2025 College Funding Changes: What You Need to Know

Back-to-school season is here, making it the perfect time to unpack sweeping changes to college funding, student loans, and new ways families can maximize college savings. As students prepare for a new academic year, parents, grandparents, and graduates alike should take note—these updates will shape how education is funded and financed in the years ahead. So grab your pencils and notebooks: class is in session, and the new rules are set to make a major impact.

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, includes multiple provisions that affect higher education. The number and magnitude of the college funding changes could have been the subject of a standalone bill. Even if you’re past your college years (or college funding years), the provisions of the bill could still have an impact on your finances for years to come.

Key changes in the bill include new borrowing limits for students and parents under federal loan programs, streamlined student loan repayment plans, stricter rules on the ability of borrowers to pause student loan repayment, the promotion of workforce training programs, expanded qualified expenses for 529 plans, and an increased endowment tax on wealthy colleges and universities, among other items.

New borrowing limits under federal loan programs

The legislation imposes new borrowing caps on Parent PLUS Loans and Direct Loans and eliminates the Grad PLUS Loan program. These changes take effect July 1, 2026, unless otherwise noted.

Parent PLUS Loans

Currently, parents can borrow up to the full cost of their child's undergraduate education, minus any financial aid received. Under the new law, Parent PLUS Loans will have an annual limit of $20,000 and a total limit of $65,000 per dependent student.

There is a three-year grace period on the new borrowing limits for parents who have borrowed under this program before June 30, 2026 — essentially allowing parents of current undergraduate students to continue borrowing up to the full cost of college if they need to.

Grad PLUS Loans

The Grad PLUS Loan program, which allows graduate students to borrow up to the full cost of their education (minus any aid received), has been eliminated.

It will be replaced with graduate loans under the existing federal Direct Loan program, but with new loan limits: $20,500 per year and $100,000 total for graduate students and $50,000 per year and $200,000 total for professional students (e.g., medicine, law). These new limits do not include undergraduate loans (current graduate student Direct Loan limits are $20,500 per year and $138,000 total).

The new law allows current graduate and professional students to continue borrowing under the current Grad PLUS Loan program during their remaining schooling or for three years, whichever is less, provided they are enrolled in a graduate or professional program as of June 30, 2026, and they have received at least one loan under the Grad PLUS program.

Direct Loans

There is a new lifetime student loan borrowing cap of $257,500 — this limit applies to undergraduate and graduate loans, not Parent PLUS Loans.

Loan Planning Tips

Review New Loan Limits

Carefully project borrowing needs, as Parent PLUS and new Direct Loan limits are much stricter; plan for out-of-pocket costs to avoid surprises.

Time Borrowing Strategically

If eligible, use the three-year grace period to maximize old borrowing rules before caps take effect, especially for parents or graduate/professional students already in school.

New student loan repayment plans and hardship rules

The legislation significantly alters the landscape of federal student loan repayment programs. The Saving on a Valuable Education (SAVE) Repayment Plan, the Pay As You Earn (PAYE) Repayment Plan, and the Income Contingent Repayment (ICR) Plan will be phased out and eliminated by July 1, 2028. Borrowers currently enrolled in one of these plans must transition to a new repayment plan by July 1, 2028, as described below.

Additionally, as of July 1, 2026, the legislation introduces two new repayment plans: the Standard Repayment Plan and the Repayment Assistance Plan.

Standard Repayment Plan

Under this plan, borrowers pay a fixed amount each month over a specified period. Before July 1, 2026, payments were made over a 10-year period. Under the Standard Repayment Plan, the amount of time a borrower has to repay a student loan depends on the loan balance:

· Less than $25,000 — 10 years

· $25,000 to less than $50,000 — 15 years

· $50,000 to less than $100,000 — 20 years

· $100,000 and over — 25 years

There is no prepayment penalty; borrowers can pay off their loans early without incurring any additional fees or penalties.

Repayment Assistance Plan

The Repayment Assistance Plan (RAP) is a new income-based repayment plan that bases monthly loan payments on a borrower's adjusted gross income (AGI). This plan is only available to undergraduate and graduate students, not parents. Under RAP, a borrower's monthly payment will be set as follows based on AGI:

· $10,000 or less — flat payment of $10 per month ($120 per year)

· $10,001 to $20,000 — 1%

· $20,001 to $30,000 — 2%

· $30,001 to $40,000 — 3%

· $40,001 to $50,000 — 4%

· $50,001 to $60,000 — 5%

· $60,001 to $70,000 — 6%

· $70,001 to $80,000 — 7%

· $80,001 to $90,000 — 8%

· $90,001 to $100,000 — 9%

· $100,001 and over — 10%

Payments are applied first to interest, then to fees, and then to principal. If the required payment is less than the accrued interest, the additional interest is waived. After 30 years of on-time payments, all remaining debt is forgiven (current income-based plans forgive remaining debt after 20 or 25 years).

