Key Changes to Watch in 2025

dot com. And of course their telephone number at the office six oh eight four four two five six three seven. Don't forget no charge for that initial gets to know you appointment at Coss Financial. It will be complimentary to you again. They're number six oh eight four four two five six three seven.

important stuff speaking of money, taxes. We're going to talk this week about tax shifts and things folks need to be aware of when it comes to planning and looking forward to or I guess we're in twenty twenty five, so we're really looking forward to the next The next time we have to do access but getting ready to uh to do that and deal with that. So we'll talk with CJ and Eric about just that this morning.

Mention the website class financial dot com. That's class k l aas Financial dot com telph number six So eight four four two five six three seven. I want to hold on to that telphonover a little later on the program. You have a chance to win with our class Quiz Question the week the folks from Class Financial that provided a fantastic prize for you a twenty five dollars gift card two Sephora. Little tip. Listen closely to the program because oftentimes both the question and answer to the Class

Quiz Question Week comes up during the program. And speaking of the Class Quiz Question Week, before we get rolling on this week's conversation, let's actually take a look back at last week's show and get the question and answer there as well.

on our website. But our COLSS Quiz question of the Week last week was a true or false question, and the question was true or for false. Your full retirement age also known as FRA, is the age at which you become eligible to receive your full unreduced Social Security retirement benefit. And our winner from last week was Maria from Stoughton, who entered that question as true. So Sean said, listen closely to the question at the end of our show today and you could be the winner.

l a a S Financial dot com. So today the topic it's quite timely and we're gonna do some updates on some tex shifts that folks should be aware of us we begin twenty twenty five and consider when it comes to planning, Is that correct, Eric.

they're pretty important. But as an aside, we're really excited to announce that just this year, we have brought tax services in house at COSS Financial. So for our clients, this is a nice little add on service that we can we can offer and kind of bring their whole financial situation together under under one roof. So we're pretty excited about that. But you know, getting kind of getting back here to our topic today, we know that a lot of people are still thinking about their tax situation

for twenty twenty four. You know, we haven't been able to file those yet. The IRS is going to be accepting twenty twenty four tax returns starting January twenty seventh for our early birds, with the tax deadline of April fifteenth, and then the extension for filers who elect that that's going to be October fifteenth, twenty twenty five. But you know, we're planners here, so we want to get ahead and

talk about tax planning for twenty twenty five. Often, you know, people will go see their tax professional at tax time, and unfortunately, at that point it's often really too late to take advantage of some of the strategies you might use to reduce your tax burdens. So we want to get ahead of that and start talking about twenty twenty five right now. So the first change that I wanted to address here is the standard deduction change in twenty

twenty five. So, because the standard deduction was increased with the tax cuts in Jobs Act, it's become much more common for folks to use the standard deduction rather than to itemize their deductions. And the standard deduction, which this is, you know, the specific dollar amount that the IRS provides each year that reduces the amount of income without having to come up with a whole bunch of other itemized deductions.

For married couples who are filing jointly for twenty twenty five, it is rising up to thirty thousand dollars, so that's about an eight hundred dollars increase from last year. And for single taxpayers and married individuals who file separately, the standard deduction is rising to fifteen thousand dollars for twenty twenty five, so that's an increase of about four hundred

dollars over last year. And then for folks who are filing head of household, standard deduction will be twenty two thousand, five hundred for twenty twenty five, and that's about a six hundred dollars increase from last year.

a bit of money to hit that top bracket. And for for married couples filing jointly, it's you know, about seven hundred and fifty one thousand, six hundred dollars that your income has to exceed before you see that thirty seven percent rate. From there though, no major changes to the marginal tax rates. You know, we have the thirty five, thirty two, twenty four, twenty two, twelve and ten percent

income tax brackets. And just a reminder for folks, just because you are in let's say the twenty two percent income marginal income tax bracket, that doesn't mean that every dollar you earn is going to be taxed at twenty two percent. This is a really common misconception we see with clients. It is just the amount over and above

where that limit begins. So, for example, let's say the twenty two percent tax bracket for married couples filing jointly, that starts at ninety six, nine and fifty dollars, But that does not mean that every every dollar is taxed at twenty two percent. Only the dollars that exceed that that ninety six, nine hundred and fifty dollars threshold. And know this is kind of really getting into the weeds, but we often hear from people that are really concerned.

