New Tax Rules, New Opportunities

For high earners in their 30s, 40s, and early 50s, the One Big Beautiful Bill Act creates a new tax and financial planning environment. The higher SALT deduction cap, new charitable giving rules, expanded 529 flexibility, and new Trump Accounts for children all deserve attention, but not every provision calls for immediate action. The opportunity is to coordinate tax, savings, education, charitable, and family wealth strategies over multiple years rather than treating each rule as a one-time tax break. 

Find out what you need to know from Holly C. Wanegar, CFP®. 

Read the companion blog post >

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Transcript

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Welcome to You and Your Money. Today's episode features Holly Wanegar, Vice President and Associate Financial Advisor at WHZ Strategic Wealth Advisors. on to these new tax laws and the potential financial opportunities they could offer for folks who are still working, still raising kids, still building up their retirement savings and wealth. So what should they be paying attention to, Holly? Yeah, so with this group, we're really looking at people in their 30s, 40s, 50s, high earners. They're typically in their busiest years personally and financially, raising kids, having different types of income structures. So there's, there's the new law that came into effect last summer, but some of the, some of the items didn't play. Play in until the 2026 tax year. So there's some pieces there that are creating opportunities that people should be aware of. Now let's start one that I know affects a lot of people in Connecticut— state and local taxes. What should we know? Yes, that is what we call the SALT tax deduction. So it stands for State and Local Tax Deduction. So in states like Connecticut, Massachusetts, New York, New Jersey, where we have high state taxes that SALT tax deduction was previously capped at $10,000 that you could deduct on your federal return. So that has been increased to$40,000 starting in 2025 and a little bit up in 2026. So for people who are paying a lot in real estate taxes, for example you're able to capture a larger deduction. Now that sounds like a clear win. Is there a catch? Well, of course, there's always some complexities. The IRS doesn't keep things simple. So there are phase-outs with that. For example, if your income filing jointly is above $500,000, you may start to phase out of that. So high, high earners above that line may not see as much of a benefit, and especially if your income bounces around like with bonuses or equity vesting schedules. So it's something worth taking a look at to make sure that you're optimizing both income and tax benefits while they're here. Holly, you mentioned giving. I understand the rules around charitable donations are changing too? Yes, that is another big one around giving. So previously,— there was no— so it actually came back. It was in play and then in 2022 it came back, was an above-the-line deduction of $1,000 for gifts if you did not itemize and take the standard deduction. We now take a $1,000 deduction for single filers and$2,000 deduction for married filers. Doesn't really matter if your income— if you itemize though, your deductions, there's a new floor. It's about half a percent of your AGI. So for example, if your AGI is $200,000, the first $1,000 of charitable contributions is not deductible, but then after that it would be on your itemized tax So how do people get smart about that? Yeah, great question. So there's a few options. One that we like to call is bunching. So sometimes what you can do think of the next few years of gifting. If you have certain charities that you like to give to, and you can sort of give in all of those years in one large sum so that you can get above that half a percent floor there for charitable deductions if you itemize. And also a way to do that through donor advised fund, which you make a large contribution to the donor advised fund, get the tax deduction now, and then you give from that fund over time. So things to consider, they can take a little bit of planning. So, you know, just being aware of these rules and maybe adjusting your giving strategy accordingly is helpful. All right, Holly, I've heard a lot of questions about these new Trump accounts for kids. What are those? Yes, you're not alone. There's, there's lots of questions, some unanswered but— a lot of misperceptions. So some people think it's a Roth IRA for a newborn. Not typically. There's, there's some rules around them as well. So you want to make sure and see if your, if your child would qualify. You can set one up for a child under 18 with a valid Social Security number, and children born between 2025 and 2028 may qualify also for a$1,000 government contribution. But there are some rules to be aware of with, with these types of accounts.