For single borrowers, only the borrower's AGI is used to determine the monthly payment. For married borrowers, joint AGI is used if the couple files a joint federal income tax return; otherwise, for married borrowers who file separate income tax returns, only the borrower's AGI is used. For borrowers with dependents, the monthly payment will be reduced by $50 for each dependent listed on a borrower's federal income tax return.

Payments made under RAP qualify for the federal Public Service Loan Forgiveness (PSLF) program.

Which repayment plan applies?

Borrowers who obtain new loans on or after July 1, 2026, will repay them under either the new Standard Repayment Plan or the Repayment Assistance Plan.

Existing borrowers who are currently enrolled in the SAVE, PAYE, or ICR Plan must transition to a new repayment plan by July 1, 2028. They can choose either the federal government's remaining income-driven plan, called the Income-Based Repayment (IBR) Plan, or the new Repayment Assistance Plan. More information is expected to be available from the Department of Education in the coming months.

Repayment Planning Tips

Repayment Selection Preparation

Existing borrowers in SAVE, PAYE, or ICR should evaluate future repayment plan options and anticipate being switched to the new Repayment Assistance or Income-Based Repayment plan by 2028.

Income and Dependent Planning

Use the RAP’s dependent deduction ($50/month per dependent) and joint AGI strategies to lower student loan payments for families

Changes to deferment and forbearance rules

The new law tightens the ability of borrowers to pause repayment on their federal student loans.

· New deferment rule: Starting July 1, 2027, the economic hardship deferment and the unemployment deferment will be eliminated.

· New forbearance rule: For new loans issued July 1, 2027, and later, a forbearance (a payment pause due to short-term financial difficulty) will be limited to a single nine-month pause every 24 months.

Expanded workforce training focus

The legislation seeks to encourage non-traditional post-secondary education paths in two ways.

Workforce Pell Grant

Starting with the 2026–2027 school year, a new Workforce Pell Grant will be available to students enrolled in accredited, short-term (8–15 weeks in duration) job-focused programs, such as certificate programs at community colleges. Funding will be pro-rated based on the program's length, meaning a Workforce Pell Grant will be less than a standard Pell Grant (the maximum standard Pell Grant for the 2025–2026 year is $7,395).

Planning Tip

Consider Workforce Programs

Take advantage of new Workforce Pell Grants for short-term, career-focused programs; these may offer a quicker return on investment versus traditional degrees.

Expanded qualified expenses for 529 plans

Starting with the 2026 tax year, the new law expands the list of qualified 529 plan expenses to include tuition, fees, books, and expenses for workforce credentialing programs (as defined in the law as a "recognized post-secondary credential program"). This includes programs that may not have fit under the existing vocational or apprenticeship allowed use cases.

In addition, starting in 2026, the limit on K-12 qualified expenses has been increased from $10,000 to $20,000 per year and additional expenses are now qualified at the K-12 level, including instructional materials (both hard copy and online), tuition for tutoring or educational classes outside of school, fees for dual enrollment at an institution of higher education, standardized test fees, and educational therapies for students with disabilities (e.g., occupational therapy, speech therapy).

The new law also permanently allows rollovers from a 529 plan to an ABLE account (a tax-advantaged savings account for individuals with disabilities).

Planning Tip

Plan your 529 withdrawals to cover expanded credentials, increased K-12 expenses, and rollovers to ABLE accounts for dependents with disabilities, starting in 2026.

Expanded endowment tax on wealthy colleges

The new law increases the excise tax on the endowments of wealthier colleges and universities. Currently, private schools with at least 500 tuition-paying students and an endowment of at least $500,000 per student are subject to a 1.4% excise tax on net investment income from their endowments. This tax was enacted as part of the Tax Cuts and Jobs Act of 2017.

Under the new law, starting in tax year 2026, colleges with more than 3,000 tuition-paying students will pay excise tax on net investment income from their endowments based on an "endowment dollars per student" model as follows:

· $500,000 to $750,000 endowment per student — 1.4%

· $750,001 to $2,000,000 endowment per student — 4%

· Over $2,000,000 endowment per student — 8%

Why should you care? Because many colleges rely on income from their endowments to fund student financial aid programs, colleges and universities impacted by this new endowment tax could potentially reduce their aid under these programs.

Planning Tip

Watch for changes to college financial aid at well-endowed institutions; review or ask how new taxes could affect grants and scholarships at target schools.

Miscellaneous provisions

The legislation includes several other education-related provisions, including:

· Pell Grant eligibility: The new law adjusts the way Pell Grant eligibility is determined based on the Student Aid Index calculation in the FAFSA (Free Application for Federal Student Aid) and on the amount of private full-ride scholarships received, which is expected to result in fewer students qualifying for a traditional Pell Grant. This adjustment takes effect starting with the 2026–2027 school year.

· FAFSA changes on small businesses and family farms: Starting July 1, 2026, the FAFSA will no longer count the net worth of small businesses (100 employees or fewer), family farms, and commercial fishing businesses when calculating aid eligibility. This change will take effect with the 2026–2027 school year.

