December 2024

The incoming Republican Administration has floated a range of ideas related to taxes – some are more likely to be implemented, others less so.

Changes to tax law must go through the legislative process, and since Republicans will control both houses in the 119^th Congress, substantive change to tax law is likely in 2025.

Also, there are several adjustments to the tax law relating to retirement plans that will go into effect on January 1, 2025.

Possible changes to tax law, and upcoming tax-related changes for retirement plans are discussed below.

Tax Policy Under a New Administration

Many of the provisions from the 2017 Tax Cuts & Jobs Act which lowered taxes for individuals are set to expire at the end of 2025, including: lower individual income tax rates, a larger child credit, higher standard deductions, and the bigger lifetime estate and gift tax exemption.

Tax policy ideas floated by Republicans during the presidential campaign include:

• Make the 2017 tax cuts permanent
• Raise the child tax credit
• Drop the corporate tax rate
• Impose across-the-board tariffs
• End green energy breaks
• Tax-free overtime pay
• Exempt Social Security from taxes

The tax experts at The Kiplinger Tax Letter believe that the last two bullet points (tax free overtime pay and exempting Social Security from taxes) are unlikely to gain enough support to pass Congress.

Current expectations are that Congress will pass a big tax bill in the fall or winter of 2025, with most tax changes starting in 2026.

One potential hurdle to enacting all the proposed tax breaks is cost: if all the changes are implemented, the revenue loss for the federal government is estimated to be about $9 trillion, according to financial magazine Barron’s.

We expect to be sifting through a lot of new information in the months ahead and reporting back to you as we get clarity on changes to the tax situation – especially changes related to individual income taxes and exemptions.

Retirement Plans: Upcoming Changes for 2025

The following key dollar limits on retirement plans are set to increase in 2025.

401(k) Plans

• Contribution limit rises to $23,500
• People aged 50 and older can contribute an extra $7,500
• People aged 60 – 63 can contribute a larger “catch up” of $11,250

SIMPLE IRAs

• Contribution cap rises to $16,500
• People aged 50 and older can contribute an extra $3,500
• People aged 60 – 63 can contribute a larger “catch up” of $5,250

Traditional IRAs

• Contribution cap remains $7,000
• Catch-up for people aged 50 and older is an additional $1,000
• Couples deduction phaseout: Adjusted Gross Income (AGI) of $126-000 – $146,000
• Singles deduction phaseout: AGI of $79,000 – $89,000
• Note that phaseouts apply to people covered by a workplace retirement plan
• If only one spouse is covered by a plan, phaseout for the uncovered spouse is: AGI of $236,000 – $246,000

Roth IRAs

• Contribution cap remains $7,000
• Catch-up for people aged 50 and older is an additional $1,000
• Couples contributions phase out at AGI of $236,000 – $246,000
• Singles contributions phase out at AGI of $150,000 – $165,000

Qualified Charitable Distributions (QCDs)

• People aged 70.5 and older can transfer up to $108,000 from an IRA directly to charity
• QCDs can count as Required Minimum Distributions (RMDs), but they are not taxable and are not added to AGI

-RK

The conclusion of the 2024 election cycle delivered a red sweep, with Republicans set to take control of the White House and the Senate in 2025, while maintaining control of the House of Representatives.

For slightly more than half of American voters, this was the desired outcome.

For many other Americans, though, the election result was unwelcome.

And for those who are philosophically at odds with the people soon to be in power and the policies they promote, it may be deeply troubling.

Susan, Donna, and I understand the anxieties that can come with change, and we share many of the concerns that have been vocalized since the election.

We recognize that there will be periods of time where staying invested in the financial markets might be psychologically challenging.

Also, there likely will be stretches in the months and years ahead where asset prices decline, and portfolio values drop.

These events – policy enactment and market direction – may be causal, or they may be coincidental, and I suspect at times it will be hard for investors to keep clear heads as the situation unfolds.

Remaining unemotional when it comes to your money is always a challenge.

It might help to remember that nearly all individuals are prone to confirmation bias, which is the tendency to interpret new information as confirming one’s existing beliefs.

As investors, we must be extra vigilant to avoid the confirmation bias trap. Taking action in your portfolio that might hurt the probability of your financial plan succeeding over the long term isn’t a recipe worth cooking.

It can be uncomfortable to climb a wall of worry holding a portfolio that contains risky assets, even when we know this is a sound long-term financial decision for most people, under most circumstances.

As fiduciaries, Susan, Donna and I are legally bound to put the best interests of our clients first.

As advisors who care deeply about our clients, we are professionally oriented to work in a collaborative and compassionate manner.

We pledge to continue to approach the financial environment with objectivity, to deliver personalized and accurate financial advice to our clients, and to promote your financial well-being at all times, whatever circumstances may arise.

As we move toward 2025, we hope that the current state of the nation doesn’t weigh too heavily on your overall well-being.

It has been helpful for me personally to remember that there have been times in the past when our country has been starkly divided, and to an even greater degree than it is today.

I have found some comfort in reading Abraham Lincoln’s first Inaugural Address, and especially the following passage, taken from the last few lines:

 “Though passion may have strained it must not break our bonds of affection. The mystic chords of memory… will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.”