Episode Transcript
[00:00:00] Speaker A: Welcome to Abraham's Wallet where we explore money, family and legacy through a biblical lens, thinking multi generationally like Abraham, our namesake did. And today we're diving into timely financial news to equip you for the best money moves you can be making right now.
The big beautiful bill passed last year, brought a bunch of changes to the tax code, launched the Trump accounts, which I'm sure you've heard of, and also affected interest rates. Remember Proverbs 21:20. Here's what it says. The wise store up, choice food and olive oil, but fools gulp theirs down.
So are you the kind of guy who wants to make shrewd financial decisions today so that your family benefits 10, 50 and 100 years from now? Of course you are. That's why you're listening to Abraham's Wallet, you bold, shrewd leader, you. So I know you're going to be interested to hear from Mark Parrott, who's our in house certified financial planner and all around economics guru geek wizard to talk you through your best money moves today. So stick around. We're talking practical steps, biblical wisdom and how to position your family for the long haul.
Run your home and your dough like a biblical boss.
Mark, how do you feel about being called an economics guru geek wizard? I came up with that and I kind of enjoyed it.
[00:01:29] Speaker B: I think amongst my two most commonly used nicknames when you're introducing me in the show, I prefer economics guru geek wizard to temporary occasional co host. So I'd say it's a win for my public image.
[00:01:46] Speaker A: No, no, you're, you're, you're in for the long ha.
But you know, I did have to record an episode recently all alone and I had some bees in my bonnet, which is a phrase that you used recently on an episode which I enjoyed and I talked about getting old. I know that you haven't heard that yet, I presume, but.
[00:02:09] Speaker B: Oh, I've heard it. I. Oh, you did?
No, I haven't heard the episode.
[00:02:14] Speaker A: No, no, you haven't heard my musings and meanderings that turned into an episode.
But you know, we're, I'm going to throw this out there to the people we're. Abe's Wallet is very fortunate that this coming fall we're going to be, we're going to be doing a weekend that's for old guys. It's this camp called the Gray Wolf camp. And we're going to talk specifically to like grandfather types about being grandfathers. And it's going to be something like grandfather boot camp. And I'M very excited to cover those kinds of topics because we need family leaders that are thinking beyond themselves. And I think that grandpas are a little more inclined to be thinking that way because they can see the end.
I don't know how I got off on that when we're talking about Guru Geek wizard, but. Okay, I know we have a lot to cover today, and the. The. The headline is. Is what. What are the. What are you. What's the container of all of these questions that we're hitting today?
[00:03:17] Speaker B: Well, you. You wrote me a note and said, hey, I want to talk about policies that are impacting the families that might be listening to our podcast.
[00:03:26] Speaker A: Yes.
[00:03:27] Speaker B: And I said, well, there's at least three or four questions that I'm getting asked almost daily right now by the families that we work with over at our financial planning business, so why don't we just answer them? Because a lot of the people we work with on a financial planning capacity, they. They also tend to listen to this podcast, so maybe it'll help them. But I know if there's one person who calls me, there's 20 that are wondering the same thing. So, yes, these are four questions that I am most frequently hearing.
And they all center around things that have changed recently. So it might be a Trump thing. A lot of them center around this one big, beautiful bill. We had Jed on a few months ago to talk about the changes that were in that bill when it happened. He's a tax expert. We are not CPAs. We're not giving you tax advice here. What we're doing is trying to alert you to what we know and what we don't. And I wanted to say at the front end of this, you put all this through kind of the AI machine and said, well, what are these rules? And all that. And it came back to me, and about half of what it said was abjectly wrong.
So there's just a lot of bad information out there about some of this stuff. And some of it, it's like, if you get it wrong, it just is like, oh, you missed out on a few bucks of tax savings, other stuff, you can actually get in trouble. So we want you to be informed about the rules when it comes to how you manage your money and the changes to those rules so that you maximize kind of every dollar that comes your way for the benefit of your great grandkids when you're one of those old grandpa guys.
[00:05:09] Speaker A: Amen. Well, one of the reasons that we're doing this episode now is because we're in tax season.
So I'm hoping that people's minds are a little bit technical, they're thinking in these ways so we can go into tax details, et cetera. I'm going to make this caveat to everybody because I'd like to do our listeners a favor.
