On this episode of the Reinvent Rich Podcast, Andrew Randisi, Certified Financial Planner and Senior Financial Advisor, joins Lesley Buck, Manager of Client Services, to talk about important year-end financial tasks.
Lesley Buck: Welcome everyone to our next podcast. I’m joined today by Andrew Randisi, a certified financial planner here at Pennsylvania Capital Management. We’re coming up on year end 2024 here, so Andrew’s gonna Give us some tips on things to keep in mind as the year end approaches. So Andrew, I’ll throw the first one at you.
There’s a, um, a potential change to the SALT deduction and what, I guess, first off, can you just explain what SALT is?
Andrew Randisi: Thanks for having me on the show today. SALT stands for the state and local income tax. So that would include things such as the taxes you pay to your state if you live in a state that charges a state income tax on income, as well as what’s also would be included with there would be local tax like, um, real estate tax, school’s tax, or if your municipality has a income tax as well.
Lesley Buck: Okay, great. And what are the potential changes? that we’re aware of.
Andrew Randisi: So some of the potential changes that we have right now with currently the Tax Cuts and Jobs Act that’s set to expire next year. The assault tax deduction is capped at 10, 000. There has been some thoughts right now with the Republicans controlling all three states.
Thank you. The house, the Senate and the presidency going into 2025, that there has been some talks about lifting that the incoming administration can thank quite a bit, the states such as California and New York with some house seats, flipping Republican, giving them a narrow majority. So it was kind of a favor to doing that.
There has been some proposals of either increasing. The salt cap, the salt cap to a higher level from which it is 10, 000 right now, or doing all away with it altogether. And we go back to how things were prior to the 2017 tax cuts and jobs act.
Lesley Buck: So that could potentially help taxpayers. If the cap is increased, it means you get a bigger deduction on your tax return.
Andrew Randisi: So I know kind of how they have to do these things. You more or less have to rob Peter to pay Paul to make it past the reconciliation bill, because that’s how the next tax bill is going to more than likely be passed. So we have to take money from here, money from there, to all make it fit within the budget and be budget neutral.
When the Tax Cuts and Jobs Act in 2017 was passed, to grab money to pay for other tax cuts. What they did was they capped the state and local income tax deduction at 10, 000. That particularly affected most individuals, our clients as well here that would live in the more The blue states, think California, New York, myself being a New Jersey resident as well, along with Connecticut.
If you are paying, if you have an onerous 10, 15 percent state income tax, and then on top of it you have high property or school taxes, that’s a bit of a bummer if you can only write off 10, 000 off your federal income tax. Now there might be some, a little bit of help might be coming when the next, Now of tax legislation comes to fruition, we’ll see.
We’ll look forward to 2025 as a a taxpayer, especially when it comes to the end of the year. Um, you might be getting your property tax or school tax bill, whether it be the LA for kind of the preliminary bill for 2025. Don’t right away run and pay that bill all, all in one time. Continue to just pay it when it is due, whether that be quarterly or semi annually, depending upon your state and municipality.
That way, if the cap does get lifted in 2025, it can be written off as a 2025 tax deduction.
Lesley Buck: Got it. Okay. So that’s one to keep an eye on. Maybe if you can hold off on making a local tax payment until 2025.
Andrew Randisi: Oh, most definitely because anytime you prepay an expense like that, you’re giving Uncle Sam a interest free loan.
So pay him when it’s due.
Lesley Buck: Okay. We’ve got one on here for electric vehicles. Tax credit for electric vehicles. Yes. Yes.
Andrew Randisi: So with the, the Biden administration, with the Inflation Reduction Act, I’d say electric vehicles, there is a 7, 500 tax credit. depending upon your income and filing status. I know if you’re a single filers, it’s 150, 000 or less.
Married couples, it’s 300, 000 or less for adjusted gross income. You could be entitled up to a 7, 500 tax credit. It looks like, um, with the incoming administration’s willingness to move some chess pieces around to pay for other priorities, this tax credit may go by the wayside as part of any reforms or 2025 tax package.
So if you were thinking about, hey, I might want to buy that electric car, um, and you’d fit the criteria for this deduction, you might want to squeeze that in and do it in 2020 calendar year 2024 and not risk not having the tax credit in 2025.