· Employer-provided student loan repayment assistance: The legislation permanently extends the $5,250 tax-free employer-provided student loan repayment assistance starting with the 2026 tax year. The $5,250 threshold will be indexed for inflation starting in 2027.

· Claiming the American Opportunity Tax Credit and Lifetime Learning Credit: Starting with the 2026 tax year, taxpayers who claim either of these education tax credits on their federal income tax return must include their Social Security number and, where applicable, the college's employer identification number (EIN).

Planning Tips

FAFSA Strategy for Families with Small Businesses/Farms

Beginning 2026-27, families with small businesses or farms may see more favorable federal aid calculations—you may want to revisit FAFSA filings to optimize eligibility.

Employer Loan Repayment

Seek employers offering tuition or student loan repayment benefits, with up to $5,250 annually now tax-free and indexed for inflation.

Track New Documentation Needs

Prepare to provide Social Security numbers and college EINs when claiming education credits starting in 2026.

Conclusion

There’s no doubt that the sweeping changes to college funding will affect most families and students returning to school, as well as some of those already out of school. Understanding and adopting the included tips will help families and students adjust to the tax law’s new rules, prepare for several less generous provisions, and take advantage of other expanded education benefits.

Sam H. Fawaz CFP®, CPA, PFS is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other retirement, college, tax, or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We begin with a thorough assessment of your unique personal situation. There is no rush and no cookie-cutter approach. Each client's financial plan and investment objectives are unique.

New Tax Bill Requires Updated Planning Approach

President Trump signed into law the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, after months of deliberation in the House and Senate. The legislation includes multiple tax provisions that will guide individuals, business owners, and investors in planning their finances for many years to come.

The OBBBA makes permanent most of the 2017 Tax Cuts and Jobs Act (TCJA) tax provisions that were set to expire at the end of this year, while delivering several new deductions and changes.

Many of the new and modified provisions seem simple on the surface, but will require new approaches to tax planning to optimize the benefits of various tax breaks.

On behalf of all CPA’s and accountants, and before delving into the various provisions below, I want to thank Congress for renewing the “CPA Full Employment Act,” also known as GOFA (Guaranteed Overtime for Accountants), proving once again that while tax breaks may expire, job security for tax professionals is eternal.

TCJA Expiring provisions that are now permanent

Rates and structure

The TCJA reduced the applicable tax rates for most brackets from 2018 through 2025, while increasing the income range covered by each bracket. The new legislation makes the TCJA rates and structure permanent. Individual marginal income tax brackets will remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Standard deduction amounts

The TCJA established larger standard deduction amounts. The OBBBA includes an additional increase, and for 2025, the standard deduction amounts are:

• $31,500 for married filing jointly

• $23,625 for head of household

• $15,750 for single and married filing separately

Personal exemptions

The TCJA eliminated the deduction for personal exemptions. The last year it was available was 2017 at $4,050 per exemption. This deduction is now permanently eliminated.

Child tax credit

Prior temporary increases to the child tax credit, the refundable portion of the credit, and income phase-out ranges are made permanent. The OBBBA increases the child tax credit to $2,200 for each qualifying child starting in 2025.

Mortgage interest deduction

The TCJA imposed a limit of $750,000 ($375,000 for married filing separately) on qualifying mortgage debt for purposes of the mortgage interest deduction. It also made interest on home equity indebtedness nondeductible. Both provisions are now permanent.

The OBBBA reinstates the previously expired provision allowing for the deduction of mortgage insurance premiums as interest (subject to income limitations), beginning in 2026.

Estate and gift tax exemption

The TCJA implemented a larger estate and gift tax exemption amount (essentially doubled it). The OBBBA increases it to $15 million in 2026 ($30 million for married couples), and it will be indexed for inflation in subsequent years.

Alternative minimum tax (AMT)

The TCJA implemented significantly increased AMT exemption amounts and exemption income phase-out thresholds. The OBBBA makes them permanent.

Itemized deduction limit

The OBBBA replaces the previously suspended (from 2018 to 2025) overall limit on itemized deductions. This was known as the "Pease limitation."

For taxpayers with adjusted gross income (AGI) above a specified threshold (for example, in 2017, $254,200 for single filers and $305,050 for married filing jointly), the Pease limitation reduced total itemized deductions by 3% of the amount by which AGI exceeded the threshold. The haircut could not exceed 80% of the total itemized deductions.

The Pease limitation is now replaced with a percentage reduction that applies to individuals in the highest tax bracket (37%), effectively capping the value of each $1.00 of itemized deductions at $0.35.

Most taxpayers will find the new limitation more generous, as the cap only affects the highest earners.

Qualified business income deduction (Section 199A)

The TCJA created the deduction for qualified business income. The OBBBA additionally increases the phase-in thresholds for the deduction limit. A new minimum deduction of $400 is now available for specific individuals with at least $1,000 in qualified business income.

TCJA Existing provisions with material changes

The One Big Beautiful Bill Act also makes significant changes to other provisions, some of which are temporary, while others are permanent. Two of the changes that received substantial coverage leading up to passage and enactment include a temporary increase in the limit on allowable state and local tax deductions and the rollback of existing energy tax incentives.

