by Alan Dierker and Angela Pinion
The One Big Beautiful Bill Act (OBBB) is a significant tax law change by Congress that made several major changes under the Tax Cuts and Jobs Act (TJCA) of 2017 permanent and created new opportunities for saving and gifting. When combined with the retirement planning law changes in the Secure 2.0 Act of 2022, an individual can effectively use its provisions to save for the future while generating significant tax savings for current and future generations.
Laying the Groundwork for the Future Generations via Giving
For both 2025 and 2026, the annual gift exclusion increased to $19,000 per recipient, which means each year an individual can give another non-spouse individual up to $19,000 without a tax impact. In addition, for 2026 and indexed for inflation going forward, the estate and gift tax exemption rises to $15,000,000, up from $13,990,000. Without the OBBB the estate and gift tax exemption would have reverted to $5,000,000. Lifetime gifting, for example, can be effective for coordinated state and federal estate planning. Still, individuals of all income levels need to be aware of these changes, as state thresholds often differ from federal estate and gift tax thresholds. On the state level, for example, Illinois has an estate exemption of $4,000,000, so it may be appropriate for individuals to reassess estate and gifting plans due to the new thresholds, but keep in mind that other factors are important.
Saving for Future Generations – New Opportunities
One increasingly important and tax-efficient wealth-planning strategy for individuals is to make gifts to a 529 plan. This is a tax-advantaged educational savings account that usually allows a state-level deduction but not a federal deduction for contributions and allows earnings to accumulate and be distributed tax-free for educational expenses. The OBBB expanded the amount that can be distributed from the 529 Plan for elementary and high school education to $20,000 starting in 2026, up from $10,000 in 2025. Also, the list of qualified expenses expands to include nationally standardized tests for credentials, curriculum materials, dual-enrollment fees for college courses taken in high school, and continuing education fees required to keep a credential active, among other eligible expenses, greatly expanding the benefit of saving in these tax-advantaged accounts.
One under-utilized wealth planning technique in 529 Plans, starting in 2025, allows balances, up to $35,000, to be rolled over into a Roth IRA in the student’s name, and allows the balance to grow and eventually be distributed tax-free to the student at retirement. For this to happen, the account must have been maintained for the student beneficiary for a minimum of 15 years prior to being rolled over into the Roth IRA. Any leftover balance after the transfer can then be rolled over into a 529 account in a blood relative’s name.
Gifting to Charity
Another strategy that affects individuals with Traditional IRAs and 401(k)s is to take advantage of a Qualified Charitable Contribution. This allows individuals who do not itemize on their tax returns but are subject to Required Minimum Distributions (RMD) to make gifts directly to qualified charities from their account and be able to exclude the charitable contributions from their income, up to $108,000 in 2025 and $115,000 in 2026. Given that the OBBB put in place a floor that disallows deductible cash charitable contributions until they exceed 0.5% of their Adjusted Gross Income (AGI) in 2026 for those who do itemize, planning becomes extremely important even for charitable giving.
Conclusion
The recent passage of the OBBB created long-term planning opportunities for all taxpayers. Understanding which changes affect their unique situation allows individuals to plan and make sound decisions, thereby reducing their tax liabilities or leaving tax-free gifts to future generations. As always, seek tax advice from a qualified professional before making any big decisions.
Alan Dierker, CPA, is a Tax Manager at Schmersahl Treloar. He can be reached at 314.966.2727. Angela Pinion is an Accounting Services Manager at Schmersahl Treloar. She can be reached at 314.966.2727.