We are going to get technical and get into the weeds, as you explain. For instance, I don't know, to talk about which states are doing what on, on contributions, for instance. Here's what we're going to do when you, when you start getting into the weeds and maybe a listener is going like, I don't really care about the details of this question. I'd like to go to the next question. We're going to start playing music in the background so that you can, when the music's over, you'll know that we're getting to a fresh new idea. So I will alert our editors to when to start the music because Mark is going down the rabbit hole. And I know it benefits people. I mean, I don't want to cut it out. I know that people need to hear details, but not everybody needs to hear every detail.
So let me, I want to start with this question for you, Mark. This is definitely the number one question that I'm getting right now from people because we've all heard of the Trump accounts.
Trump is very proud of these, this idea. There's a little, there's a little trumpeting about this going on and people want to know, okay, what exactly is it? Is it just for newborns?
How can I get my share of whatever money is being handed out and how does this work? So it seems like every single listener of ours needs to understand the Trump accounts. Would you talk us through that?
[00:06:53] Speaker B: Yeah. These are definitely one of the top questions we're getting is what is a Trump account? And really, you just need to know that when you open up the IRS guidelines, you can look down and you can say, wow, that Trump account, that's the greatest account that's ever been made. No one's ever seen an account like this.
It's incredible.
[00:07:17] Speaker A: Everyone's saying they're great.
[00:07:19] Speaker B: People are saying, wow, what an account.
Yeah, here's what we know. It's a brand new tax advantaged account for any American child under the age of 18.
And there's a lot of headlines about these accounts. Some of them are made up out of whole cloth because the fact is they're brand new and nothing is currently set in stone. I think if he had named these like Americans for Diversity accounts, that we would have A good chance that the rules that are in place today would stay. But because of that T word that's in front of these accounts, they have some enemies and there's people that are going to be trying to go after and stop these just because, just because they say the T word. So everything we say now could change by the time these actually kick into effect in July.
But here's the details as best we can tell you today.
The, the big headline is that U.S. citizens who are children born between January 1, 2025 and December 31, 2028 automatically qualify for a $1,000 one time deposit into a Trump account.
So if you have had a kid since January 1st of last year through the end of 28, you will get seed money into one of these Trump accounts. As long as you opt in. And we'll tell you in a second how we think you're going to do that. That's a no brainer, guys. So whenever they get, we've talked about this. Back when the COVID handouts were being made, we said this is a terrible idea from a policy standpoint. And when the government hands out free money, just say, sure, we'll, we'll take some of it. Yeah. So the, the treasury is going to see these accounts.
Now you can also create a Trump account for, like I said, anyone under the age of 18 and you won't get any seed money. So Steve, we have between us five kids. They none of them were born after January 1, 2025, but they can all have Trump accounts because they're all under 18 and we can contribute up to $5,000 a year into those accounts.
Unlike a 401k, it's not money that we get a tax break on. So you don't get a deduction from your taxes for putting money into one of these. But once money goes in, it can grow on a tax deferred basis just like a traditional ira. And the spoiler is as soon as your kid turns 18, these automatically will convert into a traditional IRA. IRA, right.
[00:10:09] Speaker A: So is the only difference is that you could contribute into it as a parent as opposed to it being earned income.
[00:10:17] Speaker B: Bingo. So the big reason that most kids don't have retirement accounts is because I'll never forget when I was studying for the CFP exam, The, the guy who taught it was very, very good and I thought this was stupid, but I'll never forget it. Now he said the, the IRA is like a secret chamber and there's a guard and his name is Ernie and you can't get into the IRA unless you have Ernie. And Ernie is earned income. So now I'm just like, okay, earned income. So most kids don't have earned income, so they can't contribute to an ira, Roth or traditional.
This makes it where theoretically you could contribute five grand a year from the time a child is born until they're 18 and create a really substantial retirement account for that kid.
And it would then grow tax deferred. So as long as it's a Trump account, there's some unique rules. It has to be invested in a index of equities in United States stocks. So we talk about diversification. You're probably not going to get the level of diversification we would put into somebody's IRA if they came and said, hey, invest this for us. But you're going to get some diversification as long as it's American stocks. But once the kid turns 18, then it becomes an IRA.
My guess is they can invest it in whatever they want at that point and probably roll it out to any other IRA provider and it can grow tax deferred. A very small amount can become a really big amount in the long term. If all you do is that, take that free money that the government gives you $1,000 and the child leaves it in place until they hit retirement age. So they're 65.
How much do you think that thousand dollars if the S and P returns stay about what they've averaged historically, how much do you think it is? Steve?
