Smart Tax Moves to Help You Keep More of Your Money
It’s worth setting aside time each year to review your overall financial and tax situation — doing so can help you and your family retain more of your hard-earned income. This is especially important in 2025, a year marked by significant updates to tax laws.
According to tax expert Vinay Navani of WilkinGuttenplan, “Changes in tax legislation can have a real impact on how much you save and how you plan for the future.”
A major development this year is the “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, 2025. The act introduces key updates that may affect whether you choose to itemize deductions or take the standard deduction (see Tip 1), adjust your estate and charitable planning (Tips 2 and 3), or even explore ways to help your child save for the future (Tip 6).
Below, Navani outlines several tax-efficient strategies designed to strengthen your financial outlook. While many of these tactics are timeless, he highlights specific considerations that may carry extra importance under the OBBBA.
Before taking any action, consult your personal tax advisor to determine which strategies make sense for your situation — and be sure to check our Market Briefs page for the latest federal tax law updates that could affect your finances.
1. Take Advantage of Increased SALT and Standard Deductions
One of the most notable changes introduced by the One Big Beautiful Bill Act (OBBBA) is the expansion of the state and local tax (SALT) deduction, which jumps from $10,000 to $40,000 for tax years 2025 through 2029. The additional deduction amount, however, begins to phase out once your adjusted gross income (AGI) exceeds $500,000 and ends completely at $600,000.
“If you plan to itemize and your 2025 SALT deductions fall short of the $40,000 cap, you might consider prepaying a portion of next year’s state or local taxes to maximize your benefit,” recommends tax professional Vinay Navani of WilkinGuttenplan.
Beyond the SALT deduction, the OBBBA raises an important question for many taxpayers — is it better to itemize or take the standard deduction? While itemizing could be advantageous for some, the legislation also increases the standard deduction to $31,500 for married couples filing jointly (up from $30,000) and $15,750 for single filers (up from $15,000), with annual adjustments for inflation. “Your tax advisor can help you run the numbers and determine which approach minimizes your total tax liability,” Navani adds.
For seniors aged 65 and older, the new law provides an additional benefit: a bonus deduction of $6,000 for individuals or $12,000 for couples, available from 2025 through 2028. This deduction applies regardless of whether you choose to itemize or claim the standard deduction, though it gradually phases out for those with modified adjusted gross income (MAGI) above $75,000 for individuals or $150,000 for joint filers.
It’s worth noting that this senior deduction doesn’t exempt Social Security benefits from taxation — instead, it reduces your total taxable income, helping older taxpayers potentially lower their overall tax burden.
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2. Revisit Your Gift and Estate Planning Strategy
One of the biggest reliefs introduced by the One Big Beautiful Bill Act (OBBBA) is the permanent extension of the higher federal gift and estate tax exemption originally enacted under the 2017 Tax Cuts and Jobs Act. According to tax advisor Vinay Navani of WilkinGuttenplan, this change eliminates a major concern for high-net-worth individuals who were racing against the previous 2025 deadline to transfer assets before the exemption expired.
“Instead of decreasing, the exemption amount will actually increase — to $15 million for individuals and $30 million for married couples in 2026, with annual adjustments for inflation,” Navani explains. “That stability allows families to focus more on thoughtful planning rather than urgent deadlines.”
Estate planning now revolves around core fundamentals, such as understanding the current market value of your assets, including investment portfolios, real estate, or shares in a family-owned business. If asset values are temporarily low, it might be a strategic time to transfer or gift assets, allowing you to remove more value from your taxable estate without triggering federal gift taxes.
An essential part of the process is determining how best to structure those gifts. “It’s not always ideal to hand over large sums directly — for instance, to a teenager or young adult,” Navani notes. “That’s where establishing the right type of trust can make a difference.” Working with your financial advisor and tax specialist can help you choose a trust structure that aligns with your long-term goals. Key considerations include distribution terms, duration, and appointing a responsible trustee to manage assets according to your wishes.
Starting these conversations early ensures that your wealth transfer strategy supports your legacy, protects your beneficiaries, and remains compliant with the latest federal tax laws under OBBBA.
3. Rethink Your Charitable Giving Strategy
If charitable giving plays a meaningful role in your financial or personal life, 2025 could be an ideal year to refine your philanthropy strategy under the new One Big Beautiful Bill Act (OBBBA). According to tax expert Vinay Navani of WilkinGuttenplan, the updated legislation presents opportunities to optimize both the timing and method of your donations for greater tax efficiency.
