The Practical Planner Podcast: “2025 Tax and Wealth Transfer Numbers Every Advisor Should Know”

Release Date: February 4, 2025
Host: Thomas Kopelman
Guest: Dave Haughton

In this insightful episode of The Practical Planner, hosts Thomas Kopelman and guest Dave Haughton delve deep into the critical financial numbers and updates for 2025 that every estate planning advisor should be aware of. The discussion covers a wide range of topics, from estate tax exemptions and gifting strategies to retirement accounts and health savings options, providing advisors with actionable insights to better serve their clients and grow their businesses.

1. Introduction to 2025 Financial Numbers

Thomas Kopelman kicks off the episode by emphasizing the importance of staying updated with the ever-changing financial numbers that impact estate planning and financial advising. He highlights the challenges advisors face in keeping track of these changes and sets the stage for a comprehensive discussion on the key numbers for 2025.

Thomas Kopelman [00:33]: “We're going to push the important numbers for 2025 to the top of the queue... we’re not going to hit on just the estate planning numbers. We’re going to cover all the financial numbers advisors need to know.”

2. Key Estate Planning Numbers for 2025

a. Annual Gift Exclusion

Dave Haughton outlines the increase in the annual gift exclusion, which allows individuals to gift a certain amount per person each year without affecting their lifetime exemption.

Dave Haughton [01:28]: “It was $18,000 in 2024. It’s going to go up to $19,000 in 2025. So that means per person you can give up to $19,000 without affecting your lifetime exemption.”

He explains the historical context, noting that the exclusion has steadily risen with inflation, enhancing the giving power of individuals, especially when utilized across multiple beneficiaries like children and grandchildren.

b. Lifetime Estate Tax Exemption

The conversation moves to the significant increase in the lifetime estate tax exemption.

Dave Haughton [01:28]: “The lifetime gifting and death estate tax exemption is going up to 13.99 million... you can give away before the federal estate tax is going to kick in.”

This rise, nearly doubling for spouses, provides a substantial buffer for wealth transfer without incurring federal estate taxes. However, Haughton points out the discrepancy with state estate taxes, using Massachusetts as an example, where the exemption remains at $2 million and is not indexed for inflation.

Dave Haughton [04:06]: “In Massachusetts, that’s probably like 150% of the value of a regular home there. So it’s like everybody’s paying some kind of state tax.”

3. Gifting Strategies and Practical Examples

Thomas and Dave discuss practical gifting strategies, emphasizing the importance of understanding exemptions to maximize gifting potential without tax implications. They reference a real-world example involving NFL quarterback Brock Purdy, who gifted cars to his linemen.

Dave Haughton [06:24]: “Brock Purdy giving the cars to the linemen is a perfect example of how exemptions work. Instead of using a single exemption, you can maximize by involving your spouse and the recipient’s spouse.”

Haughton explains how utilizing both personal and spousal exclusions can significantly increase the total amount gifted without dipping into the lifetime exemption, showcasing the complexity and strategic planning required in effective estate planning.

4. IRA Contributions and Strategies

a. Traditional vs. Roth IRAs

The discussion shifts to Individual Retirement Accounts (IRAs), highlighting the contribution limits and strategic considerations for 2025.

Thomas Kopelman [08:39]: “IRA is super simple. It’s going to be $7,000, the exact same as 2024. And there’s a thousand dollar catch-up contribution if you're over 40.”

Kopelman advises that Roth IRAs are generally more advantageous for those in lower tax brackets, citing the potential for tax-free growth and withdrawals in retirement.

b. Backdoor Roth Strategies

They delve into the complexities of backdoor Roth IRAs, particularly the pro-rata rule, which can complicate the conversion process for individuals with existing traditional IRA assets.

Dave Haughton [07:33]: “You cannot deduct it and then you can convert it over to Roth as long as you have no money in a traditional IRA. That’s known as the pro rata rule.”

Koopelman shares a client example where using non-deductible IRA contributions made sense temporarily, illustrating the nuanced decisions advisors must make based on individual circumstances.

c. Common Mistakes

The hosts emphasize common pitfalls, such as inadvertently triggering tax filings by exceeding gifting limits or misunderstanding IRA deduction rules, which can lead to unnecessary tax liabilities and complications.

Thomas Kopelman [08:39]: “Staying under the limits obviously makes that a lot more simple so that you don’t have to report anything. Saves you some money.”

5. Tax Bracket Misconceptions and Retirement Planning

Dave Haughton addresses widespread misunderstandings about tax brackets, clarifying that being in a higher tax bracket doesn't mean all income is taxed at that rate, but only the portion that exceeds each bracket threshold.

