Trump-Era Tax Cuts Are Expiring: 3 Types of Nontaxable Investments To Make
Written by
Adam Palasciano
Edited by
Nicholas Morine
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You’ll want to act fast to protect your money.
The Trump-era Tax Cuts and Jobs Act (TCJA) of 2017 lowered tax rates across the board. The legislation is slated to expire if Congress doesn’t act to extend it or pass a new tax bill. Given the division within the current Congress, the passage of a similar bill or expansion is unlikely at this point.
Here’s what you need to know about the TCJA — and how to protect your assets ahead of the bill’s expected expiration.
Provisions of The Tax Cuts and Jobs (TCJA) Act
TIAA explained that the TCJA brought widespread changes to the federal tax code. The top tax rate dropped from 39.6% to 37%. The 33% rate fell to 32%, the 28% rate to 24% and the 25% rate to 22%.
Another key provision that the TCJA implemented was an increase in the standard deduction, from $13,000 in 2017 to $29,200 in 2024 for married couples and $6,500 to $14,600 for single filers. Many taxpayers have stopped itemizing deductions, making it easier to reduce their taxable income without going through a complicated process.
The third key provision of the TCJA was an increase in the per-person estate and gift tax exemption. The exemption increased from $5.5 million in 2017 to $13.6 million in 2024. This has allowed wealthy Americans to leave more of their estates to their next of kin tax-free.
“We’re reminding our clients that they have to consider their total assets — not just what is in an investment account,” Kevin O’Regan, senior wealth adviser at Kayne Anderson Rudnick, explained to the Wall Street Journal. “Once you factor in the appreciation of, say, a primary residence, as well as the growth of an investment account over time, the impact of estate taxes could be significant.”
The TCJA Will Sunset Next Year
All TCJA tax breaks affecting individuals will effectively expire at midnight on Dec. 31, 2025. What does this mean for taxpayers if the bill isn’t extended?
Starting in 2026, tax rates will increase across the board, the standard deduction will go down, and estates will face higher levels of taxation. If you’re concerned about the increased tax burden that will come with the expiration of the TCJA, there are some crucial financial moves you can make now to shield your income from taxation.
Types Of Nontaxable Investments To Make Before December 2025
Here are three ways to reduce your tax liability ahead of the expiration of the TCJA, according to TIAA:
- Roth IRA conversions: When income tax rates increase after Dec. 31, 2025, so too will the tax rates on your investment gains. One way to avoid increased tax liability now is to convert your retirement account to a Roth IRA. Post-tax income is used to make contributions and purchase investments in a Roth IRA. So, you’ll pay income tax on the fund now and your funds, including the gains, will be tax-free upon retirement. Essentially, you’ll avoid the higher tax rates in the future by paying the taxes on your contributions now.
- Charitable giving: When the standard deduction gets cut in half upon expiration of the TCJA, people who stopped itemizing deductions will likely start again to reduce their tax liabilities. Bundling your charitable giving can help. For example, take a married couple who stopped itemizing deductions in 2018 but still gives $10,000 per year to charity. If they wait until 2026 to make one bundled $30,000 donation (for tax years 2024, 2025, and 2026), they could significantly reduce their tax liability by donating a larger sum once tax rates are back up in 2026.
- Reduce your taxable estate: Wealthy Americans can pass on $13.6 million to their heirs and completely avoid federal and estate taxes. That threshold will be halved after the TCJA expires. However, by giving away some of your money now, you can reduce the value of your estate, thus reducing your estate tax liability come 2026. For example, individuals and couples can give away $18,000 and $36,000, respectively, to any recipient without even using their lifetime exemption for the tax year 2024. So if you’re a retired couple with five children, you could give each of them $36,000, thereby reducing your taxable estate by $180,000.
“Tax attorneys will be very busy with these issues,” explained Jonathan Fishburn, a tax and estate lawyer with TIAA’s wealth planning strategies team. “This is not something you can leave until the second half of 2025.”
In short, taking these important tax planning measures now can save you and your family a bundle for years to come.
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