[00:12:12] Speaker A: These quizzes are difficult. I'm going to say very quickly 65. I'm going to do. I'm going to do a little finance math and I'm going to divide in my head how many times seven goes into 65. And so I'm going to think that it maybe doubles nine. Nine times.
So I'm going to say it's going to be $60,000.
[00:12:34] Speaker B: The answer is $500,000. What?
[00:12:38] Speaker A: That's amazing.
[00:12:38] Speaker B: By the time this kid retires. So it's not meaningless. If you were to actually be plugging in the $5,000 a year just by the time your kid turns 28, that's over a million dollars at historical average rates of return.
So that's awesome.
[00:12:56] Speaker A: Really what we're doing here, Mark, is we're advertising people putting money away long term.
And I know that's one of the magical things about the Trump account is that your government is trying to celebrate and cheerlead you to put long term money away.
Can I just repeat that stat because I think it's so staggering for anybody of any age. Just to think to yourself, if you put $1,000 with a newborn child, when that child retires, that thousand dollars could reasonably be expected to be $500,000.
That's amazing. Just had to say that.
[00:13:37] Speaker B: So, real quick, here's what we know about how to open it. Not much.
Like I said, the Internet's full of bad info on here. But there is this form that the IRS has produced. It's called form 4547. It you can fill it out when you do your 2025 tax return. I guess by the time this episode releases, most of you might have filed your taxes already.
But don't despair, you can also just go file it anytime you want.
And there's going to be an online tool at the website trumpaccounts.gov expected to be available in the next couple months. You can sign up there too.
And that will get you, if you have a kid that's born in that window of getting the seed money, that will get them in line. Supposedly Treasury's going to contact you to open your account after the official launch on July 4, 2026. Great. Launch date, the Independence Day launch of the Trump account.
[00:14:36] Speaker A: Okay, so if you've done some saving for your child, are you, are you interested in this?
Are you interested, are you personally interested in this? Are you going to do, are you going to do this?
[00:14:49] Speaker B: Maybe. And here's why.
The account's in your child's name. You're the custodian until they turn 18.
You can put up to $5,000 a year. You can actually also, if you're an employer, put another $2,500 a year per kit into accounts as an employee benefit. So there might be some of you whose companies go, oh, we want to do this as a benefit. That would be cool. And now we got even more money into these retirement accounts.
The funds stay locked until the child is 18. So I like that because there's no way to go get them out. This is definitely staying in there till they're 18 kind of forces some discipline around investing and then it converts automatically to a traditional IRA when this is a no brainer. If you have a child that qualifies for the free money one more time, I'll say it, say yes, don't pass, go, just collect your free treasury dollars, which will probably be printed out of whole cloth. Sorry, but that's probably what's going to happen.
[00:15:52] Speaker A: It's not actual money, it's the idea of money. Because that's the way government Works.
[00:15:58] Speaker B: Who else should consider doing this? I would say young families with newborns through teens, like we just talked about, that projected growth is massive. The $5,000 is a cumulative benefit. So if grandparents kick two grand in now, you can only put three grand your kids. But, you know, there are some drawbacks to this. And you might be thinking, okay, I know how traditional IRAs work, Mark, and you told me I don't get a tax deduction for this. That's true. You're taking money that you've already paid taxes on and putting it into account that your child someday, if they are disciplined and leave this alone till they're 65, they're going to have to pay income tax when they take that money out.
Is this a raw deal, Mark?
Well, if your child leaves the funds in the account until they're able to withdraw without penalty, it's actually a better deal than if they just opened a taxable brokerage account, but just slightly.
So mostly that's due to the fact that as the money inside the account grows, you're not getting taxed as you go.
So things like dividends in a taxable account, those get taxed before they get reinvested.
So reasonably, you can expect about a half a percent less growth in a taxable account than you would have in a retirement account with the same investment mix.
So that's not nothing. But it's also not so big that I would say if you think actually what we're trying to do is save to help our kids have a down payment when they turn 25, well, this is not the best place for that, probably, because anything they pull out is going to be treated as income. And if they pull it out when they're 25, which they can do, they're also going to get hit with penalties. And so it's going to erase all the benefits that you got versus just opening a taxable brokerage account for them.
So the people who I think should strongly consider a Trump account are those who they have maybe not gotten offered the free money, or they did. If they got offered the free money, they said, yes, they have a Trump account now. They've already exhausted other opportunities. So, for example, my daughter had a summer job last summer and earned some money. I took exactly how much she earned at that job and I put it into a Roth IRA for her. That's because the taxes are the same between a Trump account and a Roth. You're not getting a tax break for either one. But in the Roth, when they pull that money out, they're not having to pay any income tax.