State and local tax deduction (SALT)

The new legislation temporarily increases the cap on the SALT deduction from $10,000 to $40,000 through 2029. This increased cap is retroactively effective for the entire year 2025. The $40,000 cap will increase to $40,400 in 2026 and by 1% for each of the following three years.

The cap is reduced for those with modified adjusted gross incomes (AGI) exceeding $500,000 (tax year 2025, adjusted for inflation in subsequent years), but the limit is never reduced below $10,000. In 2030, the SALT deduction cap will return to $10,000.

Careful income and deduction planning for taxpayers around the $500,000 AGI level will be critical going forward.

Repeal and phase-out of clean energy credits

The new legislation significantly rolls back energy-related tax incentives. Provisions include:

• The Clean Vehicle Credit (Internal Revenue Code or IRC Section 30D), the Previously Owned Clean Vehicle Credit (IRC Section 25E), and the Qualified Commercial Clean Vehicles Credit (IRC Section 45W) are eliminated effective for vehicles acquired after September 30, 2025.

• The Energy Efficient Home Improvement Credit (IRC Section 25C) and the Residential Clean Energy Credit (IRC Section 25D) are repealed for property placed in service after December 31, 2025.

• The New Energy Efficient Home Credit (Section 45L) will expire on June 30, 2026; the credit cannot be claimed for homes acquired after that date.

• The Alternative Fuel Vehicle Refueling Property Credit (IRC Section 30C) will not be available for property placed in service after June 30, 2026.

Gambling losses

The new law changes the treatment of gambling losses, effective as of 2026.

Before the legislation, individuals could deduct 100% of their gambling losses against winnings (the deduction could never exceed the amount of gambling winnings). Now, a new cap limits deductions to 90%.

Bonus depreciation and Section 179 expensing

Before this legislation, the additional first-year "bonus" depreciation was being phased out, with the maximum deduction dropping to 40% by 2025.

The new legislation permanently establishes a 100% additional first-year depreciation deduction for qualifying property, allowing businesses to deduct the full cost of such property in the year of acquisition. The 100% additional first-year depreciation deduction is available for property acquired after January 19, 2025.

Effective for property placed in service in 2025, the legislation also increases the limit for expensing under IRC Section 179 from $1 million of acquisitions (indexed for inflation) to $2.5 million, and it increases the phase-out threshold from $2.5 million (indexed for inflation) to $4 million.

OBBBA New provisions

The One Big Beautiful Bill Act includes several new tax deductions intended to represent a step toward fulfilling campaign promises that eliminate taxes on Social Security, tips, and overtime. Some of these new deductions are temporary, others are permanent.

Deduction for seniors

Effective for tax years 2025–2028, the legislation creates a new $6,000 deduction for qualifying individuals who reach the age of 65 during the year. The deduction begins to phase out when modified adjusted gross income exceeds $75,000 ($150,000 for married filing jointly).

Tip income deduction, AKA "no tax on tips"

Effective for tax years 2025–2028, for the first time, tip-based workers can deduct a portion of their cash tips for federal income tax purposes. Individuals who receive qualified cash tips in occupations that customarily received tips before January 1, 2025, may exclude up to $25,000 in reported tip income from their federal taxable income. A married couple filing a joint return may each claim a deduction of up to $25,000.

The deduction phases out at a modified adjusted gross income of $150,000 for single filers and $300,000 for joint filers. This provision applies to a broad range of service occupations, including restaurant staff, hairstylists, and hospitality workers.

Overtime deduction, AKA "no tax on overtime"

A new temporary deduction of up to $12,500 ($25,000 if married filing jointly) is established for qualified overtime compensation. The deduction is phased out for individuals with a modified adjusted gross income of over $150,000 ($300,000 if married filing jointly).

The deduction is reduced by $100 for each $1,000 of modified adjusted gross income exceeding the threshold. To claim the deduction, a Social Security number must be provided. The deduction is available for tax years 2025 through 2028.

Investment accounts for children, AKA "Trump accounts"

A new tax-deferred account for children under the age of 18 is created, effective January 1, 2026. With limited exceptions, up to $5,000 in total can be contributed to an account annually (the $5,000 amount is indexed for inflation). Parents, relatives, employers, and certain tax-exempt, nonprofit, and government organizations are eligible to make contributions. Contributions are not tax-deductible.

For children born between 2025 and 2028, the federal government will contribute $1,000 per child into eligible accounts. Distributions generally cannot be made from the account before the account holder reaches the age of 18, and there are restrictions, limitations, and tax consequences that govern how and when account funds can be used. To have an account, a child must be a U.S. citizen and have a Social Security number.

Charitable deduction for non-itemizers and itemizers

The legislation reinstates a tax provision that was previously effective for tax year 2021.

A deduction for qualifying charitable contributions is now permanently established for individuals who do not itemize deductions. The deduction is capped at $1,000 ($2,000 for married filing jointly). Contributions must be made in cash to a public charity and meet other specific requirements. This deduction is available starting in tax year 2026.

