Talk about a possible third version of the SECURE Act, elimination of Social Security taxes and a host of other potential changes combined with rules and regulations already set to take effect in 2025 adds a lot of complexity to estate planning for the coming year, says a recent article from Think Advisor, “7 Big Unknowns That Could Shake Up Retirement Planning.” Here is a list of what we feel are some of the most important things to consider that may (or may not) be coming in 2025.
Possible changes to the SECURE Act. The Setting Every Community Up for Retirement Enhancement (SECURE Act) was initially passed in 2019, followed by SECURE Act 2.0 in 2022. Both made changes to retirement and estate plan rules that will forever change how Americans save for retirement and pass money down from generation to generation.
At this point, it has been one of the most transformational laws to negatively impact how we as Americans inherit from one generation to the next. Before 2020, if you inherited your parent’s IRA, it became yours and you could allow those funds to grow tax-free until you reached the age where you had to take Required Minimum Distributions (RMD’s). After the Secure Act, if you inherit your parent’s IRA, you have to remove all of the funds within 10 years, which you are then taxed on as if it was regular income (most likely, while your family is in their highest income earning years and bumping you up a tax bracket or two).
Allegedly, according to former Labor Department officials, there are rumors floating about that a third version of the SECURE Act is beginning to form. However, we have a new administration coming in, no one knows what the Republicans have in store for us while holding the presidency, the Senate, and the House. What we do know is that Republicans in Congress are expected to be eyeing tax cuts. However, reducing government revenue from IRA’s and reversing the changes made under the SECURE Act may be problematic, especially because many Republicans campaigned on reducing the deficit.
Historically high estate tax exemptions. On January 1, 2026, the 2017 Tax Cuts and Jobs Act will expire. Meaning the historically high number before the Government taxes “your estate” ($13.99 million in 2025) will be cut in half at the end of the year. The question is, will the high estate tax exemption created by the 2017 Tax Cuts and Jobs Act be extended? The exact path forward for federal budget negotiations, tax reform, deficit reduction… is riddled with many unknowns. Can a “core TJCA extension” occur, while avoiding a filibuster in the Senate? Stay tuned.
Although everyone believes the Republicans will extend these tax cuts, along with the high estate tax exemption… if I had to put money on it, I would bet the major thin margins in the house, along with a few key Republican congressmen’s hyper-focus on reducing the deficit, may impact congress’ ability to extend the Tax and Jobs Cut Act. At this point, it’s anyone’s guess as to how this will play out in 2025.
Social Security taxes. Some states tax Social Security benefits. Campaign promises to eliminate taxes on Social Security may be a bit harder to implement than the extension of federal estate tax exemptions. It would have to be done through stand-alone legislation requiring Democratic support. It is possible, but not all that likely, unless we can get some bi-partisan cooperation and agreement on this issue.
Possible elimination of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). The House passed the Social Security Fairness Act on November 12, 2024 by a wide margin. In a lame-duck session, on December 21, 2024, the Senate acted to do away with these two policies, which reduce Social Security benefits for government workers. As of this writing, it is awaiting the President’s signature and time will tell to see if this is signed into law prior to the new administration taking control.
Will the Full Retirement Age (FRA) be lifted for Social Security? Depending on who you ask, the insolvency date for Social Security is 2033 or 2034. Increasing the FRA from 67 to 68 or 69 could increase funding. According to the Congressional Budget Office, this change is expected to reduce annual yearly benefits by about 13% for people who fall into this older FRA category. Experts think this may not happen in the next Congress but expect to see a change to the FRA in 2025 or 2026.
Changes to ERISA. Two rulings from federal courts in Texas temporarily halted a new fiduciary rule under the Employee Retirement Income Security Act. The rule seeks to minimize conflicts of interest when financial advisors work with clients on tax-qualified retirement accounts. It was set to take effect on September 23. However, it is now in limbo. Until a Labor Secretary is appointed, it will be hard to determine when the ruling will be reinstated.
Roth accounts. Whether more tax revenue will be needed because of estate tax extensions is followed by transforming more retirement accounts from tax-deferred to Roth-style, where taxes are paid when the assets go into the account. Forcing taxpayers to save for retirement on an after-tax basis could help with collecting tax revenue.
Regardless of these and more changes, an estate plan is still the best means of protecting your family and yourself, managing tax liabilities, and preparing for the future. Here are a few Articles you may want to read to explain a bit further of why it’s so important:
Estate Planning in Naperville: Why Waiting Could Cost Your Family Peace of Mind: Create an estate plan before a health crisis to ensure that your wishes are respected and reduce stress for your loved ones. It’s especially important to talk with aging parents about their estate planning to ensure the family’s future is secure. It happened to my family and the last thing I want is for it to happen to yours.
It’s Tax Day: A Detailed Analysis Of Why Estate Planning Is The Best Investment For Your Tax Refund: Why everyone needs an estate plan, your planning options, the benefits you’ll receive, and what documents you will need to prepare.
Trusts & Taxes (2024): The Basics & What You Need To Know: People have heard that it’s wise to have a Trust and that it can help their family save on taxes. Given how frequently these conversations come up, we’ve decided to give an overview on the main types of trusts and the tax implications associated with them to clear up some common misperceptions with this article.
Pitfalls of Estate Planning – The 5 Essential Tips To Ensure Your Estate Plan Isn’t Worthless & What Everyone Who Has a Trust Needs to Know.
Reference: Think Advisor (Nov. 26, 2024) “7 Big Unknowns That Could Shake Up Retirement Planning”