One Big Beautiful Financial Planning Opportunity

As our readers may infer from our title, we are referring to the One Big Beautiful Bill Act that the House of Representatives passed in May. The bill will now proceed to the Senate, where Senate Republicans will attempt to advance it through the reconciliation process. While we are always cautious about writing on matters that are not final and may either fail to pass or be modified, we recognize that several provisions in the bill are likely to impact our clients and provide opportunities for us to update your financial plan. Please know that the Charter Oak Financial Planning team is preparing for any changes that may affect our clients' success.

What’s inside the One Big Beautiful Bill Act?

The following provisions were all part of the original TCJA and would become a permanent part of the tax code if the House-passed Act is enacted with no changes.

The seven tax brackets defined by the original 2017 TCJA will remain the same, with a top rate of 37% for higher earners and a bottom rate of 10% for lower earners.
The mortgage interest deduction would stay at its current limit of $750,000 in mortgage debt, having been lowered from a threshold of $1 million in 2017.
The SALT deduction, capped at $10,000 for all filers in 2017, would increase to $40,000 ($20,000 for married people filing separate returns).
The standard deduction, which doubled in 2017, would be made permanent, with a one-year inflation adjustment and a temporary increase of $1,000 for single filers and $2,000 for married couples filing jointly. For 2026, these amounts would be $16,200 for single filers and $32,600 for married filers.
The lifetime gift and estate tax evaluations, which have more than doubled since 2017, would increase to $15 million for single filers from $13.99 million to $30 million from $27.98 million for married filing jointly. In the future, the exclusions would be indexed to inflation.
The Child Tax Credit (CTC) would increase by $500 to $2,500 until December 31, 2028, when it would revert to $2,000, but it would be indexed for inflation starting in 2026. The TCJA doubled the credit in 2017 from $1,000 and increased income phase-out thresholds to qualify for the credit. The increased income thresholds and the credit for non-dependent children would also be maintained.

A New Savings Account for Parents

Trump accounts. The bill proposes a savings account called the Trump account, which can be funded up to $5,000 a year after tax for children, providing no upfront tax benefit. Contributions can be made by parents, relatives, or any other “taxable entity” until the child turns 18. At that point, half of the funds may be withdrawn, and any gains will be taxed at the long-term capital gains rate if used for qualified expenses, including education, the down payment on a first home, or starting a small business. After age 30, remaining funds can be withdrawn for any purpose. Withdrawals for other purposes before age 30 will be taxed at ordinary income rates. Parents of newborns born between January 1, 2025, and January 1, 2028, will also qualify for $1,000 in federal seed money to start the account.

Also Under Consideration

Expanded Uses for Health Savings Accounts (HSAs) and 529s. The bill broadens the types of health plans and participants eligible for HSAs. It enhances HSA use for gym memberships and fitness reimbursements, allowing individuals with high-deductible health plans to receive services at employer health clinics. Moreover, married couples filing jointly can make catch-up contributions to the same HSA. Working seniors eligible for Medicare Part A in high-deductible plans can continue contributing to HSAs. Additionally, the bill expands 529 fund use for testing fees, off-site tutoring, and educational therapies for students with disabilities, among other expenses. It also allows tax-free withdrawals for recognized postsecondary credential programs.

In addition to the permanent provisions, the bill proposes numerous temporary deductions and credits good only for tax years 2025 through 2028. These are as follows.

No taxes on tips or overtime. The new tax bill would provide a temporary deduction for tipped income and hours worked more than the regular workweek hours for hourly employees. Tips would continue to be included in the base for FICA taxes (Social Security or Medicare tax).

An additional senior tax deduction: People aged 65 and older would receive an extra $4,000 deduction per filer if their modified adjusted gross income is $75,000 or less for single filers and $150,000 or less for married filers. Note: The enhanced deduction would be in addition to the $2,000 that single filers and $3,200 that married filers can currently deduct if they are 65 or older.

Deductible car loan interest. The tax bill allows for a deduction of up to $10,000 of loan interest for purchased vehicles whose final assembly took place in the US. The deduction would apply to single taxpayers with modified adjusted gross income of $100,000 or less ($200,000 or less for people who are married filing jointly).

What isn't in the One Big Beautiful Bill Act?

No taxes on Social Security.
President Trump campaigned to eliminate taxes on Social Security benefits, which are taxable up to 85% for individuals making over $34,000 or couples with a combined income of $44,000 or more. The $4,000 enhanced deduction for individuals aged 65 and older may help mitigate taxes on Social Security benefits for some people with income at these thresholds over the next four years.

What does this mean for clients?

Many things may change in the bill, but we are preparing now to educate and offer guidance to our clients. We will also depend on our in-house tax experts and partners to help us understand the tax implications of the new bill. This includes everything from gifting to estate taxes to new deductions.

We will also examine the expanded use of college savings plans and how they may benefit from the new Trump accounts with minor children.

We will also review changes to Health Savings Accounts (HSAs) and discuss how we might contribute to them and utilize them for future health expenses.

We hope this brief overview has informed you about what may be ahead. Please rest assured that your team at Charter Oak is already taking steps to ensure your continued financial success.

As always, we are pleased to serve you, our valued clients.

Charter Oak Spotlight

Charter Oak is delighted to announce some recent promotions within our firm. Please join us in congratulating these well-deserved promotions.

Jessica Kreger - promoted to Senior Financial Advisor, Director of Education and Training.
Alicia Chiamulera - promoted to Senior Financial Advisor and Financial Planning Lead.
Katy Carr - promoted to Senior Associate Financial Advisor, Behavioral Coaching Lead.
John Wilson - promoted to Associate Financial Advisor.
Cathy Towle - promoted to Client Service Director.
Marny Swindell - promoted to Client Service Lead.

We are also excited to welcome several new employees to Charter Oak. Please join us in extending a warm welcome to each of them.

Anthony Ciaramitaro joined Charter Oak in January as an Associate Financial Advisor.
Chase Rosa joined Charter Oak in April as a Senior Client Service Associate.
Morgan Taylor joined Charter Oak in April as an Accounting and Operations Associate.
Renee Hickey joined Charter Oak in May as a Senior Client Service Associate.

You can find more information about each of them on our website at www.charteroakcm.com.