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Planning for 2025 and Beyond: Tax Changes You Should Know about – 2

 By Saghir A. Aslam
Rawalpindi, Pakistan

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the ummah will benefit from this effort through greater financial empowerment, enabling the community to live securely with dignity and fulfil their religious and moral obligations towards charitable activities)

3. Charitable gifts could have a bigger impact

The TCJA doubled the standard federal deduction to $24,000, which raises the bar for charitable contribution amounts that can be considered as itemized deductions.

One way to maximize the impact — to your taxes and to the organizations you support — is through a strategy known as “bunching,” where you group together multiple years of charitable contributions. Consider gifting a one-time lump sum to a charitable organization or making a large gift to a donor-advised fund. Donations can then be distributed over several years to the charitable organizations of your choice.

If you are age 70½ or older, you could also consider the potential benefits of making tax-free qualified charitable distributions (QCDs) directly from your Traditional IRA to 501(c)(3) non-profits. Additionally, you are able to make a one-time QCD paid directly from your IRA to certain split-interest entities that qualify under the new rule. The QCD annual limit for 2023 is $100,000 and for 2024 it is $105,000. The QCD limit to certain split-interest entities is $50,000 in 2023 and $53,000 in 2024, which is part of the QCD annual limit. Both amounts are annually indexed for inflation.

A QCD can satisfy all or part of your required minimum distribution, or it can exceed it, and the funds would be excluded from your taxable income — though the excess would not be available as a charitable deduction.

4. Secure 2.0 Act may affect education gifts

A 529 education savings plan for a family member can be a worthwhile gift. Previously, contributing too much to a 529 was a concern because distributions from the plans that aren’t used for qualified education expenses can be subject to income taxes and a 10% additional tax.

Thanks to Secure 2.0 Act, however, designated beneficiaries of 529 educational savings plans can make rollover contributions from their 529 to a Roth IRA if they have excess funds. There are complex rules surrounding this opportunity; your tax advisor can help you navigate those issues. Rollovers can add flexibility to your gifting strategy and allow the 529 beneficiary to use their tax-advantaged funds to jump-start their retirement nest egg, for example, or make a down payment on a house.

Whether and how any of these strategies can help you depends on your family’s individual situation. There is no one-size-fits-all method to tax and wealth transfer planning. But the potential for the TCJA to expire in 2026 and the uncertainty surrounding tax laws in today’s political environment are a good reminder to talk about these opportunities with your advisors sooner rather than later.

(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, or does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)