What the NEW Trump Tax Bill Means for You and Your Retirement

Let’s talk about the new changes to your taxes and retirement after Trump’s recent tax bill. We’ll cover the important changes, including adjustments to tax brackets and tax deductions. Whether you’re retired or still planning for it, understanding these updates can help you make smarter financial decisions.

Resources:

- Alliance of Comprehensive Planners: https://www.acplanners.org

- John's firm website: https://www.trinfin.com

- Find us on Facebook: https://www.facebook.com/friendstalkfinancialplanning

TRANSCRIPT:

John: The SALT thing with the state and local taxes can be a big deal for some folks, depending on their circumstances. The donation to charity thing can be a big deal if you're already itemizing your deductions and giving to charity, or if you aren't, it also can be a thing. So donations and charitable giving should be on the forefront of thought process at some point during this year, along with all the other things we talked about today.

Bridget: Hi, I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. Before we jump into the new tax law, I just want to remind everybody to hit that subscribe button. That helps other people find this information on YouTube. And with that, Bridget, let's jump in and talk about the new tax law. How exciting, right?

Bridget: Yeah, very exciting, I guess. Okay, so I'm going to just try to not have a lot of political commentary and just get to what's different. There's a lot. And so, it'll affect a lot of people. But the changes won't be that big, I think, for anybody. But you'll want to know, so you can still do some planning this year. Okay, so there's a new $6,000 deduction for each person who's over 65.

So if you're married to another person who's over 65, they get it too. This is in addition to the usual. For example, if you're using a standard deduction, it’s in addition to the additional amount that you get in the standard deduction. But there're some income limits. It looks like $150,000 or $300,000. So if you're making too much money, this will be limited.

John: That caveat is going to apply to a lot of these new rules. Some of them are across the board, but a lot of the things are, “Yep, here's the rules, depending what your income is.”

Bridget: Yeah.

John: So be sure to check that if we forget to say, “I don't know.” Make sure you double check all those income limits as you do your planning this year.

Bridget: Absolutely. And then many times it's hard to know exactly what your income is going to end up being at the end of the year. So that's a big one. But this was to try to get the campaign promise about Social Security. It doesn't directly address Social Security. It just tries to pay the tax on some people, but I think this will actually help a lot of people.

John: So if I'm a married couple over 60, I get an extra $12,000 in deductions.

Bridget: Exactly. For our viewers, I think that's the biggest. Next, there's a $1,000 charitable deduction for non-itemizers. This starts in 2025. It's cash only, so you can't give away your old stuff and get this one, you have to give away cash.

John: Yeah. And it's $1,000 and $2,000 for married folks, right?

Bridget: Absolutely. A thousand bucks each.

John: So who's going to benefit from that?

Bridget: People who give money away that don't itemize.

John: That don't itemize. So if we're taking the standard deduction on things, which something like 90% of folks these days aren't itemizing their deductions, something like that.

Bridget: Yeah. But more people will be itemizing, because of some of the things that we're going to get to a little bit later in the show.

John: Oh, awesome.

Bridget: But for all non-itemizers, this is great. Again, a lot of our viewers probably don't itemize.

John: Yeah. Awesome.

Bridget: Yeah, it's neat. No tax on tips. So I just do want to say this is an interesting one because my office is right by Wrigley Field, so I know a lot of beer vendors, and they used to get all their tips in cash. And now Wrigley is cashless.

John: Right.

Bridget: Now everything is recorded. So I think at least partially this law is because of cashless systems. I think it's safe to say that there was underreporting of tips before and tip income has really increased because now it's going through credit cards and so people have to report it. So the deal is, of course there's a phase out. So if you're making $150,000 if you're single, $300,000 if you're married; it's a pretty healthy phase out. And there's a $25,000 max on tips.

And I think there's a max on how much tax you save too, or something like that. There's another one for overtime, so no tax on overtime. Now again, there's a phase out. And the other thing is that it only counts the extra that you get on overtime, not the base. So if you regularly get 20 an hour, and then when you get overtime you get 30 an hour, it's only on that 10 that there's no tax.

John: Yeah. Just to make it easy.

Bridget: That's going to be fun for the payroll departments. Yeah, that'll be a good one. Here's another new one. Again, you don't need to itemize for this. And that is deduction for auto loan interest. It has to be assembled in the U.S. and again, there's phase outs and there's a maximum of like $10,000.

Although how much auto loan interest do you actually pay? I mean, interest rates aren't that high. You wouldn’t actually be higher than that unless you had multiple cars, I assume. So those are a bunch of the biggie new ones. Any questions on those so far?

John: You might have said this, but I thought I saw a provision where the car has to be assembled in the United, some domestic requirement.

Bridget: Yeah.

John: Yeah. Some of it seems a little bit crazy when you think it. It's been however many years, but credit card interest used to be deductible back in the olden, olden days.

Bridget: Right.

John: And maybe this is some of that just circling back. And another thing strikes me as you go through. I mean, it’s 900 pages or 1,000 pages in this tax bill, and it's been three or two weeks as we're recording this since it came out. We've got a lot of information but there's 990 more pages to read through for some of this.

And I haven't seen much along this line yet, Bridget, but usually the tax bill comes out and then they start saying, “Well, wait a minute, what about this situation?” “Oh, we didn't think about that.” “What about that situation?” Oh, you know what? We didn't think about that.” And so that's the other caveat I just throw out there for people. Here are all the things. You can read them. We can read them. It's in there. But then it's going to be a moving target.