“For those who regularly donate and itemize deductions, it may make sense to front-load several years’ worth of contributions into a donor-advised fund (DAF) before the end of 2025,” Navani explains. “Doing so allows you to claim a larger immediate deduction this year while retaining the flexibility to distribute those funds to different charities over time.”
Beginning in 2026, the OBBBA introduces key changes that affect how both standard deduction filers and itemizers can deduct charitable contributions:
- Standard deduction filers will be allowed to claim up to $1,000 (individual) or $2,000 (married filing jointly) in cash gifts made directly to public charities (excluding DAF contributions).
- Itemizers, however, will face a new rule — they must contribute at least 0.5% of their adjusted gross income (AGI), or “contribution base,” before being eligible to deduct charitable gifts.
As a result, taxpayers who plan to itemize deductions might want to accelerate their charitable donations into 2025, before the 0.5% threshold takes effect. Moreover, starting in 2026, the total allowable itemized deductions, including charitable giving, will be slightly limited for high earners — estimated at $640,000 for individuals and $770,000 for couples. This further strengthens the case for maximizing charitable contributions before year-end 2025.
Still, Navani cautions that tax advantages should never be the sole motivation for philanthropy. “While optimizing your tax position is smart, charitable giving should ultimately reflect your values and the causes you care about,” he says. Before making any large donations or creating a DAF, consult with your financial advisor, tax professional, or estate planner to ensure your giving plan aligns with both your financial goals and your philanthropic mission.
4. Use Investment Losses to Offset Capital Gains
If your portfolio has enjoyed some standout performers this year — resulting in significant capital gains — now may be the right time to look at strategically balancing those profits with any losses, says tax expert Vinay Navani of WilkinGuttenplan. This approach, called tax-loss harvesting, allows investors to sell underperforming assets to offset taxable gains and potentially reduce their federal income tax liability.
By realizing losses on investments you were already considering selling, you can free up capital to reinvest in stronger opportunities while also improving your overall tax position. If your total capital losses exceed your capital gains, you can apply up to $3,000 ($1,500 for married couples filing separately) of those losses to offset ordinary income on your federal tax return.
However, Navani cautions that timing is critical. To comply with the IRS wash-sale rule, you must avoid repurchasing the same or “substantially identical” security within 30 days before or after the sale — or the tax benefit from the loss could be disallowed. This rule applies to all types of securities, including mutual funds, ETFs, and stocks.
If the loss involves shares in a private company that has become worthless — for example, if the business shut down — you’ll likely need to provide extra documentation to verify the loss. “Due diligence takes time,” Navani notes. “It’s best to discuss these situations with your tax advisor well before year-end to ensure all requirements are met.”
While tax-loss harvesting can be a smart move, it’s not a one-size-fits-all strategy. Selling investments purely for tax reasons may undermine your long-term investment goals — or, as Navani puts it, “don’t let the tax tail wag the investment dog.” Always coordinate these decisions with your financial advisor or tax professional to ensure they align with your overall wealth management and growth strategy.
5. Maximize Your Retirement Contributions
One of the most effective ways to reduce your taxable income — while securing your future — is to make the most of your retirement plan contributions. Whether you contribute to a 401(k), traditional IRA, or another qualified retirement account, boosting your savings can deliver both long-term growth potential and immediate tax advantages, explains Vinay Navani of WilkinGuttenplan.
This strategy becomes even more valuable under the One Big Beautiful Bill Act (OBBBA), since several new deductions — such as the senior exemption and expanded SALT deduction — begin to phase out as your adjusted gross income (AGI) rises. By directing more pre-tax dollars into your 401(k) or making tax-deductible contributions to an IRA, you can effectively lower your AGI and retain access to these valuable deductions.
For the 2025 tax year, the 401(k) contribution limit has been raised to $23,500, while the IRA limit remains $7,000. These contributions not only build your nest egg but can also help manage your overall tax exposure.
If you’re 50 or older, you can take advantage of catch-up contributions — an opportunity to supercharge your retirement savings. The 401(k) limit rises to $31,000 for those 50 and above, and for individuals between ages 60 and 63, the enhanced catch-up provision allows up to $34,750, depending on plan terms. For IRAs, eligible contributors aged 50 or older can deposit up to $8,000 annually.
