New Tax Law Changes Taking Effect in 2018

By Ryan Olschefskie
April 2018

 

Background

President Donald Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA) into law on December 22nd, 2017.  The TCJA changed various aspects of the Individual tax code for simplification for both the individual tax payer and the US Government.  The new tax laws also reduced corporate taxes from 35% to 21% in an effort to have businesses repatriate their funds back into the US economy.  These changes are set to expire in 2025 but when looking at what history has to tell us, the consensus is most of the changes to the individual tax codes will be made permanent in 2025.

What’s Changed?

  • Retirment Plan Contributions including 401k, 403b and 457 plans have increased to $18,500 for someone under age 50 and to $24,500 for someone age 50 and older.  There is no change in Roth and IRA contributions

  • Standardized Tax Deduction has increased to $24,000 for Joint filers and $12,000 for Single filers.

  • Itemized Deductions limit the amount itemized for state and local income and property taxes to $10,000.

  • Estate Tax Exemption base doubled from $5 million to $10 million indexed to inflation which means an individual could shelter up to $11.2 million from estate taxes and a couple $22.4 million.

  • College Savings Plans (529 plans) now allow assets held with a 529 account to be withdrawn federally tax-free to pay for K-12 expenses, varies by state.

What does this all mean from a planning perspective?

The majority of our clients are within a few years of retirement or already retired so we need to be flexible in our planning and able to adapt to these changes.  This could mean taking advantage of some new opportunities or avoiding potential pitfalls that these public policy changes can create.  This is at the heart of why we meet with our clients on a regular basis to ensure we address how these changes could potentially impact their retirement/investment plans and then make any necessary adjustments at that time.