Keith Fenstad, Director of Wealth Planning and Chief Compliance Officer, discusses how the OBBBA’s permanent $15 million estate tax exemption removed the “use it or lose it” urgency around gifting strategies in InvestmentNews.
Keith Fenstad, Director of Wealth Planning, discusses how workers should approach retirement planning amid ongoing concerns about Social Security’s long-term funding challenges and potential future reforms in U.S. News & World Report.
Keith Fenstad, Director of Wealth Planning, explains how proactive tax planning strategies can help high-income earners avoid the so-called “SALT torpedo” and minimize the impact of phased-out deductions in InvestmentNews.
Tanglewood clients are an incredibly charitable group. I can honestly admit I have grown to be a more cheerful and generous giver after working with clients over the past two decades.
Our conversations with clients encompass not only the client’s overall purpose and goals for giving but the detailed strategies to accomplish them in a financially smart way within an ever-changing tax environment.
In July, we discussed some of various tax law changes that came about due to the One Big Beautiful Bill Act (OBBBA). This article focuses on those changes directly related to charitable giving. There are a number of new rules taking effect this year and next year that may be meaningful as we approach planning for the end of the year and into 2026.
A Deduction for Non-Itemizers
This provision was first introduced in 2020 and 2021 under the CARES Act, but starting in 2026, taxpayers who do not itemize will be able to claim a universal “above-the-line” charitable deduction.
This deduction applies only to cash gifts made directly to qualified charities (not to donor-advised funds or private foundations). It creates a meaningful incentive for more households to give, even if they take the standard deduction.
Itemizers Face a 0.5% AGI Floor
Starting in 2026, itemized charitable deductions must exceed 0.5% of Adjusted Gross Income (AGI) before a deduction can be applied.
Example: A client with $300,000 of AGI, the first $1,500 of their charitable giving will not count toward their deduction.
This may make “bunching” donations — grouping multiple years’ gifts into one tax year — a more valuable strategy.
Cap on Tax Savings for High Earners
Starting in 2026, taxpayers in the top 37% bracket will see the value of their itemized deductions (including charitable contributions) capped at 35%, reducing the tax benefit on each deductible dollar.
QCDs Retain their Benefits
Qualified Charitable Distributions (QCDs) from IRAs remain untouched and become a more valuable strategy moving forward. Taxpayers age 70½ and older can still distribute up to $108,000 annually per person (2025) directly from an IRA to charity. These gifts avoid AGI limits and provide a very tax efficient way to give. Especially for those clients subject to Required Minimum Distributions. Since the QCD is excluded from AGI, it is beneficial all the way to the 37% tax bracket.
Planning Opportunities
The changes expand charitable giving tax breaks for many households while limiting benefits for others. If charitable giving is part of your annual tax planning, 2025 may be the right year to act on larger gifts before the new limits take effect.
As always, reach out to your Tanglewood Wealth Advisor to discuss how to approach charitable giving strategies specific to your situation.
Keith Fenstad, Director of Wealth Planning, highlights recession-focused investment strategies and explains how defensive assets, income-generating investments, and portfolio diversification can help investors manage market uncertainty in U.S. News & World Report.
The One Big Beautiful Bill (OBBB) was signed into law by the president on July 4th after making its way through congress. There are many new provisions regarding income taxes and some important updates to the estate tax laws that will impact many Tanglewood clients. Below is a summary of that we think are some of the most impactful.
The current seven tax brackets (10%, 12%, 22%, 24%, 33%, 35%, 37%) that were introduced by the Tax Cuts and Jobs Act of 2017 and set to expire in 2026 are made permanent. There’s also a small extra inflation adjustment for only the lowest three brackets.
Now of course it goes without saying that NOTHING is “permanent” when it comes to tax law. In this context permanent means there is no sunset or future expiration until some future Congress votes to change it.
On the deduction front, the standard deduction is slightly enhanced. Starting this year, it will be $31,500 for joint filers, $23,625 for head of household, and $15,750 for all other filers, inflation adjusted thereafter. An increase of $1,500 / $1,125 / $750 respectively.