Oh no, I went into the twenty two percent bracket. Now I'm going to have to pay way more in tax. Keep in mind, it's not the end.

from twenty twenty four. Moving on to R and D adjustments, This one is really really near and dear to us here at class because we talked about rm ds in our day to day and on the show a lot as well, so required minimum distributions from your retirement accounts. One change that took effect it's now been two years, was the increase of the RMD age to seventy three.

So remember it was originally seventy and a half, then it went to seventy two, then it was pushed back to seventy three, but for people who were born in nineteen sixty or later, that age is actually up to seventy five now. So keep in mind you can distribute funds from your retirement accounts anytime after age fifty nine

and a half without penalty. And in many cases, these funds were invested pre tax so they were they reduced your taxable income when you put them into the account, which means that you will have to pay taxes once the funds are distributed, either as regular income or in the case of an rm D. So in the case of an r and D that keep in mind here, you may already be taking enough to satisfy the r and D if you're drawing money out as part of

your retirement income. So for some folks, rmds don't actually impact them directly because they're already satisfying it through normal distributions. But the penalty for missing rm ds, so this is something that we've talked about before. If you forget to take that required minimum amount before well in the year that you are required to, the rs used to issue

a penalty of fifty percent of the shortfall. Okay, so that's a huge penalty, fifty percent of the amount that you did not take out that you were supposed to. But back in twenty twenty three they drop that down to twenty five percent of the shortfall. And if you actually correct that in with they deem a timely manner, which you know is I suppose up to interpretation. But if you do that in a timely manner, they're going to reduce that penalty to ten percent of the shortfall.

Last one here on rm DS that I wanted to talk about, and this one is is something that we never really understood why it was the way it was before to begin with. But that's the elimination of required minimum distributions for the WROTH portion of your retirement accounts. So think of your you know, your four oh one K or your four h three B that you've put

WROTH dollars into. This change actually took effect for twenty twenty four, but we want to highlight it because it's a pretty big change, and like I said, it was something that never really made sense to us because like a roth IRA that that doesn't have a required minimum distribution, but a WROTH four oh one K, a WROTH four old three b ROTH war fifty seven, and you know the WROTH portion of the thrift savings plan for some of our federal ployees, those were all subject to required

minimum distributions. The beginning last year, rm ds are no longer required on any type of WROTH retirement savings account. So this allows individuals to keep their WROTH accounts really wherever they want. They're not forced to roll it over

to a ROTH IRA to avoid r and ds. And not that these r and ds were taxable coming from from the Roth portion, but if you think about it, those WROTH dollars are some of your most powerful dollars and if you if you don't have to take them out of the ROTH portion and you don't have to give up that tax free growth, that's definitely going to be preferable. So this is a good change in our.

up for the weekly Market Pulse newsletter. It's a weekly email that comes in your inbox. It's got a little snapshot of what's been going on in the markets. Also, we'll link to the most recent podcast that available at cossfinancial dot com. There are teleph number six oh eight four four two five six three seven. No charge for that initial gets know you appointment at Coss Financial. It will be complementary to you again their number six o eight four four two five six three seven. What about

contribution limits? We'll get the details on that and so much more as Money in Motion with Coss Financial continues right here on thirteen ten, Wiva talking with our retirement planning professional CJ. Coloss and Eric Schwartz. They come to us from Class financial website Coss Financial dot com. That's Class k l aa S Financial dot com. The are telephe number six oh eight four four two five six three seven. No charge for that initial gets to know

your appointment at Loss Financial. It will be complementary to you again their number six oh eight four four two five, six three seven looking through the year twenty twenty five when it comes to changes to tax law and some things to keep in mind as we move through the year this morning, and and CJ bringing you in on the on the conversation, what about limits when it comes to contributions in our in our twenty twenty five retirement accounts.