$1,000 from the government, huh? That sounds like something you'd want to grab right away. Yes, it does. It sounds it sounds appealing. There are again, some, some stipulations and rules that, that you want to be aware of right now, trying to understand which companies and custodians would be available to open these accounts. There, actually expected to go live after the 4th. The IRS has released a form that you can make an election now through an IRS online if you want. And again, that's only for children that were born between 2025 and 2028. If you want to make sure to get that $1,000, your child may qualify for that. And then understanding the rules around them because there are other vehicles to save for our children, like 529 is very common. A lot of people have heard about, or custodial accounts. And they all have different rules in what you can contribute, what you can spend the funds on, tax treatment. it's something that we really want to understand when you're thinking about how do you save for your children and aligning it to your goals. 529 plans, those have changed as well? Yes, they have. And it's good news for a lot of families. The 529 education savings account that most people know about, they grow tax-free. The contributions can be tax deductible on your state returns depending what state you're in on that amount. And in 2026, this year, there's a few things that have changed, which is really what you can do with those funds. For example, they can be used for K through 12, and the amount you could use was $10,000 a year. For that type of like private school funding that has gone up to $20,000 a year, which is fantastic. And the law has broadened what counts as qualified expenses beyond K-12, you know, into higher education. So things like curriculum materials, tutoring, standardized testing. So these are really beneficial for 529s because there's such great savings tools for education, and they continue to broaden what we can use those for. And the tax benefits for them are fantastic. So a 529 is not just a college fund anymore? Correct. So it can be used through K-12, as I mentioned, and it can be used lots of things expanding beyond just tuition. Or if your child doesn't want to go to traditional 4-year college, they want to do trade school, something like that. So those dollars can go a lot further. It's just good to be mindful though if you have private school K-12 that you're paying for and you're drawing down on that 529, it could potentially be less later on depending on how you're saving and what your strategy is there. So, something to be aware of and make sure you have a plan for. That's good information. Holly, are there any other new tax laws under the OBBBA that people should be planning for? Yeah, one of the biggest ones that we were really happy about, and most people would be as well, is that the lower tax brackets that were put in place in 2018 through the Tax Cuts and Jobs Act were set to expire in 2025. But with the OBVA, it made those permanent. So that's really valuable and makes it easier to plan for people in the future because we know what to expect with those tax brackets. And why does that matter for the high earners we've been talking about? Yeah, great question. So when income tends to fluctuate for some of high earners through like bonuses, stock options, business income can be can be less predictable it allows you to plan better. So you know when to recognize certain income like through stock options vesting or when to spread out Roth conversions potentially if you're doing that as well as when to give. We talked about giving a little bit there, so there's opportunities to tweak the strategy and the plan. And of course, the SALT cap is huge for people living in states like Connecticut with higher real estate taxes. So all these things work together, but they can really be valuable to help everybody plan and make the most of their dollars and be as tax efficient as possible. That's a perfect note for the 4th of July. Holly, where can folks go if they want to help putting all this together? Yes, the best first step is have a conversation with your financial advisor. You can reach out to us as well, schedule a complimentary discovery session to learn more about working with our team, if we might be able to help you through whcwealth.com, or give us a call at 860-928-2341. And don't feel like you have to have it all figured out, but bring your questions and your vision and what you want to do. And it's our job to help you work through that and build the right plan and strategies to help you achieve your goals. Sa. For more information regarding wealth management and customized financial planning with WHZ strategic wealth advisors, please visit whz wealth.com. wHZ Strategic Wealth Advisors offer securities and advisory services through Commonwealth Financial Network member FINRa SIPC, a registered investment advisor, fixed insurance products and services offered through CES insurance agency. They practice at 697 Pomfret Street, Pomfrethe Center, Connecticut 06259 and three nine two a Marrow Road, Tolland, Connecticut 06084. They can be reached at 860-928-2341 WHz Strategic wealth advisors do not provide legal or tax advice. The tenured financial services team strives to support clients in achieving their financial life goals while providing absolute confidence and unwavering partnership for life.