For itemizers, the legislation introduces a “haircut” to charitable contributions, equivalent to 0.5% of adjusted gross income, similar to the 7.5% haircut for medical expenses.

These provisions possibly make donor-advised funds and qualified charitable distributions (from IRAs for those age 70.5 or older) more critical than ever to incorporate into charitable giving strategies and planning.

Car loan interest deduction, AKA "no tax on car loan interest"

For tax years 2025–2028, interest paid on car loans is now deductible for certain buyers.

Beginning in 2025, taxpayers who purchase qualifying new vehicles assembled in the United States for personal use may deduct up to $10,000 in annual interest on a qualifying loan.

The deduction is phased out at higher incomes, starting at a modified adjusted gross income of $100,000 (single filers) or $200,000 (joint filers).

529 Education Savings Plans

Section 529 college savings accounts are expanded in three critical ways:

First, you can withdraw up to $20,000 per year tax-free for K-12 schooling beginning in 2026, an increase of $10,000 from the current annual cap. As always, there is no limit on the amount of tax-free withdrawals that can be used to pay for college.

Second, more K-12 expenses are covered. It used to be that distributions for K-12 education were tax-free only if used to cover tuition. Now covered are costs of tuition, materials for curricula and online studying, books, educational tutoring, fees for taking an advanced placement test or any exam related to college admission, and educational therapies provided by a licensed provider to students with disabilities. This easing begins with distributions from 529 accounts made after July 4, 2025.

Third, certain post-high school credentialing program costs are eligible for payment via 529 plans. This expansion supports individuals pursuing alternative educational and career pathways outside of traditional degree programs. Eligible costs typically include:

• Tuition, books, and required fees for credentialing and licensing programs.

• Testing fees to obtain or maintain a professional certification or license.

• Continuing education costs needed to renew or maintain specific credentials.

• Supplies and equipment required for a recognized credentialing program.

1099 Reporting

A 2021 law required third-party settlement networks to send 1099-Ks to payees who were paid more than $600 for goods and services. The OBBBA repeals this change and restores the prior reporting rule. Third-party networks are now required to send 1099-Ks only to payees with over 200 transactions who were paid more than $20,000 in a calendar year.

The filing threshold for 1099-MISC and 1099-NEC forms increases from $600 to $2,000, effective with forms sent out in 2027 for tax year 2026. This figure will be indexed for inflation. The $600 reporting threshold has not changed since 1954, even though prices have increased by about 1095% since then.

But wait….there's more …

The One Big Beautiful Bill Act includes broad and sweeping changes that will have a profound impact on tax planning. The legislation is over 800 pages long, and we have only scratched the surface here.

While income and estate tax provisions are highlighted in this summary, the legislation also makes fundamental changes that impact areas such as healthcare, immigration, and border security, as well as additional tax changes. Further information and details will be forthcoming in the coming weeks and months. There are numerous unanswered questions that will be addressed through Congressional technical corrections, IRS Bulletins, and upcoming regulations.

As always, if you have questions about how these changes affect your specific situation, please don't hesitate to contact us. Although I expect a jump in my overtime this year as a result of this tax bill, the no-tax-on-overtime provision does not apply to yours truly. I guess that’s the price to pay for having a job for life.

Sam H. Fawaz is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other tax or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We begin with a thorough assessment of your unique personal situation. There is no rush and no cookie-cutter approach. Each client's financial plan and investment objectives are unique.

Does the new Social Security ID Verification Affect You?

This spring, the Social Security Administration (SSA) announced that some individuals who want to claim Social Security benefits or change their direct deposit account information will need to prove their identity in person at a local Social Security field office.

According to the SSA, stronger identity verification procedures are needed to prevent fraud. The new rule is already confusing, partly because of its hasty rollout, so here are answers to some common questions and links to official SSA information.

Who will need to visit a Social Security office to verify their identity?

This new rule only affects people without or who can't use their personal mySocialSecurity account. If you already have a mySocialSecurity account, you can continue to file new benefit claims, set up direct deposit, or make direct deposit changes online — you will not need to visit an office.

You must visit an office to verify your identity if you do not have a mySocialSecurity account and you are:

· Applying for retirement, survivor, spousal, or dependent child benefits

· Changing direct deposit information for any type of benefit

· Receiving benefit payments by paper check and need to change your mailing address

You don't need to visit an office to verify your identity if you are applying for Medicare, Social Security disability benefits, or Supplemental Security Income (SSI) benefits — these are exempt from the new rule, and you can complete the process by phone.

If you're already receiving benefits and don't need to change direct deposit information, you will not have to contact the SSA online or in person to verify your identity. According to the SSA, "People will continue to receive their benefits and on time to the bank account information in Social Security's records without needing to prove their identity." There's also no need to visit an office to verify your identity if you are not yet receiving benefits.

The SSA has also announced that requests for direct deposit changes (online or in person) will be processed within one business day. Before this, online direct deposit changes were held for 30 days.