So if you have a child that's, that's eligible to contribute to a Roth IRA because they have some earned income, that's for sure the better option. Now I might go over and above that into a Trump account this year come, come July when they make it available.
But I would never do the Trump account instead of the Roth IRA because the Roth is just a clear winner. Uh, I'm just limited by her earnings. So those are some considerations.
[00:18:59] Speaker A: What's the name of the guard that stands in front of the Roth ira?
[00:19:03] Speaker B: Ernie.
[00:19:04] Speaker A: Oh, also Ernie.
[00:19:06] Speaker B: Also Ernie.
[00:19:07] Speaker A: Same, same same guard.
[00:19:08] Speaker B: Earned income. Gotta have earned income. Can't be investment income has to be earned. Meaning usually they got a W2 or they filed self employment tax return, things like that.
[00:19:20] Speaker A: But it sounds like to me that again whoever's in charge of Trump's financial vision, visionating is that Howard character.
[00:19:36] Speaker B: It's such a mess, I have no idea.
[00:19:39] Speaker A: Okay.
Anyhow, it seems like their idea is we're looking at statistics. We know that people don't put money away for their children. This is maybe a way to jumpstart that and encourage it. So if you have a five year old that you have not been thinking, I'm going to put money away for them, unless they're a child model, they're not going to be earning money.
So this is a way to kind of open a door to long term savings that even if you could put 500 bucks in there, it's worth doing it seems like it opens a door to long term savings for a lot of people that don't that, that aren't saving already would, would you say?
[00:20:27] Speaker B: Yeah, I think so. I think that's the, the happy outlook on this is the hey, the government wants to incentivize savings and shore up people's long term retirement plans. The cynical outlook would say, huh, this is a way for the Treasury Department to inject a ton of money into the stock market Coming up on election time, maybe that's going to have some component of why the timing is what it is and it allows basically the US Government to print money and stick it into the stock market.
[00:21:01] Speaker A: But we're not as cynics, no, no.
[00:21:04] Speaker B: We think that they're just acting purely out of the magnanimous goodwill that they
[00:21:09] Speaker A: have for the people, the love of family.
[00:21:12] Speaker B: The last thing I'll say before we move on from Trump accounts is the same thing I say when somebody comes to me and says, well we're just plowing money into like a 529 for education savings. And I go, but you haven't started saving for retirement at all yourself. And it's, it's what they tell you every time you get on an airplane. Don't turn to the child next to you and fiddle with their mask until you have put yours on.
That's how I feel about savings, is it doesn't really help your kids if you give them a kickstart in retirement and then let them know. Also, I'll be needing $7,000 a month just to buy groceries once you turn 60.
So make sure you've sorted out your own needs first and then kind of go in this order we've talked about, which is say yes to the free money check and make sure you're not eligible for a Roth ira. And then think about your timeline and that'll help you decide. Does it make sense for me to save for my child in a taxable account or into one of these Trump accounts?
[00:22:09] Speaker A: Good point.
The unconscious parent on the window seat isn't that much help to the struggling child in the middle seat, which is where children belong in a plane, by the way.
[00:22:20] Speaker B: In the middle seat.
[00:22:21] Speaker A: Okay, thank you. Let's move on. Number two. The number two question is what changed with my HSA or 401ks? We've got a lot of employees here. It's a very common employee benefit.
What happened with the big beautiful bill regarding my HSA or 401? Do I need to do something different?
[00:22:45] Speaker B: Yeah, well, I don't think this was a big beautiful bill change, but most years the contribution limits rise for a lot of these account types. So if you had your HSA contributions or your 401k contributions on autopilot and you didn't update them and you didn't get a raise, you might get to the end of the year and realize you haven't fully taken advantage of the types of accounts that you have access to. So I'm going to just quickly go through those.
[00:23:13] Speaker A: We're going to start, we're going to start the music here. If you don't want HSA or 401k stuff, just fast forward to when the music starts. Stop.
So. Okay, go ahead.
[00:23:23] Speaker B: Okay, so the limit for contributing to a retirement plan, which is most commonly 401k, 403 accounts went up to 24,500.
That's up $1,000.
And then there's also a catch up contribution. So if you're 50 or older, you can put another eight grand in. And they did a super Catch up, if you're 60 to 63, you can put another 11,250 in.