forty sevens and federal thrust savings plans. In twenty twenty five, these maximum elective deferral contributions as we call them, have increased to twenty three thousand, five hundred dollars if you're under the age of fifty, with an additional seven five hundred dollars catchup if you're over the age of fifty. So twenty three thousand, five hundred for basically everybody, plus seventy five hundred dollars extra known as catchup contribution if

you're over the age of fifty. So we often will just talk about these as two big different numbers, like, if you're under fifty, it's twenty three five. If you're over fifty, it's thirty one thousand dollars. But interestingly, if you log in online, they're going to ask you to make contributions to those two buckets separately, which is kind of weird. You go, oh, wait, what, I've got a max out the elective deferral and then I've got also

max out the ketchup contribution. It's just a little bit wonky. But IRA contribution levels have remained the same from last year to this year. So if you're under the age of fifty, the max you can put into an IRA, assuming you're eligible, is seven thousand, and then if you're over fifty, there's one thousand dollars catchup for an additional thousand,

totally eight thousand dollars for the year. Now, interestingly enough, we talked about this actually last week a little bit, but under a change made in Secure Act two point zero. There is a higher catchup contribution limit on employer sponsor retirement plans for individuals who are specifically age sixty, sixty one, sixty two, and sixty three and who participate in one

of the employers sponsored retirement plans. So again just those four years, there's actually a higher catchup contribution mount not the seventy five hundred I was talking about, but actually it goes up to eleven thousand, two hundred and fifty dollars in the catchup for a total of thirty four thousand, seven hundred and fifty dollars. So interestingly enough, Eric and I and Mark firm view this as a very good thing, just kind of wonky. Wait a minute, there's a there's

a third level of complexity here now. So now it's like if you're under fifty, it's twenty three to five, if you're over fifty, it's seventy five an additional seventy five hundred, But if you're specifically sixty, sixty one, sixty two, and sixty three, it's actually eleven two hundred and fifty. So I hope you're laughing with me. As great as it is, it just adds another layer of.

But yes, QCD so goodness, you all know our industry loves our acronyms. So qcds. This state is short for qualified charitable distributions. We discussed this area quite frequently, and the two the qcds kind of interact with your rmds. So let me say that differently qualified charitable distributions have some level of interaction with your required minimum distributions. So

let me explain what I mean here. If you contribute to a charity under normal circumstances, assuming you're not over seventy and a half, your only way to benefit by those contributions to the charity on your taxes would be for your itemized deductions, which includes charitable and a bunch of other things. Would be if your itemized deductions to exceed the standard deduction, which, as Eric just talked about, is less common given how high the standard deduction is now.

Well one we'll call it. Get out of jail Free card is the way that qcds interact with rmds. So when you become required to pull money out of your pre tax retirement account through this thing called the required minimum distribution for most Americans, that's now seventy three or seventy five, when that happens, if you don't need that income, or furthermore, you don't want it because it's going to push you up in the higher tax brackets or cause other tax issues for you, you get out of jail

free card. It is just to take that money and do what are called qualified charitable distributions. This is not giving to the charities out of your checking account anymore, you'd have to work with your advisor to say I don't want to I don't want to give out of my checking account. I want to give directly from my IRA to the charity. And in so doing, two things are happening. Number One, you're meeting your required minimum distribution by doing this, so set another way. Those qcds count

towards meeting your minimum. And then secondarily, you're not paying income taxes on that money. It's counted right, it shows up as a distribution, but there's just no tax withholding off of it. So you get the idea. It's like, WHOA.