What if you don't have a mySocialSecurity account?

You can create an account anytime on the SSA website, ssa.gov/myaccount. A mySocialSecurity account is free and gives you access to SSA tools and services online. For example, you can request a replacement Social Security card, view your Social Security statement that includes your earnings record and future benefit estimates, apply for new benefits and set up direct deposit, or manage your current benefits and change your direct deposit instructions.

To start the sign-up process, you will be prompted to create an account with one of two credential service providers, Login.gov or ID.me. These services meet the U.S. government's identity proofing and authentication requirements and help the SSA securely verify your identity online, so you won't need to prove your identity at an SSA office. You can also use your existing Login.gov or ID.me credentials if you have already signed up with one of these providers elsewhere.

If you're unable or unwilling to create a mySocialSecurity account, you can call the SSA and start a benefits claim; however, if you're filing an application for retirement, survivor, spousal, or dependent child benefits, your request can't be completed until your identity is verified in person. You may also start a direct deposit change by phone and subsequently visit an office to complete the identity verification step. You can find your local SSA office using the Social Security Office Locator at ssa.gov.

To complete your transaction in one step, the SSA recommends scheduling an in-person appointment by calling the SSA at (800) 772-1213. However, you may face delays. According to SSA data (through February), only 44% of benefit claim appointments are scheduled within 28 days, and the average time you'll wait on hold to speak to a representative (in English) is 1 hour and 28 minutes, though you can request a callback (74% of callers do). These wait times will vary, but are likely to worsen as the influx of calls increases and the SSA experiences staffing cuts.

What if your Social Security account was created before September 18, 2021?

Last July, the SSA announced that anyone who created a mySocialSecurity account with a username and password before September 18, 2021, would need to begin using either Login.gov or ID.me to continue accessing their Social Security account. If you haven't already completed the transition, you can find instructions at ssa.gov/myaccount.

How can you help protect yourself against Social Security scams?

Scammers may take advantage of confusion over this new rule by posing as SSA representatives and asking individuals to verify their identity to continue receiving benefits. Be extremely careful if you receive an unsolicited call, text, email, or social media message claiming to be from the SSA or the Office of the Inspector General.

Although SSA representatives may occasionally contact beneficiaries by phone for legitimate business purposes, they will never contact you via text message or social media. Representatives will never threaten you, pressure you to take immediate action (including sharing personal information), ask you to send money, or say they need to suspend your Social Security number. Familiarize yourself with the signs of a Social Security-related scam by visiting ssa.gov/scam.

Sam H. Fawaz is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other tax or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and their financial plan and investment objectives are different.

Hidden Risks of Naming a Trust as Your IRA or 401(k) Beneficiary

EXECUTIVE SUMMARY

Naming your trust as the beneficiary of your IRA or 401(k) can be a powerful estate planning tool, but it comes with significant complexities and trade-offs.

Recent IRS regulations, particularly the final regulations issued in July 2024, have made several significant changes affecting individuals who have named a trust as the beneficiary of their IRA or 401(k). These changes address required minimum distributions (RMDs), beneficiary classifications, documentation requirements, and tax implications.

If you have a trust, it may no longer be prudent to name your trust as your 401(k) or IRA beneficiary. You may need to consult with your estate planning attorney to confirm that naming your trust as the beneficiary is still a valid designation.

If your trust document is over five years old, you may need to consult your estate planning attorney to modify your trust or update your beneficiary designations to avoid unintended accelerated distribution timeframes or subject the distributions to steep trust tax rates.

Before discussing the latest tax regulations and the implications of naming a trust as your IRA or 401(k) beneficiary, let’s look at the pros and cons of doing so:

PROS OF NAMING A TRUST AS AN IRA BENEFICIARY

• Control Over Distributions: A trust allows you to set specific terms for how and when assets are distributed. This is particularly useful if your beneficiaries are minors, have special needs, or may not be financially responsible [9][10][11][12].

• Protection for Vulnerable Beneficiaries: Trusts can protect beneficiaries who are minors, disabled, or have issues with creditors, addiction, or poor financial decision-making [9][13][14][11][12].

• Asset Protection: A trust can safeguard assets from a beneficiary’s creditors, divorce, or lawsuits [10][12].

• Estate Planning for Blended Families: Trusts can ensure assets are distributed according to your wishes, such as providing for a spouse during their lifetime with the remainder going to children from a previous marriage [13][14][10][12].

• Privacy: Distributions through a trust avoid probate, keeping your estate details private [10].

• Special Needs Planning: A properly structured trust can provide for a beneficiary with special needs without disqualifying them from government benefits [14][10][11].

• Contingency Planning: Trusts can specify what happens if a beneficiary dies before receiving their full share, offering more control over the ultimate disposition of assets [12].

CONS OF NAMING A TRUST AS AN IRA BENEFICIARY

• Accelerated Taxation and RMD Rules: Trusts are subject to RMDs based on the oldest beneficiary’s life expectancy, which can accelerate withdrawals and taxes compared to naming individuals directly [9][13][11].