Keep in mind that deadlines differ: you typically have until December 31, 2025, to make your 401(k) contributions, while IRA contributions can be made until April 15, 2026, for the 2025 tax year.
Increasing your retirement savings isn’t just about preparing for tomorrow — it’s also a smart move to optimize your taxes today. Consider speaking with your financial advisor or tax professional to ensure you’re contributing strategically and taking full advantage of the latest OBBBA provisions.
6. Help Your Children Build a Strong Financial Future
For many parents, the dream is to see their children start saving and investing early — ideally setting them on a path toward lifelong financial independence. Traditionally, however, there’s been a major roadblock: to contribute to an IRA, the child needed earned income, which most minors don’t have.
The One Big Beautiful Bill Act (OBBBA) introduces a new solution — the “Trump Account”, a tax-advantaged savings vehicle designed to help children under 18 begin saving for retirement. Much like a traditional IRA, these accounts grow tax-deferred, but with one key difference: children don’t need earned income to qualify.
Parents, grandparents, or other relatives can contribute to the account, with a combined annual contribution limit of $5,000 per child (adjusted for inflation starting in 2028). Once the child turns 18, the account transitions to follow traditional IRA rules, helping them continue building a solid financial foundation into adulthood.
There’s also an appealing government incentive — children born between 2025 and 2028 who have a Trump Account opened in their name are eligible for a $1,000 one-time “seed” contribution from the federal government.
A few important rules apply:
- Contributions can’t begin until July 4, 2026.
- Withdrawals are prohibited until January 1 of the year the child turns 18.
- Additional IRS guidance is expected to clarify who can establish and manage these accounts.
By opening a Trump Account, you’re not just giving your child money — you’re giving them a head start on financial literacy, disciplined saving, and long-term wealth building. As always, consult with your tax advisor or financial planner to ensure you’re following the most current OBBBA regulations and using this new savings tool strategically.
7. Explore Converting Your Traditional IRA to a Roth IRA
If you’re looking for ways to build tax-free income in retirement, it may be worth considering a Roth IRA conversion. Current federal tax law allows anyone to convert part or all of their traditional IRA assets into a Roth IRA, regardless of income level.
The key advantage? Once you meet the requirements, qualified withdrawals from a Roth IRA — including both your contributions and earnings — are generally tax-free at the federal level. To qualify, two main conditions must be met:
- Five-year rule: At least five years must have passed since January 1 of the year you made your first Roth contribution or conversion.
- Age or circumstance requirement: You must be 59½ or older, disabled, or deceased (in which case your heirs may qualify).
When converting, you’ll owe federal income tax on the taxable portion of the amount moved — including deductible contributions and any accumulated earnings. The conversion itself isn’t subject to the 10% early withdrawal penalty, but keep in mind that if you withdraw converted funds from your Roth IRA within five years, that penalty could apply.
While the One Big Beautiful Bill Act (OBBBA) didn’t change the rules for Roth conversions, it’s important to note that a conversion could increase your adjusted gross income (AGI). This could impact certain deductions and credits introduced by the new legislation, such as the SALT deduction phase-out.
“If your traditional IRA investments have temporarily dipped in value, it could be a strategic time to convert,” says Navani. “You’ll pay taxes on a smaller amount now and potentially enjoy tax-free growth later.”
Before making the move, it’s wise to consult your financial or tax advisor. They can help determine whether a Roth conversion aligns with your broader financial plan and identify ways to manage the short-term tax impact while maximizing long-term benefits.
8. Explore Tax-Smart Investing Options
Another effective way to reduce your overall tax burden is by adopting tax-aware investing strategies. One approach is to allocate a portion of your portfolio to tax-exempt investments, such as municipal bonds, which are typically free from federal income taxes.
“Depending on when during the year you purchase municipal bonds, you might not receive any interest income in that same year,” explains Navani. “However, once you hold them through a full calendar year, you’ll benefit from the tax-free interest income they generate.” Do note that while municipal bond interest is generally exempt from federal taxes, it could still be taxable at the state or local level, depending on where you live.
It’s also important to consider the Net Investment Income Tax (NIIT), which applies to higher-income investors. If your modified adjusted gross income (MAGI) exceeds $200,000 for individuals, or $250,000 for married couples filing jointly, you may owe an additional 3.8% NIIT on the smaller of your net investment income or the amount by which your MAGI exceeds these thresholds. For those married but filing separately, the threshold drops to $125,000.