They did accompany that with a change.
So if your earnings from the company that sponsors the plan is over 150,000, meaning you have 150 grand of W2 income, then your catch up has to be done as a Roth contribution.
So back last year, you could make $500,000 as an executive of a company and you're 55 years old and you can put that full catch up into your pre tax account and save tax dollars on it. Well, the government said this year we're going to change that. You can still do your initial 24,000 pre tax and not pay taxes on that money. But if you do the catch up, we're going to make you pay taxes on it first and put it into a Roth account. So that is a change that happened this year and it's kind of causing confusion because a lot of people who are in that 50 plus age bracket make more than $150,000. So this is actually impacting quite a few people. Same thing happened with IRAs again. Again, this is same if you do traditional or Roth IRAs, but the limit went up by $500. It's now $7,500 per year per person. If you're 50 plus, it's 1,100 extra can go in. And this is not subject to that rule. So you can make as much as you want. And if you're eligible to contribute to a traditional ira, you can do the catch up and the normal amount into a traditional traditional IRA. Now, if you're already doing a 401k at work, you don't get to also do an IRA and deduct it.
That's probably more technical than we're even going to go into on this podcast. But the most common thing I say I see here is when a couple has kind of got their autopilot contributions to their Roth IRA going and then the limit changes and they go at the end of the year. Well, we're $500 short. What happened? And it's because the limit went up and you didn't adjust your monthly HSAs. So these are health savings accounts and you have to have a high deductible health plan to be able to contribute. But this is money you can put pre tax into a health savings account. You can leave it in cash, but you can also take it and invest it in the market.
And then that money is available for you to pull out anytime you have an eligible health Care expense. And unlike an fsa, a flex spending account with an hsa, you can just keep turning money into this thing, invest it, let it grow, and you don't ever have to take it out until 30 years from now. So it can really grow in a lot the same way as a 401k or something like that.
And the limits this year went up by 100 bucks for an individual or 200 bucks for a family. So if you have an HSA for a family, you can put $8,750 into that account.
The quick thing I'll say about those, we highly recommend an HSA hacking strategy where you max out your HSA and then if you can swing it with your budget, you pay for all your health care expenses out of pocket and save all those receipts because there is no statute of limitations on that reimbursement. So the way that works is if I put my 8,750 in this year and I have a kiddo that breaks their arm on the playground and I pay fifteen hundred dollars at the emergency room to get that fixed, and then four years from now I've been doing my HSA, it's been growing in the market, but I need $1,500 and I need to pull it out. I can actually reimburse myself for that broken arm that happened this year anytime I want from now until I die.
So you kind of build up these expenses and a lot of families with kids especially are going to have so many expenses over time that they'll be able to pull every single dollar out of that HSA tax free, whether they do it in a short amount of time or what way into their retirement years.
[00:27:59] Speaker A: And the idea would be you're keeping the growth that that money has produced while you're get, you're getting your payback dollar for dollar on what your expense was. Is that the idea?
[00:28:10] Speaker B: Exactly. It becomes the only account that we know about that you can put money into pre tax that you didn't pay taxes on and then get it out without paying taxes on it by just saving your health care receipts.
[00:28:24] Speaker A: So where in the order of saving and investing would you put HSAs?
[00:28:30] Speaker B: I always tell people, let's ignore all the kids stuff for a second and just say first priority. If your company offers a 401k match, especially if it's a dollar for a dollar, take all of that, that's free money.
Realistically, the very next thing I go to is usually the hsa, okay?
And then after that we talk about adding onto the 401k or doing Roth IRAs or different things. Okay.
[00:28:57] Speaker A: So it's quite high on the totem pole. It's pretty important.
And I think a lot of people don't use it because it sounds complicated or it sounds like, I don't know.
[00:29:11] Speaker B: One big change that did happen with the one big beautiful bill was that FSAs went up for the first time. The child care FSA went up for the first time since Ronald Reagan was president.
[00:29:25] Speaker A: Goodness.
[00:29:25] Speaker B: So this is kind of a big deal, an fsa. There's two kinds that are common. One is a child care FSA and one is a health care. Now if you have an hsa, you can't have an FSA as well. These, you either have one or the other. So I mentioned you have to have a high deductible plan to have an hsa. If you have a non high deductible plan, a lot of companies will offer an fsa and that is a flex spending account that you can use on health care expenses that year. But it doesn't get invested and grow like an hsa. It's use it or lose it. You can just carry a tiny bit over to the next year.