Lesley Buck: Okay, so that’s one where you should go ahead and do it now.
Get it done. And
Andrew Randisi: I would say don’t make a tax credit be the ultimate factor decision on buying a car. Because I’d say if you need a tax credit to buy a car in the first place, probably should be looking at a cheaper car. Those EVs can be particularly expensive.
Lesley Buck: Yeah, it, does it apply to hybrids as well?
Or does it have to be a four? So
Andrew Randisi: for it’s, Pure electric, and I believe some of the plugin hybrids qualify as well. You’d have to check on the government websites, but the traditional hybrid, I would say the, the Prius always comes to mind or a, uh, Honda CRV hybrid, the regular hybrid, not the non plugin that doesn’t qualify, but those are much cheaper alternatives than their cousins.
Lesley Buck: Gotcha. Okay. That’s a good one to keep in mind. How about the gift and estate exclusions?
Andrew Randisi: Yes. So we, what had been a concern, what had been, if there was a split Congress would be the lifetime exemption, lifetime gifting exemption, which was effectively doubled after the passage of the 2017 tax cuts and jobs act.
For the most part, we’re going to say that’s probably safe going into the next round of tax legislation that’ll come out next year. Currently, the thought was if Congress couldn’t get A deal done, it was going to more or less in effect half itself. Now, what I’d say will be, would be expecting with, um, Republicans can having total control in the house, Senate and white house.
Well, that’s going to be either cemented or extended for another period of time, the higher exemption for 2025 is nearly. 14, 000, 000 it is 13, 999, 000 along those lines that a individual can make in lifetime gifts and the annual gift exclusion has also been raised as well. This year it was 18, 000 next year it’s going to 19, 000 per person per individual per year.
Lesley Buck: Okay, so those are 2025 things to keep an eye out for.
Andrew Randisi: Yeah, so I’d say it looks like if you’re a deca millionaire, 10 million on or up, there’s still time that you want to do, if you want, when reviewing your estate planning with your financial advisor and your attorney and your estate attorney as well.
If there’s opportunities where you can gift assets out of your estate, whether that be to trusts, children, the exemption is still very high. was expected to still remain very high, but you’ll be able to continue doing so. I not have to worry about as much estate potential as inherit state federal estate tax in the future.
Lesley Buck: Got it. How about our next topic? Roth conversions.
Andrew Randisi: Roth conversions. One of my, one of my favorites. So for Roth conversions, this is a topic that we really, you can really talk about. As a year end priority or a beginning of the year, a January priority as well. Roth conversions allow an individual, well, if they want to, we know inevitably, I know we’ve discussed that.
Tax new tax bill reform. But beyond this administration and decades into the future, we know inevitably taxes are going to go up. They have to pay for our tremendous national debt that is accruing every minute and second that I’m talking right now. So what one opportunity, what you can do to is would be Roth conversions.
You. pay the tax now on your qualified retirement accounts. And that way your, your monies can grow tax free for perpetuity. It also has a second fold purpose. It’ll reduce required minimum distributions, which for most taxpayers that are see that depending upon your birthday, whether if you’re either stay started 73 now, or they are 75, depending upon your birthday.
What’s great about Roth conversions is you can have a little bit more. You can have timing of when you want to do it and really how the market is looking. So if you do a Roth conversion in January, for example, January of 2025, that tax bill. You don’t have to technically pay until April of 2026. If you do Roth conversions at the end of the year, that tax bill would be due next date.
As for example, if we did Roth conversions in December of 24, that tax bill comes due April of 2025. Now there can be some opportunities. There’s a trade off there of doing it at the end of the year or the beginning of the year, because I’d say at the beginning of the year, The main trade off is while you get to kick the can 16 months on paying the tax bill, you don’t necessarily know how the market is going to do.
If the market has a great year, a positive year, okay, we’re really worth it because we have tax free growth now. If the market has a clunker. We have to still stay positive. We can no longer do recharacterizations. I can’t say, oh, I converted a hundred thousand dollars of my pre tax IRAs or Roth or pre tax 401ks to Roth and say, the market went down 10, 15%.