The good news? Interest earned from municipal bonds is excluded from NIIT, making them a potentially valuable component of a tax-efficient portfolio.
As always, before implementing any investment strategy, it’s wise to review your portfolio and consult a qualified tax advisor to ensure your investment choices align with both your tax situation and long-term financial goals.
9. Contribute to a 529 Education Savings Plan
Investing in a 529 education savings plan can be a smart way to support your child’s or grandchild’s education while also taking advantage of potential tax benefits. By contributing to a 529 plan, you can make a meaningful financial gift to a beneficiary of any age — and under certain conditions, you can contribute up to five years’ worth of the annual gift tax exclusion in a single year without triggering federal gift taxes.
Funds from a 529 plan can be used to cover qualified higher education expenses, such as tuition, fees, books, and room and board at eligible colleges and universities. Beginning in 2025, you can also use up to $10,000 from all 529 accounts combined to pay for qualified primary or secondary school expenses for each beneficiary.
The One Big Beautiful Bill Act (OBBBA) expands these benefits further starting in 2026 — increasing the annual limit for primary and secondary education expenses to $20,000 per beneficiary. The law also broadens the definition of eligible expenses beyond tuition, allowing funds to cover costs like books, digital learning tools, and standardized testing fees for distributions made after July 4, 2025.
Keep in mind that some states may not fully align with the new federal rules, so it’s essential to review your state’s specific regulations to ensure compliance.
Navani recommends reviewing your 529 plan’s investment mix and contribution strategy regularly. “If your child is nearing college age, you might consider adjusting your asset allocation to reduce risk and preserve capital,” he advises. “This ensures your plan stays on track with your educational funding goals.”
10. Manage Healthcare Expenses with Tax-Advantaged Accounts
Using Health Savings Accounts (HSAs) and Health Flexible Spending Accounts (FSAs) can help you pay for medical expenses your insurance doesn’t cover while also reducing your taxable income. These accounts allow contributions that are either tax-deductible or made with pre-tax dollars, making them an effective tool for managing healthcare costs.
However, there are important differences to consider. To qualify for an HSA, you must be enrolled in a high-deductible health plan (HDHP) and cannot have other disqualifying coverage, such as a general-purpose health FSA. While some employees may have access to both accounts, this is usually limited to pairing an HSA with a limited-purpose FSA for dental or vision expenses.
A major advantage of HSAs is that unused funds roll over year to year, allowing your savings to grow tax-free over time. In contrast, most health FSAs require you to spend the contributions within the same plan year. Some employers do allow a carryover of up to $660 into the next year (for 2026) or offer a grace period of up to 2½ months to use leftover funds on qualified medical expenses.
Another benefit of HSAs is that you can contribute up until the tax filing deadline for the previous year and still claim the deduction. For instance, contributions for 2025 can be made as late as April 15, 2026. FSAs, however, generally require you to elect contributions during open enrollment or upon becoming eligible through your employer.
To make the most of these accounts, review your current FSA balance and plan your remaining healthcare expenses carefully. Check if prior out-of-pocket medical costs can be reimbursed through your account. For detailed guidance on HSA contribution limits and rules, consult your tax advisor or see our comprehensive contribution limits guide.
- 1IRS, “401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000,” Nov. 1, 2025.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult a qualified legal or tax professional before making any financial or investment decisions.
The term “Tax Aware” refers to a strategy that uses forward-looking assumptions to establish benchmarks based on generalized, tax-adjusted returns. It does not guarantee that investors can avoid taxes on investment income, including dividends, interest, or capital gains generated from portfolio holdings or active management decisions. These strategies are not individualized tax advice. Investors should seek guidance from a qualified tax advisor for personalized recommendations.
Management of donor-advised funds and private foundations is offered by Bank of America Private Bank, a division of Bank of America N.A., Member FDIC, and a wholly owned subsidiary of Bank of America Corporation.
10 Tax Tips That Could Save You Money on Your Taxes
10 tax tips that could save you money
Consider these ideas that could potentially reduce your tax bill this year or moving forward
AMONG THE KEY TAX TOPICS: Taking time to review your financial and tax position each year could help you (and your family) keep more of what you’ve earned. “That’s especially true in years like 2025, which bring significant changes in tax legislation,” says tax accountant Vinay Navani of WilkinGuttenplan.