Dave Haughton [13:24]: “Tax brackets should not be seen as a cliff. You’re only taxed on the amount that falls within each bracket, not all your income at once.”

They discuss how misconceptions can lead to suboptimal financial decisions, such as unnecessary Roth conversions or ineffective tax planning strategies.

6. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)

a. Health Savings Accounts (HSAs)

The advantages of HSAs are thoroughly explored, highlighting their triple tax benefits: pre-FICA tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

Thomas Kopelman [16:30]: “HSAs are a Roth IRA and a traditional IRA in one with the flexibility of being able to pull it out without taxes by having those past receipts.”

Kopelman advises using HSAs strategically, especially for high-income households, to maximize long-term growth and tax savings.

b. Flexible Spending Accounts (FSAs)

They also touch on the limitations of FSAs, particularly the "use-it-or-lose-it" rule, which can result in forfeiting unspent funds.

Thomas Kopelman [15:00]: “FSA is a use-it-or-lose-it type thing. It’s better to wait to contribute to ensure the funds are fully utilized.”

The conversation underscores the importance of careful planning to avoid losing FSA funds while leveraging HSAs for sustained financial benefits.

7. Other Financial Accounts: SEP IRA, Simple IRA, 529 Plans

a. SEP IRA and Simple IRA

Dave outlines the contribution limits for SEP IRAs and Simple IRAs, noting that while SEP IRAs offer higher limits up to $70,000, Simple IRAs remain less favorable compared to other retirement options like 401(k)s.

Dave Haughton [21:51]: “Simple IRAs are something I never recommend... there’s no reason in my mind to really use it.”

b. 529 Plans

The hosts discuss the benefits and strategies surrounding Super Funding 529 college savings plans, which allow lump-sum contributions divided over five years to maximize tax advantages without exceeding annual exclusion limits.

Dave Haughton [22:03]: “When you do the super funding, you’re taking that amount that you’re gifting, you’re dividing it by five.”

They emphasize the importance of understanding how inflation affects contribution limits and the structured approach needed to optimize these accounts for educational expenses.

8. 401(k) Updates and Strategies

The episode concludes with an in-depth analysis of the changes to 401(k) plans for 2025, including increased contribution limits and enhanced catch-up options for older participants.

Thomas Kopelman [22:31]: “401(k)s are now moving to $23,500, up $500 from 2024. Catch-up contributions if you’re 50 to 59 is $7,500, and $11,250 for those 60 and above.”

Koppenelman introduces the concept of the Mega Backdoor Roth, a strategy allowing high-income individuals to make additional Roth contributions beyond standard limits by leveraging after-tax contributions and in-service rollovers.

Thomas Kopelman [23:24]: “The Mega Backdoor Roth has a separate limit so ... you can get quite a bit in via Mega Backdoor which is just... getting all those Roth dollars in.”

They discuss the significant benefits of maximizing 401(k) contributions, including tax deferral and enhanced retirement savings, while also warning against common misunderstandings that could impede effective wealth accumulation.

9. Conclusion and Final Thoughts

Thomas wraps up the episode by reiterating the importance of staying informed about annual financial updates and leveraging strategic planning to optimize tax and estate outcomes for clients.

Thomas Kopelman [24:03]: “Well, that’s everything that we needed to go through today. We appreciate you listening. Please don’t forget to rate and subscribe.”

He encourages advisors to engage with the podcast for future topics and to reach out with suggestions, ensuring the continuous provision of valuable content tailored to their needs.

Key Takeaways:

• Stay Updated: Financial numbers related to estate planning and retirement accounts are subject to annual changes influenced by inflation and legislation. Advisors must stay informed to provide accurate guidance.

• Maximize Exemptions and Contributions: Utilizing strategies such as spousal gifting, backdoor Roth IRAs, and Mega Backdoor Roth contributions can significantly enhance clients' financial positions without incurring unnecessary taxes.

• Understand Account Nuances: Differentiating between account types (e.g., HSAs vs. FSAs, SEP vs. Simple IRAs) and their specific rules is crucial for optimizing benefits and avoiding common pitfalls.

• Educate Clients: Many clients are unaware of the intricacies of tax brackets, gifting rules, and retirement account strategies. Advisors should proactively educate them to facilitate informed decision-making.

• Strategic Planning for Future Growth: Emphasizing tax-free growth through Roth accounts and leveraging high-contribution limits in retirement plans can lead to substantial long-term benefits for clients.

This episode serves as an essential guide for financial advisors aiming to refine their estate planning strategies and stay ahead in a dynamic financial landscape. By addressing both foundational concepts and advanced strategies, Thomas Kopelman and Dave Haughton provide a comprehensive resource for effective financial planning in 2025.