Tax bracket implications on Tax Cuts & Jobs Act (TCJA) sunset

It's been six years since the Tax Cuts and Job Act (TCJA) overhauled the federal tax code, ushering in sweeping changes that affected businesses and individuals. However, after 2025, many of the act's tax law changes are scheduled to expire.

As the planned TCJA sunset nears, consider reviewing your financial strategy to see if you need to make any adjustments.

Crafted in part to simplify the tax filing process for many Americans, the TCJA raised the standard deduction while introducing new limits on itemized deductions. The act also reduced marginal tax rates, eliminated the personal exemption, expanded the child tax credit and modified the alternative minimum tax. Combined, the changes led many filers to claim the standard deduction on their tax returns rather than itemize deductions.

The TCJA also raised the lifetime estate and gift tax exemption. This increased the total value of assets people can give during their life and/or upon their death without incurring estate or gift taxes.

In addition, while the corporate tax rate of 21% was made permanent, the qualified business income deduction, which lets eligible self-employed and small-business owners deduct up to 20% of their qualified business income, is also scheduled to sunset.

On Dec. 31, 2025, most of the TCJA's changes are scheduled to expire. They were made temporary to allow for faster approval and limit impacts on the federal deficit. It's possible Congress could extend TCJA provisions past 2025, but that possibility is still unresolved.

Given the uncertainty, now's a good time to assess how a 2025 TCJA expiration may affect retirees, their RMDs and their heirs.

If the TCJA sunsets on schedule, several of its changes that have affected tax bills since 2018 may no longer be in effect as of 2026. Here are the changes you can expect to take place.

The TCJA lowered marginal rates for most individual tax brackets. After a 2025 sunset, those rates may return to their previous levels.

The TCJA nearly doubled the standard deduction. It also eliminated the personal exemption, doubled the child tax credit, capped state and local tax deductions at $10,000 and tightened limits on mortgage and home equity interest deductions. All those changes will expire if the TCJA sunsets.

The TCJA raised the ceiling for charitable contribution deductions from 50% to 60% of adjusted gross income (AGI). If the act sunsets, those deductions may again be capped at 50% of AGI.

The TCJA roughly doubled the lifetime estate and gift tax exemption. If the act sunsets in 2025, the 2026 exemption may return to 2017 levels, adjusted for inflation.

If the TCJA sunsets, you can take steps to mitigate potential negative impacts. And, as the following examples show, it might benefit you to act soon while the TCJA's provisions remain in place.

You might consider converting a traditional IRA to a Roth IRA before 2026.¹ With a traditional IRA, you make pretax contributions and pay taxes on your withdrawals. With a Roth IRA, you make after-tax contributions and aren't taxed on distributions.²

When you convert a traditional IRA to a Roth IRA, you pay income taxes on the money you move. So, if you expect to be subject to a higher marginal tax rate after the TCJA sunsets, it might make sense to pay taxes on your IRA money sooner—while TCJA rates remain in effect—rather than after rates revert to pre-TCJA levels.

After 2025, the individual lifetime estate and gift tax exemption is slated to drop dramatically—from roughly $14 million to $7 million. So it might be worthwhile to pass down money early before the TCJA sunsets rather than save it to include in your estate when you pass away.

Say, for example, you expect to transfer $12 million to family members upon your death. If that occurs in 2026, about $7 million would be exempt from federal estate taxes, but the remaining $5 million wouldn't. However, if you were to give $10 million before the end of 2025, all of it (plus the remaining $2 million you transfer through your estate after TCJA provisions expire) may be exempt from gift and estate taxes.

You can deduct charitable giving up to 60% of your AGI through 2025, but that limit drops to 50% of AGI when the TCJA sunsets. If you anticipate making significant gifts over the next several years, "bunching" them while the TCJA remains in effect might allow you to deduct more of your contributions from your taxable income.

As the TCJA's scheduled sunset approaches, don't hesitate to connect with a Thrivent financial advisor. While Thrivent financial advisors don't provide tax advice, they can work in tandem with your tax and legal professionals to help you maximize tax-efficient strategies. Leveraging insights from experts can help you navigate change and stay focused on your long-term goals.