The sweeping new legislation, dubbed the “One Big Beautiful Bill Act” (or OBBBA) was signed into law on July 4, 2025, and contains provisions that could influence decisions on itemizing or taking the standard deduction (see tip 1), planning your estate (tip 2), giving to charity (tip 3), helping your child save (tip 6) and more.
Below, Navani shares insights on tax-efficient approaches to your finances. While some strategies apply to any year, he’ll point out what to be especially aware of under the OBBBA. Ask your personal tax advisor whether these tips might make sense for you. Be sure to visit our Market briefs page for the latest federal tax law changes that could impact your finances.
1. Factor in higher state, local, and standard deductions
For taxpayers who itemize their deductions, the biggest news in the OBBBA may be the increase in the state and local tax (SALT) deduction from $10,000 to $40,000, from 2025 through 2029. (The additional $30,000 deduction phases down for those with adjusted gross income (AGI) above $500,000 and terminates after $600,000). “If you itemize, and your SALT deductions for 2025 add up to less than $40,000, you might consider prepaying some of next year’s state or local taxes to claim the full deduction,” Navani suggests.
At a broader level, OBBBA invites questions over whether to itemize or use the standard deduction. While itemizing may feel like the obvious choice with $40,000 of potential SALT deductions, the bill also raises the standard deduction permanently to $31,500 for married couples filing jointly (up from $30,000) and $15,750 for individuals (up from $15,000), adjusted annually for inflation. “Your tax professional can run the numbers and help you decide whether the standard deduction or itemizing works best for your situation,” Navani advises.
If you’re already 65 or older, the new bill offers a financial boost up in the form of an additional $6,000 deduction for individuals ($12,000 for couples) for the 2025 though 2028 tax years. The deduction, which applies whether you itemize or not, gradually phases out for individuals with modified adjusted gross income (MAGI) above $75,000 (or $150,000 for couples). Contrary to some reports, the deduction does not eliminate taxes on Social Security benefits; rather, it applies to your total income, which includes Social Security. It’s important to note that eligible seniors can claim the tax deduction whether they itemize their taxes or not.
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2. Review your gift and estate plans
The high federal gift and estate tax exemption set by the 2017 Tax Cuts and Jobs Act was made permanent under OBBBA, removing a major uncertainty for taxpayers with significant estates, Navani notes. Prior to the legislation, with the exemption set to drop steeply at the end of 2025, individuals and their advisors had been scrambling to make gift and estate decisions before the deadline. “Now, instead of dropping, the exemption will actually rise to $15 million for individuals and $30 million for married couples in 2026, adjusted annually thereafter for inflation,” he says. “While estate planning still requires time and careful thinking, it’s more about fundamentals.” For example, consider the current value of assets you own, such as investments or shares of a family business. Gifting when values are temporarily down could enable you to move more shares out of your estate without triggering taxes.
A big part of the planning may involve the best ways to structure gifts. “You may not want to give substantial sums of money directly to a 16-year-old,” he says. “So, you may want to speak with your advisor and tax specialist about what types of trusts could meet your needs. You’ll need to consider trust terms, such as distributions, duration and naming a trustee, among other details. It’s good to get those conversations going.”
3. Consider your charitable giving
If philanthropy is important to you, now could be a good time to consider giving more. If you regularly give to charities and itemize your deductions on your income tax returns, consider putting several years’ worth of gifts into a donor-advised fund (DAF) before the end of 2025, Navani suggests. “That way, you may earn an immediate deduction, and you can spread out the giving from the DAF over the next several years.”
If you make cash gifts to individual charities, the 2025 bill contains some new provisions that could influence the timing of your gifts, depending on whether you itemize deductions or use the standard deduction. Starting in 2026, those using the standard deduction will be able to claim up to $1,000 for individuals ($2,000 for married couples filing jointly) for cash gifts directed to a public charity (i.e., not through a DAF), Navani notes. By contrast, itemizers, starting in 2026, will have to contribute at least 0.5% of their “contribution base” (essentially AGI) before claiming charitable deductions. Thus, itemizers might want to consider accelerating their gifts in 2025, before the 0.5% floor kicks in next year. Beginning in 2026, overall itemized deductions, including charitable gifts, will be slightly reduced for taxpayers in the top tax bracket (estimated to be about $640,000 for individual and $770,000 for couples) – yet another reason for taxpayers who itemize to bunch charitable deductions into 2025.
Of course, none of these decisions should be made based on taxes alone, Navani adds, so be sure to consult your team before making any decisions.