The Pease Limit which took a 3% “haircut” on total itemized deductions for high income earners cancelled by the TCJA is now permanently repealed.
The use of Miscellaneous itemized deductions (primarily unreimbursed employee expenses, tax prep fees, investment-related expenses) is permanently repealed.
Mortgage interest deduction cap remains at $750,000 of principal.
The OBBB raises the controversial State And Local Tax (SALT) deduction cap to $40,000 for tax years 2025 through 2029. The cap gets only a 1% annual inflation adjustment each year over that period. However, the SALT deduction gets reduced back toward $10,000 as Adjusted Gross Income (AGI) exceeds $500,000. It is fully phased out at $600,000 of AGI. For those in that $500k to $600k AGI range, this becomes a very important planning threshold. The additional $100k of income can effectively raise taxable income by $130K.
There is a new 0.5% floor on itemized charitable contributions. This is like the phaseout for deductible medical expenses where you have to be above the floor to start taking a deduction.
Regardless of whether a taxpayer is taking the standard deduction or itemizing, there are several new “above-the-line” deductions.
A new $1,000 per taxpayer above-the-line deduction for charitable contributions ($2,000 for joint filers). We had a similar provision for a $500 deduction in 2020 to spur giving during COVID era.
Starting in 2025 and continuing through 2028, seniors age 65 and older will be allowed to deduct $6,000 per person ($12,000 for married filing joint). This too starts to get phased out when income exceeds $75,000 single / $150,000 joint filers and becomes fully phased out at $175,000 individual and $250,000 joint. Essentially the backdoor way of alleviating the tax on Social Security income. Essentially the backdoor way of alleviating the tax on Social Security income.
A maximum deduction of $25,000 applicable to “Qualified Tips”. The IRS plans to publish eligible occupations within 90 days. This tip income however is still subject to employment taxes. The deduction is phased out at $300,000 AGI for married filers and $150,000 for others It’s fully phased out at $550,000 for married, $400,000 for others.
A tax deduction against overtime pay is also included. “Qualified Overtime,” is defined straightforwardly as pay in excess of a worker’s regular rate. The deduction is to $25,000 for joint filers and $12,500 for all others. This too gets phased out at $300,000 AGI for MFJ, $150,000 for others, fully phased out at $550,000 for MFJ, $275,000 for others.
Both the deduction applicable to Tips and Overtime is effective for 2025 and expires at the end of 2028.
Other notable changes include.
The increase in the Alternative Minimum Tax exemption amounts were made permanent, however exemption phaseout thresholds were reset back to what they were in 2018 – $500,000 for singles and $1,000,000 for married filing joint. It also doubled the rate of phase out from 25% to 50% steepening the claw back for higher income earners.
The OBBB allows a deduction up to $10,000 of interest paid on new car loans for US-assembled vehicles purchases made in 2025 through 2028.
The bill expands qualified 529 expenses doubling the K-12 withdrawal limit from $10,000 to $20,000. It also adds new categories of qualified expenses including online resources, tutoring, high school dual-credit fees, educational therapies for students with disabilities, and exam costs, such as SAT fees. Also, workforce training, on-the-job training, apprenticeships supporting students pursuing vocational or alternative educational paths.
A new tax-preferred savings account dubbed “MAGA Program” allows for the creation of a new account for qualifying children born between January 1, 2025 and January 1, 2029. Up to $5,000 per year is allowed by a parent or guardian for children until 8 years old. The government will add $1,000 to see the account. There are specific qualifications for investing in broad market US Index stock funds.
Finally on the estate planning side of things the big news here is the lifetime estate and gift tax exemptions which were facing a significant reduction at the end of 2025 was permanently increased to $15,000,000 per person indexed to inflation beginning in 2026. That’s a combined $30,000,000 for spouses putting the threat of estate tax exposure for many clients further out on the horizon.