One hack. I always tell people that limit is $3,400 for a family. So if you have a regular health care plan that's not high deductible and your company offers an FSA, you can say, I think I'm going to spend $3,400 on health care related things this year. I'd rather not pay tax on that money. Put it in an FSA.
One fun fact is if you do that on January 1st, you say, that's how much I'm going to do into my fsa. It gets parsed out through all your paychecks during the year. However, you get access to all $3,400 on January 1st.
And what happens is if you said I'm going to leave my job on January 10th, you can spend all $3,400 in that FSA on January 1st and you don't have to pay it back.
So that's part of the way these companies work is they build in some degree of people who are going to accidentally not spend all their money. That actually tends to be a whole lot more people than do what I'm talking about.
And they lose a little bit of money if people spend and then leave before they've contributed the full amount they committed to.
So fun little hack, if you're leaving a job, you can max out your FSA expenses And websites like fsastore.com have all sorts of things that you might not think were FSA eligible, but you can get one of those, like massage guns or.
I don't know what I got. I got like a electric stem muscle recovery thing when I left the job once. I don't know.
[00:31:35] Speaker A: Well, my question is, are you currently doing HSA or fsa?
[00:31:40] Speaker B: HSA all the way, baby.
I've been doing this for a long time, and I'm going to pull a lot of money out of an HSA someday without paying any taxes on it, because I've got my Google Drive folder between my wife and I, it's on both of our phones. Anytime we have a healthcare expense, whether it's big or just a bottle of Advil at the grocery store, we snap a photo into that Google Drive folder called Medical Receipts and keep track of those.
[00:32:09] Speaker A: Nice.
[00:32:10] Speaker B: The last one, the childcare fsa, is the one that went up I mentioned, first time since Reagan. This went from 5,000 to 7,500.
It's also a use it or lose it account. But if you are paying for child care, this can be a household employee. This can be a whole bunch of different things.
It makes a lot of sense to just save them tax money on that. So, yeah, take advantage. If you're using at least $7,500 a year worth of child care that's eligible.
Be aware that that increased for 2026.
[00:32:46] Speaker A: Okay. Another question we get, Mark, is about estate taxes.
I find that our people, fewer of them, are walking through their own, considering their own estate taxes, but they kind of advising their parents because they might be more up on the news and interested in Abraham's wallet. So they're kind of savvy and they're informing their parents so that we get questions about estate taxes. So did anything change with regards to estate taxes that people should be thinking about so that they can lose as little as few dollars as possible, that we just volunteer into governmental coffers?
[00:33:28] Speaker B: Well, I.
I don't mean to laugh at our friends out there, but the number of people that are really worried about estate taxes that right now, under the current rules, do not need to be worried about estate taxes at all, is relatively high.
So there's a few things to keep in mind.
There's this thing called the gift and estate tax exclusion, and it's actually the same pot. So it's how much you're allowed to either give away in taxable gifts while you're alive or leave to people who are going to receive money after you die. And that. That is how much you're allowed to transfer without any tax concerns. And it's one pool, meaning if you give it all away while you're alive, then when you die, everything you leave behind will be taxed.
Or if you give none of it away while you're alive, then you get the full exclusion on your estate when you die. That number is for 20, 26, $30 million for a married couple. Okay, so, but there's good news, Steve. If you're thinking $30 million, how will I ever get underneath that number? Well, there's also an annual gift exclusion.
And what that means is $19,000 per recipient can be given before you even cut into that exclusion amount, that $30 million. But it's even better than this. So let's say that my wife and I, man, the Lord just blesses our socks off, and we want to transfer money to all three of our daughters when they're adults and. And married. Remember, I said it's $19,000 per recipient, but that doesn't combine as a couple, which means with my three daughters, if they're all married, and I want to give the maximum without using any of that $30 million exclusion amount, I can give me Mark, I can give 19,000 to one daughter, 19,000 to her husband, and my wife can give 19,000 to that daughter, 19,000 to the husband, and if you multiply this out by three kids that are each married, that's $228,000 a year we could give away before we even touch that annual or that lifetime exclusion amount. So I don't know too many couples that are giving away that kind of coin, but if that's where you're at, then awesome. And you can do it without even touching your gift tax exemption.
[00:36:09] Speaker A: Wait, wait, wait.
Are you. Maybe I misheard you. Are you telling me that 19 times 6 is.228.