4. Consider offsetting investment gains with losses you’ve experienced
If you have sold stocks that performed especially well in the past year, subjecting you to potential federal capital gains taxes, you might consider offsetting those capital gains with capital losses you’ve experienced elsewhere in your portfolio, Navani suggests. This process, known as tax-loss harvesting, could enable you to sell underperforming assets that you were planning to sell anyway and invest the proceeds in assets you consider to be more promising. If your capital losses for the year are greater than your capital gains, you may apply up to $3,000 of losses ($1,500 if you’re married filing separately) to offset your ordinary income, for federal income tax purposes.
If you take this approach, be sure not to repurchase the same or substantially similar assets within 30 days before or after the sale, to avoid triggering the wash sale rules, which would disallow the loss. If the losses include not just marketable securities but shares of a privately held company deemed worthless because the company went out of business, you may need additional documentation, Navani says. “Due diligence takes time, so don’t wait until the end of the year to consult your tax advisor.”
Loss harvesting strategies aren’t right for every situation and should only be pursued with your long-term investment goals in mind. Selling assets solely for tax purposes could amount to “the tax tail wagging the investment dog,” Navani advises. And claiming capital losses comes with other considerations based on how long you’ve held the assets you sell, what you invest in as a replacement, and other factors.
5. Max out on your retirement plan
Think about increasing your contributions to your 401(k), IRA or other qualified retirement plan to reach the maximum contribution amount. Not only does this offer the possibility of increasing your retirement savings, but it could also potentially lower your taxable income. Since many new tax deductions in the OBBBA (e.g., the senior exemption and the SALT, tip and overtime deduction) phase out as AGI increases, a pre-tax 401k or a tax-deductible contribution to a traditional IRA could be a good way of lowering income and preserving those deductions. For 2025, the 401(k) contribution limit is $23,500), while the IRA contribution limit remains unchanged at $7,000.1 You can learn more information about contribution limits in our guide.
If you’ll be age 50 or older at any time during the calendar year, you may be able to take advantage of “catch-up” contributions, Navani suggests. For those age 50 or older, the 401(k) limit with catch-up contributions is $31,000, and for those who are age 60 to 63, the limit is $34,750, all subject to the terms of the retirement plan. For IRAs, the limit including catch-up contributions is $8,000 for those age 50 or older. If permitted under the terms of the retirement plan, you generally have until the end of the calendar year to contribute to a 401(k) plan and until April 15 of the following year to contribute to an IRA for the previous calendar year.
6. Give your kids a leg up on their own retirement
“While many parents would like to get their children started early on saving, a traditional sticking point is that you need earned income to start an IRA—which most kids don’t have,” Navani says. The OBBBA introduced new “Trump Accounts” for children, which are similar to traditional IRAs and may be opened for children under age 18. Unlike traditional IRAs, Trump Accounts can be opened for children without any earned income. Before age 18, annual aggregate contributions made by you, your relatives or any other person are limited to a total of $5,000 (indexed starting in 2028). When your child turns 18, traditional IRA rules apply, potentially setting your child up for a lifetime of savings. As additional incentive, Trump Accounts set up for children born from 2025 through 2028 are eligible for a $1,000, one-time “seed” contribution from the federal government. Be aware of some restrictions: contributions can’t be made until July 4, 2026, and distributions are not permitted until January 1 of the calendar year in which your child attains age 18. The IRS is expected to provide additional guidance regarding Trump Accounts, including who can create them.
7. Consider converting your traditional IRA to a Roth IRA
Under existing federal tax law, anyone can convert all or a portion of their assets in a traditional IRA to a Roth IRA. Unlike with a traditional IRA, qualified distributions of converted amounts from a Roth IRA aren’t generally subject to federal income taxes, as long as:
- At least five years have passed since the first of the year of your first Roth IRA contribution or conversion.
and - You are age 59½ or older, become disabled, or die.
However, you’re required to pay federal income taxes on the amount of your deductible contributions as well as any associated earnings when you convert to a Roth IRA. Also, it is important to remember, IRA conversions will not trigger the 10% additional tax on early distributions at the time of the conversion, but the 10% additional tax may apply later on the converted amounts if the amounts converted are distributed from the Roth IRA before satisfying a special five-year holding period starting in the year of the conversion. While the OBBBA did not change the rules on Roth conversions, a Roth conversion could increase AGI which could result in one or more OBBBA deductions (e.g. SALT deduction) phasing out.
