Planning for 2024 and beyond: Tax changes you should know about

Robert G. Petix Jr.
Senior Wealth Planning Strategist,
Wells Fargo Wealth & Investment Management Wells Fargo Bank, N.A

The end of the year is a time of celebration with family and friends as we look forward to what’s to come. From a wealth-planning perspective, what’s to come could include significant change — especially as some tax code changes are getting closer to shifting again.

The Tax Cuts and Jobs Act of 2017 (TCJA), which lowered tax rates and doubled estate, gift, and generation-skipping transfer (GST) exemption amounts, is scheduled to sunset at the end of 2025. (It also could end earlier, or be extended, depending on political action.) Meanwhile, provisions in the Secure 2.0 Act could impact future tax planning.

Given the uncertainty of potential changes to the tax laws, maximizing annual and lifetime exclusions while minimizing transfer taxes is only one part of overall wealth and estate planning, but there’s a window of opportunity today that makes planning for the next few years more important than ever. Here are four issues to discuss with your key advisors.

1. Exemption rates are likely going to change

For the 2023 tax year, tax-exempt federal estate and gift tax threshold is $12.92 million per individual ($25.84 million for couples) during a lifetime or at death. This number is expected to rise in 2024 and 2025 before being cut roughly in half, though this also could change depending on political action. The same figures and timeline apply to the GST exemption, which allows families to avoid a 40% tax on transfers to grandchildren and other eligible parties. These exemptions are in addition to the annual gift tax exclusion, which in 2023 stands at $17,000 for individuals and $34,000 for couples, per recipient.

While 2026 may seem like the distant future, those with a net estate of more than $7 million (or $14 million for couples) who may face estate tax liability in 2026 or later may help their beneficiaries by discussing the implications and actions to consider with their advisors before the tax cuts expire. That could mean passing on wealth to younger generations or transferring assets out of the estate to lock in the increased exemption amounts, if appropriate.

2. Understand lifetime giving opportunities in light of tax reform

While you should consider having those conversations with your advisors to help plan well in advance of the 2026 deadline, you might be worried that gifting assets now may leave you without money you may need to live comfortably. Your advisors can discuss a number of solutions, including trusts, such as spousal lifetime access trusts and qualified terminable interest property trusts, and partnership structures that could strike the right balance for your situation.

Trust design can be complicated, so be sure to enlist the help of an experienced estate planning attorney to guide your decisions and maximize benefits.

3. Charitable giving could have a bigger impact

The TCJA doubled the standard federal deduction to $24,000, which raises the bar for charitable contribution amounts that can be considered as itemized deductions.

One way to maximize the impact — to your taxes and to the organizations you support — is through a strategy known as “bunching,” where you group together multiple years of charitable contributions. Consider gifting a one-time lump sum to a charitable organization or making a large gift to a donor-advised fund. Donations can then be distributed over several years to the charitable organizations of your choice.

If you are age 70½ or older, you could also consider the potential benefits of making tax-free qualified charitable distributions (QCDs) directly from your Traditional IRA to 501(c)(3) nonprofits. Additionally, you are able to make a one-time QCD paid directly from your IRA to certain split-interest entities that qualify under the new rule. The QCD annual limit for 2023 is $100,000 and for 2024 is $105,000. The QCD limit to certain split-interest entities is $50,000 in 2023 and $53,000 in 2024, which is part of the QCD annual limit. Both amounts are annually indexed for inflation. A QCD can satisfy all or part of your required minimum distribution, or it can exceed it and the funds would be excluded from your taxable income — though the excess would not be available as a charitable deduction.

4. Secure 2.0 Act may affect education gifts

A 529 education savings plan for a family member can be a worthwhile gift. Previously, contributing too much to a 529 was a concern because distributions from the plans that aren’t used for qualified education expenses can be subject to income taxes and a 10% additional tax.

Thanks to Secure 2.0 Act, however, designated beneficiaries of 529 educational savings plans can make rollover contributions from their 529 to a Roth IRA if they have excess funds. There are complex rules surrounding this opportunity; your tax advisor can help you navigate those issues. Rollovers can add flexibility to your gifting strategy and allow the 529 beneficiary to use their tax-advantaged funds to jump-start their retirement nest egg, for example, or make a down payment on a house.

Whether and how any of these strategies can help you depends on your family’s individual situation. There is no one-size-fits-all method to tax and wealth transfer planning. But the potential for the TCJA to expire in 2026 and the uncertainty surrounding tax laws in today’s political environment are a good reminder to talk about these opportunities with your advisors sooner rather than later.