[00:36:18] Speaker B: I'm telling you, you get to give.
You get to give 19 times 6.
[00:36:25] Speaker A: Oh, the wife gets to give 19 times 6. Okay, gotcha.
[00:36:29] Speaker B: And then your wife gets to give 19 times 6.
[00:36:31] Speaker A: Okay, that makes sense. That makes sense.
[00:36:34] Speaker B: Yeah. I appreciate the check on the math, but let's say that, okay, you do, your kid is buying their first home, and you want to do a bigger gift. $100,000 is what they need in order to do a down payment. We think that's a great move if you can swing it. But you are going to need to file a gift tax return on this. And here's what everyone gets wrong.
You can give the first 72,000 without any taxable gift, because we did 19, 19, 1919 to that couple.
So that leaves us with 28,000 to get to 100,000 total gift. That's what we're going to have to file a gift tax return for. Now, when we say gift tax return, all that means is we're going to tell the irs we gave 28,000 to this one recipient over and above what we were allowed to give in our annual exclusion. And now our $30,000,000 lifetime exemption is only $29,972,000.
So when we die, we only get to pass down $29,972,000 free of federal estate tax.
And that's, like I said, that's not going to trip too many families in terms of today.
Now, there's all sorts of scenarios. The, the estate tax has been very low at certain times in the past. That could happen again.
It's also been as high as infinite in our lifetimes where they just gave a full estate tax holiday.
I would hate to be a billionaire in their 90s when my family got alerted that the estate tax was going away for a year. Because I think you'd have to be like, get all the pillows out of my bedroom or something.
But the one thing I do think is worth mentioning is that there's also state level estate taxes, and those limits in some cases are much, much, much lower.
I can go through the list, but really quickly. It's Connecticut, Hawaii, Illinois.
[00:38:37] Speaker A: Start the music. Start the music. Here goes.
[00:38:41] Speaker B: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington and D.C.
those are the states that have an estate tax. Most of them, some of them are almost as high as the federal, so it's not a huge concern.
Oregon, it's a million dollars. So a lot of people will die with more than that. And it'll get taxed at 16%.
Here's the one that I think we all need to have on our radar. And if you know anybody there, you should call them and start making a plan to get them out of this state. Because New York, their amount was 7.35 million.
Again, if you're married times two. So, okay, that's a, that's a chunk before we start paying estate tax.
And then they had this crazy rule that if you were over that amount, 16%, but instead of like every other state and the federal government, that 16% only applying to women, what's over that amount? If you went $1 over 7.35 million for an individual, all of it gets taxed at 16%.
[00:39:49] Speaker A: Wow.
[00:39:50] Speaker B: So you can't let that happen. That's pretty bad. However, they just passed a reduction that is set to be enacted on April 1, which will reduce their estate tax limit to.
DRUMROLL horrifying terror music $750,000.
[00:40:10] Speaker A: Oh, my stars.
[00:40:12] Speaker B: It gets way worse. The rate. They've just tweaked it. They tweaked it from 16% to 50%.
What?
[00:40:22] Speaker A: So we don't take 50% of your money if you die with more than $750,000, they're going to take 50% of your. Your money when you die.
[00:40:33] Speaker B: We don't know that that's going to get enacted because I guarantee you there's some powerful, powerful money players in the state of New York who are going to be fighting that one tooth and nail. However, I don't see how the state survives with that kind of estate tax because I would immediately make sure I left.
And I'm not, you know, some sort of billionaire of which there are many in the state of New York.
[00:40:58] Speaker A: Sheesh. Not for long.
[00:41:01] Speaker B: Yeah.
So be aware of your state's estate tax rules and understand how the whole system works and you'll be fine.
[00:41:10] Speaker A: All right, this episode is getting long in the tooth. We're last question.
Here's a question that we've heard, we have fielded. I've heard that all the changes happening in the economy right now are creating lower mortgage rates.
Watch my eyeballs turn into dollar signs. Lower mortgage rates, and maybe an opportunity for me to refinance my loan. Is this so, Mark, Please tell me it is.
[00:41:34] Speaker B: Yeah, when we wrote this question, the answer was, yeah, rates really looking pretty, pretty low compared to a year ago. And then the Fed meeting happened and Jerome Powell got on the news and said, I don't think we're lowering rates anytime soon. And rates went spiking back up. So by the time you hear this, who knows what they'll be at? The day of recording average 30 year mortgages for a new loan were 6.22% compared to a year ago, they were 6.67.