Under the SECURE Act, most non-spouse beneficiaries, including trusts, must withdraw the entire account within 10 years, eliminating the “stretch IRA” (explained below) in most cases [14][10][11].

• Potential for Higher Taxes: Trusts reach the highest federal income tax rate much faster than individuals. If the trust accumulates income instead of distributing it, this can result in significantly higher taxes [15][10].

• Loss of Spousal Rollover: Naming a trust as beneficiary means a surviving spouse cannot roll the account into their own IRA, losing the ability to defer taxes over their lifetime [14].

• Increased Complexity and Cost: Administering a trust as a retirement account beneficiary involves more paperwork, legal compliance, and potentially higher administrative costs [13][15][10].

• Risk of Non-Compliance: If the trust is not drafted correctly as a “see-through” (or “look-through”) trust (see below), it may trigger even more accelerated distribution rules, such as the five-year distribution rule [15][11].

• Plan Restrictions: Some employer plans may not allow trusts as beneficiaries or may require lump-sum distributions, which could trigger full immediate taxation [13].

• No Probate Avoidance for Trust Assets: While retirement accounts avoid probate when a beneficiary is named, naming a trust does not provide additional probate avoidance for the retirement account, though it does for assets distributed from the trust [11].

When Naming a Trust as Beneficiary Makes Sense

• You have minor, disabled, or financially irresponsible beneficiaries.

• You want to control the timing and amount of distributions.

• You need to protect assets from creditors or divorce.

• You have a blended family and want to ensure specific inheritance outcomes.

• You have a beneficiary who relies on government benefits.

When It May Not Be Advantageous

• Your beneficiaries are financially responsible adults.

• You want to maximize tax deferral and minimize complexity.

• Your spouse is the primary beneficiary and would benefit from rollover options.

KEY TAX CHANGES AND THEIR EFFECTS

Before the SECURE Act, passed in December 2019, IRA beneficiaries enjoyed a long “stretch” of time to take distributions from the IRAs they inherited. Beneficiaries could distribute the inherited IRA assets over the remainder of their lifetimes using the IRS RMD rules.

That stretch was largely eliminated for most IRA beneficiaries who inherited an IRA from a decedent starting in 2020. The IRS took over 4 1/2 years from the passage of the SECURE Act to finalize regulations surrounding distributions from post-2019 inherited IRAs.

1. Required Minimum Distributions (RMDs) and the 10-Year Rule

As mentioned above, the SECURE Act and its subsequent regulations essentially eliminated the "stretch IRA" for most non-spouse beneficiaries, including trusts, replacing it with a 10-year payout rule. This means that, in most cases, all funds in an inherited IRA or 401(k) must be distributed by the end of the 10th year following the account holder's death.

If the account owner died after their required beginning date (RBD), annual RMDs must be taken during years 1–9, with the entire balance distributed by year 10.

If the account owner died before their required beginning date (RBD), annual required minimum distributions (RMDs) are not required in years 1–9. Instead, the entire inherited IRA or retirement account balance must be distributed by the end of the 10th year following the year of the original owner’s death. Depending on the size of the IRA and the beneficiary's tax bracket, taking some distributions in years 1-9 may be prudent, even if not required.

The RBD for most IRA owners is age 70-1/2 to 73 (soon to be 75). Remember that the “M” in RMD is the minimum you must distribute. Depending on the size of the IRA, more than the minimum distribution will often make more sense.

Only "Eligible Designated Beneficiaries" (EDBs), such as spouses, minor children (until age 21), disabled or chronically ill individuals, or beneficiaries less than 10 years younger than the decedent, can still use the stretch distribution based on their life expectancy.

2. Trust Types and Beneficiary Analysis

The IRS continues to recognize "see-through" (or "look-through") trusts, which allow the trust's individual beneficiaries to be treated as the IRA's beneficiaries for RMD purposes.

To qualify as a see-through trust under IRS rules, the trust must meet specific criteria that allow its beneficiaries to be treated as direct beneficiaries of an inherited IRA or 401(k). These requirements ensure the trust can utilize stretch distributions or the 10-year rule based on beneficiary status (i.e., EDB or non-EDB).

Here are the key requirements of a see-through trust:

a. Validity Under State Law

The trust must be legally valid in the state where it was created. This typically requires proper execution, witnessing, and notarization of the trust document.

b. Irrevocability Upon Death

The trust must be irrevocable from inception or upon the account owner’s death. Revocable trusts that convert to irrevocable status at death are acceptable.

c. Identifiable Beneficiaries

All trust beneficiaries must be clearly named, identifiable, and eligible individuals (e.g., people, not charities or other entities). This ensures the IRS can "see through" the trust to determine distribution timelines based on beneficiary life expectancies or the 10-year rule.

If a trust is not a see-through trust, it may be considered a:

1. Conduit Trust: All IRA distributions must be immediately passed to beneficiaries. Taxes are paid at the beneficiaries' individual rates, but the 10-year rule generally applies unless all beneficiaries are EDBs.