Gee, I want to flip it back. Doesn’t work that way. We can’t do that anymore. So doing the Roth conversions in January, have to have the going with the mindset. We’re having these dollars, keeping them invested, not just for one year, for decades. On the flip side, if we do it at the end of the year, and you do have that clunker in the market, you’re converting less dollars, less taxes.
So there’s trade offs to both cases.
Lesley Buck: Good things to weigh in when you’re making the Roth conversion. And that’s
Andrew Randisi: why it’s always good when you’re thinking about doing that, um, loop in your tax, your financial advisor, as well as your tax advisor, um, cause you’ll want to make sure, especially if you’re retired or on Medicare.
You’re not crossing other thresholds by pulling too much income forward that could potentially kick you into a higher bracket for one paying federal tax or affect your Medicare Part B and D premium, the dreaded Irma surcharge. It’s also something to be mindful of as well too.
Lesley Buck: That’s a really good point.
Yeah, got to make sure that doing the conversion doesn’t like you said kick you into some unfavorable tax situations there.
Andrew Randisi: Exactly.
Lesley Buck: Yeah. Great. Thanks, Andrew. One more topic. Let’s cover retirement plan contributions.
Andrew Randisi: Yes. So retirement plan contributions. With inflation not being as high in 2024 as it had been in 21 and 2022, for a qualified retirement plan contributions, there was a slight increase this year for 401k, 403b.
So currently right now, an individual under 50 can contribute 23, 000. For 2024. For next year 2025, it has been bumped up, increased 500. So individual can contribute 23, 500. If you are over 50, there’s some new quirks here with the passing of the Secure Act 2. 0. If you’re over 50, The, uh, the catch up is still 7, 500.
So if we combine the two together, it would be 23, five plus 7, 500. So 31, 000 altogether is what an employee could contribute out of their paycheck. The quirk this year, which is now going to affect for 2025, which is going to be pretty beneficial is for those individuals that are age 60. to 63. So those four years, 60, 61, 62, 63, they’ll be able to contribute their 7, 500 catch up is actually going to be even higher.
There was a special catch up for individuals in those four years. They’ll be able to contribute up to 11, 250. As their catch up, so it will be even higher for those that what was primarily done because that was kind of the sweet spot for when people start to think about maybe time to retire, they wanted to make sure employees had some more room to be able to contribute some more dollars if they hadn’t contribute as much as much in prior years.
Call it a bonus super catch up for those four years.
Lesley Buck: Yeah, that’s great. That’s a good, so age 60 to 63. So that’s a good, so to our listeners out there, if you’re 60 to 63, you should definitely take a look at increasing your 401k contribution to take it back. Yeah, because
Andrew Randisi: when you stack the super catch up on top of the base employee.
base contribution. It’s 34, 750 rather than just 31, 000.
Lesley Buck: Yeah, that’s great. That should help some folks build up their 401k balances,
Andrew Randisi: especially if you got a little bit behind, um, on saving whether in prior in prior years net Roth. IRAs or traditional IRAs, that is still staying the same. That didn’t go up.
It is still 7, 000. If you are, uh, under 50, if you’re over 50, the contribution catch up, uh, is still 1, 000. So it’d be 8, 000. It wasn’t too much. Inflation wasn’t too high to incrementally. Um, that up a little bit more, but it was a nice benefit. Nice boon this year for 2025 for qualified retirement plans.
Those 401ks and 403bs.
Lesley Buck: Yeah, that is great. I didn’t realize, I thought they, I just had it in my head that the IRA. Contribution limits went up every year, but they it doesn’t they don’t do it every year.
Andrew Randisi: It looks at inflation. So with inflation being high the last 2, 3 calendar years, it has gone up prior to that.
It had kind of just dragged its feet on the way. It’s been going up. So if our inflation is in that 2 to 3 percent range for 2025, maybe in 2026. It might go up a few hundred bucks, but we shall see, uh, what inflation has in store for us for next year.
Lesley Buck: Okay. That’s the end of our five items there. So salt deductions, electric vehicles, gift and estate exclusions, Roth conversions, and supersizing your 401k contributions.
Thanks, Andrew, for updates on year end 2024 and what to look for as we roll into 2025.
Andrew Randisi: Thank you.