So what you're saying CD is there's no itemization. I don't. Basically, set another way, my first dollar that comes out as a QCD has a tax reductive value to it, whereas if I get up give out of my checking account, I might need to do you know, twenty some thousand dollars worth of gifts before it has any tax benefits. So where do the wise You don't need to know

all the logistics of this. What you do need to know is that if you are old enough to have required minimum distributions, and you are giving to charities of a substantial amount and you are not doing it out of your IRA, you're missing out. You should probably go talk to your accountant or your financial advisor to change the way in which you are giving to charities. Now, as it relates to this, there used to be a maximum annual QCD amount that you could do that was

established like seventeen years ago. But now these maximum kind of qualified charitable distributions are linked to inflation. So the max you can do in any calendar or sorry as of twenty twenty five is one hundred and eight thousand dollars. That's the max you can do in qcds.

really good, good piece of legislation overall. Now, one thing they didn't clean up, which is still a little bit wonky, is you're actually eligible to do qualified charitable distributions at seventy and a half, which used to be the age that your required minimum distributions would begin. It's not anymore now it's seventy three or seventy five. So you can actually do qualified charitable distributions as early as age seventy and a half, but you're just not required to make

minimum distributions until seventy three or seventy five. Which the reason this is wonky everybody is because the real benefit here is not claiming the extra income. That's why one of the biggest benefits, and so for us, having those two linked by age makes more sense. But listen, it's not a bad thing. I would just say to you, you're actually eligible to do qualified charitable distributions before you're

required to perform minimum distributions. So again, if you're over seventy and a half, you're not doing qualified charitable distributions and you're giving a lot to charities. Go speak with your accountant or advisor. Now another thing here, another kind of change as we head into twenty twenty five is that additional employer contributions are now eligible for WROTH treatment. This is interesting. So remember the laws used to be, Hey, when I contribute to a four ROH one K plan,

they might match my contributions. You've heard us over and over say to you, don't leave free money on the table. So if they're going to match you fifty cents on the dollar up to six percent, make sure you're putting in six to get there to get their three right,

always get the free money. Well, what we also used to say to you is, regardless of the way that you save into the plan, whether it was WROTH or pre tax, all of the employer money so the money coming from your employer as a match would always be pretax. Didn't matter if you were contributing WROTH, they were going to give you pre tax money. Well, amazingly this has

now changed as we head into twenty twenty five. And this is assuming your plan allows for this, by the way, so you would need to talk to your employer, but now you could say, hey, my income is low enough or I'm young enough that I want to do a WROTH for oh one K contribution up to say six percent, and the three percent that they're going to put in for me, I want them to do that money as wroth now word other wise, this means that that money that they're putting into for you has to be taxed.

So actually, as great as that is that they can put WROTH money in for you, that kind of dilutive pattern of their money going in as WROTH is just going to further reduce your net paycheck. Warning, warning, warning. As much as we love this, I love choice, I don't think a lot of people are going to pick up on the consequences of their choice. So make sure again talk to your advisor, your accountant, even your spouse to make sure that the take home pay is enough to kind of meet the bills.

and that's up from one fifty three last year. And if you're read filing jointly, this again is for Rotha Ray contributions, your joint modified adjusted gross income must be under two hundred and forty thousand. So listen, everybody, I've been doing this for a long time. I know to hear this and how to apply this. It actually took me, and this is being in the industry, It actually took me, maybe I'm slow, like five to seven years to understand what the heck this meant. Like I kind of understood

the concept, like, okay, there's some limit. If I earned too much, then I can't do the thing. But how it got applied and then it was like I heard this thing of well, you know, you can always contribute to an irge as may or may not be deductible, and I was like, what what, so what is the what is the phase out for if I can still contribute? All very confusing to me. What I'd say is, if you understand this, great it means it means you're smarter

and faster than me. If you don't, you're in good company. Even people who do this for a living, it takes some while to warm up to all of it. So this is why people like us have jobs. Feel free to call us, talk to your accountant, talk to your advisor, and make sure that you are avoiding problems. Many times people just do the same behavior over and over and over until they suddenly find out they weren't eligible for it, and then we've got to go back and amend multiple years

of tax returns. So this is This is kind of my sly way of saying, you may want to have a financial advisor who at least you meet with occasionally, just to make sure you're not running a foul of any of the rooms you mentioned.