These new rules present new and meaningful planning opportunities for nearly all clients. At Tanglewood we are prepared to help – using advanced modeling tools and an experienced team of Wealth Advisors. Together we can develop a personal, multi -year plan to not only look year by year, but over a lifetime.
Keith Fenstad, Director of Wealth Planning, explains how concerns about Social Security’s long-term solvency are shaping retirement planning strategies for both current and future retirees in Barron’s.
Keith Fenstad, Director of Wealth Planning, discusses in Financial Planning how investors can navigate persistent inflation, market volatility, and tariff-related economic uncertainty through long-term planning and diversified portfolios in Financial Planning.
Keith Fenstad, Director of Wealth Planning, discusses how advisors can help clients navigate required minimum distribution tax strategies in Financial Planning.
529 education savings plans are one of the most effective tools for funding future education expenses. But what happens when there’s money left over?
Maybe your child received a scholarship, chose a less expensive school, or simply didn’t use the full balance. Whatever the reason, we often hear from clients who are wondering what to do with those unused 529 plan funds.
Thanks to evolving legislation and flexibility in 529 rules, there are several ways to repurpose these dollars—without triggering excessive taxes or penalties.
Here are some of the most practical options:
Change the Beneficiary
One of the built-in advantages of a 529 plan is the ability to change the beneficiary to another qualifying family member—income tax and penalty free. This can include:
Siblings
Cousins
Parents or grandparents
Even yourself (the account “owner”)
This is often the simplest solution if you have more than one child or want to help a relative with their education expenses. Note that there are gifting implications if the new beneficiary is in a lower generational level.
Use for Graduate School or Future Learning
Just because undergraduate studies are done doesn’t mean their education is. 529 funds can be used for graduate or professional degrees, trade schools, certain certifications, and even some continuing education.
Some families hold on to remaining balances for future learning opportunities, especially if the beneficiary is still early in their career.
Pay-Down Student Loans
The Secure Act of 2019 approved the use of up to $10,000 per beneficiary (and another $10,000 per sibling) to repay student loans. This lifetime cap was introduced to provide families with a tax-free way to reduce debt, even if traditional education expenses are complete.
Rollover to a Roth IRA
This is a really interesting new possibility. Thanks to the SECURE Act 2.0, beginning in 2024, 529 balances can be rolled into a Roth IRA for the 529 beneficiary, subject to a few important rules:
The 529 must have been open for at least 15 years.
Any contributions made in the last five years are ineligible for rollover.
The beneficiary must have earned income in the year of the rollover.
Rollovers are subject to the annual Roth IRA contribution limit ($7,000 in 2025).
There is a lifetime rollover limit of $35,000 per beneficiary.
While $35,000 may not seem like a lot, if invested early and allowed to grow tax-free over decades, it can grow to a meaningful number. In many ways, this option turns unused education dollars into a powerful jumpstart for retirement.
Use the Funds Yourself
If you (the account owner) are contemplating a return to school—whether for career growth or personal enrichment—you can change the beneficiary to yourself. It’s a creative but completely allowable use of the funds. An art collection course in Paris might be in your future.
Withdraw the Excess (Last Resort)
If none of the above options make sense, you (or the beneficiary) can always simply withdraw the unused money. Only the earnings portion of a non-qualified withdrawal is subject to income tax and a 10% penalty. The original contributions are never taxed or penalized.
The income tax responsibility falls with whoever receives the funds – either the account owner or beneficiary. If early in their working career, a non-qualified distribution to the beneficiary may be taxed in a very low tax bracket.
Note however, if the funds are being withdrawn because the beneficiary received a scholarship, the 10% penalty is waived (though taxes still apply to earnings).
Many clients are unaware of the flexibility they have with leftover 529 balances. Whether it’s helping other children in the family, supporting financial independence, or maximizing long-term wealth opportunities there are several options to consider.
As always, your Tanglewood advisor is here to help evaluate those options and create a plan that fits your unique situation.