That's right on the line of when it makes sense financially to refinance. So if you got into a loan at seven and a half and you can refi down to six and a half now, because refinancing is usually a little higher rate than a new buy, that will probably pay itself back pretty quick for you.
But if you bought a house nine months ago, you might actually be even at a lower rate than what you can get today on a refinance.
So that wouldn't make sense.
Couple other things to mention when it comes to housing and how that all works. The one big beautiful bill did expand deductions. And one of the big ones was they raised the salt cap state and local taxes to. It's been at $10,000 for a while. It raised to 40.
Meaning if you pay real estate tax and state tax and you were paying $20,000 a year, well, you could only deduct to the first 10. The one big beautiful bill bumps that up to 40, as long as you don't make $500,000 a year or more.
So the problem there is a lot of people who pay a lot of state and local tax make a lot of money, and so they kind of were able to get a really nice headline there. We're going to bump the state and local tax deduction times for what it's been, but in reality, we'll see how many families truly benefit from that.
I don't know the answer, but it's. It's just something to be aware of. Especially if you're in a state like Texas where real estate taxes are really high.
You could be very much below that $500,000 of income and have $25,000 a year of real estate taxes.
[00:43:49] Speaker A: Okay.
[00:43:49] Speaker B: And you'll be able to deduct all of that going forward.
[00:43:52] Speaker A: Great.
I like the sound of that. From a.
We have city taxes here in Cincinnati, so I like the sound of that.
What else before we close up?
[00:44:05] Speaker B: You know, I think that that's basically it. There's a few other pieces of good news. The child tax credit went up to 2,200 do per qualifying child.
There's now 6,000.
These are questions that you can't ask me to answer on the fly.
[00:44:24] Speaker A: Okay. They're just up to 2200. Okay. I'm just thinking probably the people that have a bunch of kids and they know that math all the time, they're probably their ears. Perk up when you say the child tax has increased, the tax credit has increased.
So they probably know the answer to that question.
All right.
The.
[00:44:46] Speaker B: The standard deduction, they added on an extra six grand for people over 65 or 65 and older. So if you take the standard deduction now, you get an extra six grand.
And the. One of the big headlines was no tax on tips and overtime, although that's pretty narrowly defined. We already looked at turning all of our financial planning business into a tips only type thing, and that doesn't fly. It has to be a traditionally tipped job and it's limited to a pretty small amount, but it's meaningful if you have somebody in the, in the family who's working on a tipped job or doing overtime in certain, certain stances.
[00:45:29] Speaker A: Yeah.
Okay. Well if your head was swimming when we got into dollar amounts and you need a gap. I'm just going to walk through what Mark just said.
First, Trump accounts, they're brand new. Tax advantage savings for kids under 18.
With that thousand dollars free seed from the treasury for newborns through 2028.
You can file form 4547 now to elect and get in line for the July 4th launch. Again, that's form 4547.
Say yes to free money. We always say prioritize Roth IRAs if your child has earned income and considered a power tool for teaching long term stewardship to the kids. I love being able to show my kids this is how much money you have now. Let's compare it to last year. It's going to grow to this much. Hooray for putting money away and not touching it.
Second, retirement and health accounts got nice bumps. Mark went over those numbers. Update your auto contributions and keep hacking your HSAs for tax advantages. Third, real estate taxes doesn't apply to a lot of people that you, that you're going to. Oh, we're all, we're going to get hit with estate taxes.
Doesn't happen to a lot of people. But watch your states and some people like New York and Oregon, good gravy.
What can I say? Watch out for them.
Fourth, mortgage rates hovering around 6.22% down from last year but ticking up lately. If you're above like seven and a half percent.
We always said when we're in the mortgage business, if we're looking at one and a half percent, it's a slam dunk refi. If you can improve your rate by 1.5%.
If you're at 1% around there, it's time to crunch numbers and see how long, how long do you think you're going to be in this house? How long until you can recoup the costs of refinancing?
Lastly, oh yeah, Mark mentioned at the end the higher estate and local tax caps, which is a good thing. So I just want to remind you again in closing, Proverbs 21:20.
The wise store up for the future while fools consume it all. Today I know that you guys are bold, forward thinking leaders building legacies that outlast you. And remember that small steps today compound into massive blessings for your kids and your grandkids and beyond. We bless you to make good monetary choices today for the sake of your family, run your home and do like a biblical boss. We'll see you next week.