I don’t feel like we have the final information quite yet. By the end of the year, hopefully right over Thanksgiving, we can do some solid planning. There're some things that are really clear, but it's not a one and done sort of thing when you're dealing with a bill of this size and this scope. So just be aware that this isn't the final word on things. Keep in tune with this stuff.

Bridget: The purpose of our episode is really to give people a heads up for what they might be looking for to get more information on.

John: Yeah, that's great.

Bridget: Let's keep going. There's more.

John: But wait, there's more.

Bridget: All right. Itemized deductions. So for us itemizers, we've got a new 0.5% floor. And this starts in 2026, so we can do some planning there. So now we're getting into difficult fractions. So there's a 0.5% floor on itemized deductions.

John: So it's whatever your Adjusted Gross Income (AGI) is. If your AGI is $100,000, then only the amount over $500 deductible, or if your AGA is $200,000, only the amount over $1,000. It would be easier if it said, “Hey, take, 5% off this,” but you got to go back to your AGI, so there's a limitation. And is that just for donations to charity, or is that overall itemized deductions?

Bridget: Well, there's another limit with overall itemized deductions that we'll get to.

John: Okay, good. We'll get to it.

Bridget: This one’s just for charitable itemizing. And again, if you're not itemizing, you got a little extra thing for charity.

John: You got that $1,000, $2,000 deal.

Bridget: Right. There’s another bigger thing that'll help a bunch of our viewers, and that is SALT, which is state and local tax deduction. So that is going to increase. Now it's $10,000 total on a return, so that's what stopped a lot of people from itemizing. It's now going up to $40,000 on each tax return. And there's a phase out, but it's not until you're over $500,000.

John: Yeah. So a pretty big number there.

Bridget: So that's sweet. Okay, now this one is nice and complicated. We're going to use some tax software for this one. Starting in 2026, and this is one of the things that you're alluding to, if you're in the 37% bracket, which is the highest tax bracket, your itemized deductions only count like if you're in the 35% bracket.

John: That's kind of like the Pease limitation, named after the senator or congressman. We used to have that, then it went away, then it was back, and now it's kind of back in a different fashion.

Bridget: Exactly. And here's a few more new things. 529s are expanded, what you can spend them on. And this is another interesting one. Starting in 2027, you can grant $1,700 to scholarships. The states are going to come up with a scholarship. These are K-12 tuition scholarships. And there's 100% credit for it. So if you give $1,700, then you get $1,700 off your taxes. This goes to your first thing about question marks.

John: Yeah.

Bridget: This is a concept. And when you said that all the states are going to figure this out but not every state has equal functionality in figuring this kind of stuff out. So that'll be something to watch. It’ll be interesting to see how it goes. Then there's these Trump accounts. So this is kind of a newfangled IRA. I think the important thing for people to know and to keep the radar for is that if you are born from 2025 through 2028, so if you have grandkids or if you're having kids and you're have a kid this year, they can get $1,000 in this Trump account.

There’re, of course, some caveats, believe it or not. And you can keep putting money in. So I would say it's like an IRA that you can put money into when your kid's young. You don't get a deduction for it, but then it's after tax when you take the money out. If they're born now, it's kind of a handout. Here's $1,000. You have to opt in.

Nobody's setting this up for you and giving you $1,000, though. So, this again, a lot, a lot of question marks on this. For example, at the financial planning seminar that I went to, they had a multiple page list of all the questions they got about this. And again, it's kind of a new flavor of IRA account. It'll be interesting to see how it fits in with all the other types of accounts.

John: Yeah, but free money. And you have to sign up for it, so it’s kind of like 401(k) type thing. There's free money with a company match, but you have got to sign up for it. So it's one of those guys to be aware of.

Bridget: Exactly. And 2025 counts. This goes back to your point about the moving target. This will be something that the IRS has to put out more guidelines on and companies are going to have to have these accounts, Fidelity, Schwab, all those places will have these. But they're going to probably wait a bit until the IRS issues some more guidance. But it's 2025, so that means that you don't want to wait too long to see what's going on with this. So interesting, interesting stuff.

John: Yeah. There’s a lot of things to be aware of. Again, it’s not the final answers on these things, but know that these are part of the new regime and if they apply to you. The SALT thing with the state and local taxes can be a big deal for some folks depending on their circumstances.

The donation to charity thing can be a big deal if you're already itemizing your deductions and giving to charity, or if you aren't, it also can be a thing. So donations and charitable giving should be back on the forefront of your thought process at some point during this year along with all the other things we talked about today.

Bridget: Right. And at the end, if you want to try to take a look at what our predictions were and tell us how bad we were, we would appreciate it 😊

John: Yeah.

Bridget: Because one of the things that I did not predict was that it would get done in the middle of the year, so we'd actually really have some time to plan. I thought that it was going to get done at the end of the year like last time, and there would be a lot of drama around it. And obviously there was a lot of drama around it, but I gotta say that I appreciate it getting done now.

John: Yeah, absolutely. Well, I think that's a great place to wrap things up. I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: I’m Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. John and I are both taking clients now, but we're also both members of the alliance of Comprehensive Planners, so if you want to find an advisor in your area and you like how we think about things, you could check out acplanners.org.

John: And don't forget, hit that subscribe button.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.