass away before or on or after your RBD.
Who is subject to the 10-year rule?
The SECURE Act still allows certain beneficiaries to “stretch” distributions, at least to some extent. These eligible designated beneficiaries (EDBs) include your surviving spouse, your minor children, any individual not more than 10 years younger than you, and certain disabled or chronically ill individuals. Generally, EDBs can take annual required distributions based on remaining life expectancy. However, once an EDB dies, or once a minor child EDB reaches age 21, any remaining funds must be distributed within 10 years.
Significantly, though, the SECURE Act requires that if your designated beneficiary is not an EDB, the entire account must be fully distributed within 10 years after your death.
What if your designated beneficiary is not an EDB?
If you die before your RBD, no distributions are required during the first nine years after your death, but the entire account must be distributed in the 10th year.
If you die on or after your RBD, annual distributions based on remaining life expectancy are required in the first nine years after the year of your death, then the remainder of the account must be distributed in the 10th year. Annual distributions after your death will be based on the greater of (a) what would have been your remaining life expectancy or (b) the beneficiary’s remaining life expectancy.
What if your beneficiary is a nonspouse EDB?
After your death, annual distributions will be required based on remaining life expectancy. If you die before your RBD, required annual distributions will be based on the EDB’s remaining life expectancy. If you die on or after your RBD, annual distributions after your death will be based on the greater of (a) what would have been your remaining life expectancy or (b) the beneficiary’s remaining life expectancy.
After your beneficiary dies or your beneficiary who is your minor child turns age 21, annual distributions based on remaining life expectancy must continue during the first nine years after the year of such an event. The entire account must be fully distributed in the 10th year.
What if your designated beneficiary is your spouse?
There are many special rules if your spouse is your designated beneficiary. The 10-year rule generally has no effect until after the death of your spouse, or possibly until after the death of your spouse’s designated beneficiary.
What life expectancy is used to determine RMDs after you die?
Annual required distributions based on life expectancy are generally calculated each year by dividing the account balance as of December 31 of the previous year by the applicable denominator for the current year (but the RMD will never exceed the entire account balance on the date of the distribution).
When your life expectancy is used, the applicable denominator is your life expectancy in the calendar year of your death, reduced by one for each subsequent year. When the nonspouse beneficiary’s life expectancy is used, the applicable denominator is that beneficiary’s life expectancy in the year following the calendar year of your death, reduced by one for each subsequent year. (Note that if the applicable denominator is reduced to zero in any year using this “subtract one” method, the entire account would need to be distributed.) And at the end of the appropriate 10-year period, any remaining balance must be distributed.
Relief for certain RMDs from inherited retirement accounts for 2024
The IRS has announced that it will not assert the penalty tax in certain circumstances where individuals affected by the RMD changes failed to take annual distributions in 2024 during one of the 10-year periods. (Similar relief was previously provided for 2021, 2022, and 2023.) For example, relief may be available if the IRA owner or employee died in 2020, 2021, 2022, or 2023 and on or after their RBD and the designated beneficiary who is not an EDB did not take annual distributions for 2021, 2022, 2023, or 2024 as required (during the 10-year period following the IRA owner’s or employee’s death). Relief might also be available if an EDB died in 2020, 2021, 2022, or 2023 and annual distributions were not taken in 2021, 2022, 2023, or 2024 as required (during the 10-year period following the EDB’s death).
The rules relating to required minimum distributions are complicated, and the consequences of making a mistake can be severe. Talk to a tax professional to understand how the rules, and the new regulations, apply to your individual situation.
