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Four ways the 2018 Tax Bill may affect you
Whether you are saving for retirement or already retired, you are likely considering how the GOP Tax Bill of 2017 affects your after-tax income and the financial plans you've made. Consider how the tax reforms may be opportunities in 2018 - 2025 (many changes are set to expire in 2025), and as always consult your tax professional.
- Got kids and grandkids? If you have dependents at home, doubling of the Child Tax Credit for each qualifying child to $2,000, which will be refundable up to $1,400 (subject to phaseouts), should be music to your ears. That's good news for families, and those with other qualifying dependents, e.g. older adults.
- Move over Coverdell ESA. In 2018, savings in 529 plans can be used for K-12 expenses up to $10,000 per year, allowing more families an opportunity to save tax-free for private and religious schools. If you're currently saving with a Coverdell ESA, consider switching to a 529 plan through a rollover with no tax consequences and say good-bye to income, contribution, and account time limits as well as contribution deadlines.
- Estate Plan need updating? Maybe, so. In 2018, the Estate and Gift Tax exclusion amount for estates of descendants dying and gifts made after 12/31/17 doubled!
|2017||$5.49 million exclusion|
|2018||$10.98 millions exclusion|
- Your 401(k) remains relatively untouched. Despite worries that the tax benefits of tax-deferred retirement accounts would be curtailed, retirement accounts remain the best option for most people saving for retirement. One minor change: taxpayers can no longer recharacterize Roth IRA contributions as Traditional IRA contributions to unwind a Roth conversion.
- Tax brackets and deductions. Seven federal tax brackets have slightly lower rates and the income ranges have changed. Additionally, the standard deduction doubled, meaning itemizing won't be necessary for most Americans. With the doubling of the standard deduction, things like moving expenses, alimony, home equity loan interest, and tax preparation and investment and brokerage fees and expenses are no longer deductible. Despite these changes and the limits on state and local tax deductions and mortgage interest, you will likely see an increase in your paycheck, albeit only slightly.
Bear in mind the IRS is still working on implementation of the new tax law. The changes were effective January 1, 2018 and apply to the income you earn this year, so you won't see the effect on taxes paid until tax-day 2019.