there is more, and we'll talk about that. Next has Money in Motion with Class Financial continues right here on thirteen ten. Dou Wuiba talk this morning with Eric Schwartz and CJ Closs. They are our retirement planning for specials from Class Financial website class financial dot com delv whatever six So eight four four two five six three seven just moments away from the class quiz question the week will do that just a minute. But first, as mentioned, there is more that we need to be aware of.

And Eric, what are some of those other changes that folks need to be queuing in on this time of year or this year?

employer offers it. Again, like CJ mentioned before, every plan is different, but if your employer offers to match your four oh one K contribution, and you could get matched dollars into your four one K or four O three B without ever having to deposit your own funds into your retirement account. So we always say don't leave free money on the table. Make sure you're getting the employer

match at least in your retirement savings plan. But especially when people are just starting out, we realize that you know, you have to make decisions about you know what, what you can and can't do financially. But this is an opportunity for people to you know, pay down their educational debt and get a retirement contribution. So it gives the opportunity to not have to to choose between paying down debt and saving for retirement. So check to check with

your employer to see if this is available. If you are if you are repaying student loans and hopefully can get you a little bit more and put into your retirement accounts. And the last, the last thing I want to talk about here is the something that that took that came about as a result of Secure Act two point zero, and it has to do with five twenty

nine college savings plans. So what this provision does is it allows unused funds from a five to twenty nine educational savings plan to actually be rolled over to a Rothie array. So now remember five twenty nine plans. They are to be used for educational expenses. And if you don't use them for an educational expense, there can be some tax and penalty do on the distribution. And we hear this from people all the time. You know, it's great that you know, you get the tax free grow.

It's great that I can get a you know, a state tax deduction. But I don't want to put money into the five twenty nine because you know, if my child decides not to go to college, or you know, their college doesn't isn't like a traditional four year program. It's shorter and it doesn't cost as much. I just don't want to have my hands tied. Which makes a

ton of sense. But what we've seen in recent years is the IRS has really been trying to quell some of that fear by adding some flexibility to the allowable distributions from A five to twenty nine. And this is probably, I think one of the coolest ones. So what it allows them to do them being the beneficiary, is they can take up to thirty five thousand dollars okay, of

remaining balance in A five twenty nine. So maybe that's you know, they didn't spend all the money on school, Maybe they didn't go to school, and they can use that thirty five thousand dollars to start saving for retirement, okay, So they can use that thirty five thousand dollars to make an annual roth IRA contribution up to the limit

which CJ mentioned this earlier. It's seven thousand dollars for folks under fifty and eight thousand for people fifty and older, and they can take you know, let's say they have thirty five thousand dollars left in a college savings plan. They can make five years of contributions to their roth IRA using those five twenty nine dollar dollars without penalty. And they're actually putting those dollars to good use for for their future.

You'll then have thirty minutes from the en Today's program to call the Class Financial office right here in Madison at six oh eight four four two five six three seven. If you are the first collet correct answer, win this week's prize, which is a twenty five dollars gift card to Sephora. This week's Closs Quiz question of the week is this What is the new standard deduction for single tax payers in twenty twenty five? Is it ten thousand

dollars or fifteen thousand dollars? Telephone number six oh eight four four two five six three seven. First call with correct answer when that twenty five dollars, gift cards, Sephora and again that's Loss Financials Office right here in matt U. No charge for that initial gets to know the appointment. It is complimentary to you again their number six O eight four four two five six three seven CJ.