“If the value of the investments in your traditional IRA is temporarily down, it may be a good time to consider converting,” Navani suggests. Consult with your tax advisor to see if this approach is appropriate for you.
8. Look for tax-aware investing strategies
Putting a portion of your income into investments not generally subject to federal income taxes, such as tax-free municipal bonds, could potentially ease your tax burden. “Depending on when in the year you purchase municipal bonds, you may or may not receive any interest income for that year,” Navani says. “But in the first full calendar year after purchase, you’ll realize the benefit of the tax-free interest (though the interest may be taxable for state tax purposes).”
Keep in mind that if your MAGI is at least $200,000 for individuals, you’re subject to a 3.8% Net Investment Income Tax (NIIT) on the lesser of your net investment income or the amount your MAGI exceeds the $200,000 statutory threshold amount. Certain exclusions apply, and municipal bond income, discussed above, is not subject to NIIT. (Consult your tax advisor.) The threshold is $250,000 for married couples filing jointly or for qualifying widows or widowers with a dependent child, and $125,000 for taxpayers who are married and filing separately.
9. Fund a 529 education savings plan
By putting money into a 529 education savings plan account, you may be able to give a gift to a beneficiary of any age without incurring federal gift tax. You may also be able to contribute up to five years’ worth of the annual gift tax exclusion amount per beneficiary in one year, subject to certain conditions. 529 accounts may be used to pay for qualified higher education expenses of the beneficiary – say, for instance, a child or grandchild – at an eligible educational institution.
For 2025, funds in a 529 account can also be used to pay up to $10,000 of qualified primary or secondary school expenses from all 529 accounts for a beneficiary. The OBBBA changed the expense limit from $10,000 to $20,000 per calendar year per beneficiary beginning in 2026. While the primary and secondary school expenses previously could cover only tuition, the OBBBA also expanded the list to include expenses such as books, digital tools, testing fees and more and applies to distributions made from the 529 account after July 4, 2025. Some states do not conform to the federal rules, so it is important to check your particular state’s rules regarding eligible expenses.
Now may be a good time to review your 529 account investments to be sure you’re still on track to meet your education goals, Navani suggests. “Especially if the money will be needed soon, you may want to adjust your contributions and investments accordingly.”
10. Cover healthcare costs efficiently
Both health savings accounts (HSAs) and health flexible spending accounts (health FSAs) could allow you to sock away tax deductible or pretax contributions to pay for certain medical expenses your insurance doesn’t cover.
But there are key differences to these accounts. Most notably, to take advantage of an HSA, you must be enrolled in a high-deductible health insurance plan, and you cannot have disqualifying additional medical coverage, such as a general-purpose health FSA. Also, unless the FSA is a “limited purpose” FSA, you cannot contribute to both accounts.
One important benefit of HSAs is that you don’t have to spend all the money in your account each year, unlike a health FSA. Generally, the funds you contribute to a health FSA must be spent during the same plan year. However, some employers may allow roll overs up to a maximum of $660 in unused health FSA funds for 2026, and others allow a grace period of up to 2½ months following the end of the year to use your unspent funds on qualified benefit expenses incurred during the grace period.
Also, you can deposit funds into an HSA up to the tax filing due date in the following year (up to the maximum dollar limit) and still receive a tax deduction. For example, you can make a 2025 contribution by April 15, 2026. Meanwhile, health FSA contributions are generally only elected during open enrollment or when you become an employee of a company.
Be sure to check your employer’s rules for health FSA accounts. If you have a balance, you may want to consider estimating and planning your health care spending for the remainder of this year. In addition, see if the account balance can be used to reimburse you for qualified medical costs you paid out-of-pocket earlier in the year. For more on HSA contribution and plan limits, see our contribution limits guide.
1IRS, “401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000,” Nov. 1, 2024.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
“Tax Aware” refers to the process by which we develop strategic benchmarks using forward-looking assumptions about generalized tax-adjusted returns. However, “Tax Aware” does not imply investors can avoid taxes on investment income, such as dividends, interest, and capital gains generated from investments held in the portfolio or resulting from active portfolio management decisions. The portfolio does not offer personalized tax advice or management for an investor based on their individual circumstances. Investors should consult a qualified tax professional in all instances for personalized tax advice.
Donor-advised fund and private foundation management are provided by Bank of America Private Bank, a division of Bank of America N.A., Member FDIC and a wholly owned subsidiary of Bank of America Corporation.
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