OR

1. Accumulation (Discretionary) Trust: Distributions are retained in the trust, which pays taxes at higher trust tax rates. All trust beneficiaries are considered when determining the payout period, and the 10-year rule usually applies.

The Final Regulations allow trusts that split into separate subtrusts for each beneficiary upon the account holder's death to apply RMD rules based on each subtrust's beneficiary status. This can preserve stretch treatment for EDBs even if other beneficiaries are subject to the 10-year rule.

3. Documentation Requirements

For IRAs, the IRS has eliminated the requirement for trustees to provide detailed trust documentation to the IRA custodian. Now, only a list of trust beneficiaries and their entitlements may be required, greatly simplifying compliance for see-through trusts.

Some documentation requirements remain for 401(k) and other employer plans, but they have been simplified.

4. Tax Consequences

As mentioned above, trusts reach the top income tax bracket much faster than individuals. In 2024, trust income over $15,200 is taxed at 37%, whereas individuals do not hit this rate until much higher income levels. This can result in significantly higher tax bills if IRA distributions are accumulated in a trust rather than paid to beneficiaries.

Lump-sum distributions or failing to comply with the new rules can result in accelerated taxation and potential penalties.

5. Special Provisions and Clarifications

The IRS clarified that if a trust divides into separate subtrusts immediately upon the account owner's death, each subtrust is analyzed separately for RMD purposes.

If trust terms or beneficiaries are modified after the account owner's death (by September 30 of the following year), these changes will affect RMD calculations as if they were always part of the original trust.

Payments made "for the benefit of" a beneficiary (such as to a custodial account for a minor) are treated as direct payments to the beneficiary for RMD purposes.

PRACTICAL CONSIDERATIONS

Most trusts named as IRA or 401(k) beneficiaries will now face the 10-year payout rule, with fewer opportunities for long-term tax deferral.

Under the new rules, trusts must be carefully analyzed and possibly restructured to maximize tax efficiency and achieve estate planning goals.

Simplifying documentation requirements reduces administrative burdens for IRA trusts, but not necessarily for employer plans.

High trust tax rates make accumulation trusts less attractive for holding retirement assets over the long term.

ACTION MAY BE REQUIRED

If your IRA or 401(k) names your trust as a beneficiary, it’s advisable to consult with your estate planning attorney to ensure that, in light of the recent tax regulations, naming the Trust as beneficiary is still prudent.

If you’re unsure whether your trust is considered a see-through trust, consult with your estate planning attorney to determine if the trust must be modified to ensure that the 10-year distribution for beneficiaries remains intact. Otherwise, that 10-year period might be inadvertently shortened to five years, or worse, subject distributions to overly steep trust tax rates.

Whether you have a trust or have named your trust as a beneficiary of your IRA or 401(k), now is a good time to check the beneficiary designations on all of your retirement accounts and insurance policies to ensure they are up to date and reflect all of your recent life changes. If something should happen to you, your loved ones will be most grateful.

Sam H. Fawaz is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other tax or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and their financial plan and investment objectives are different.

1-8. Deleted

9. https://www.voya.com/blog/retirement-account-pros-and-cons-naming-trust-beneficiary

10. https://www.markruizlaw.com/should-your-living-trust-be-the-beneficiary-of-your-ira-or-401-k-pros-and-cons-explained

11. https://www.investopedia.com/ask/answers/09/trust-beneficiaries.asp

12. https://www.drobnylaw.com/articles/designating-a-trust-as-beneficiary-of-individual-retirement-account-benefits

13. https://www.myubiquity.com/resources/can-a-trust-be-a-beneficiary-of-a-401-k-plan

14. https://www.katz-law-firm.com/can-a-trust-be-the-beneficiary-of-an-ira/

15. https://caryestateplanning.com/blog/should-i-have-a-trust-as-my-ira-beneficiary/

What's Going on in the Markets April 6, 2025

Last week was no fun. It was a big downer.

Major indexes were down between 9% (S&P 500 index) and almost 10% (NASDAQ and Russell 2000 indexes) last week as the stock market continues its tariff tantrum. The only market components up last week were United States Treasury instruments and the volatility index (which more than doubled last week). Even gold, which had been on a tear to the upside, succumbed to the selling pressure last week.

Institutions are selling stocks (called distribution) at a pace not seen since the COVID crisis. Even during the bear (downtending) market in 2022, we did not see the kind of selling pressure we saw on Thursday and Friday. That smacks of a genuine concern about the tariff’s effects on corporate earnings. In the age of algos and high-speed traders, markets move faster than ever.

Earlier this year, I wrote that stock valuations were at record highs and that the rubber band was getting stretched thin after two years of 20%+ gains in the S&P 500 index.

When analysts announce that corporate earnings are coming down due to tariffs, institutions sell the stocks to bring down stock market valuations to a fairer value. Legendary investor Warren Buffet was in the news late last year and early this year because of his cash stockpile. He’s probably waiting for an opportunity like we see in today’s deflated markets.

The only thing that stopped the selling on Friday afternoon was the closing bell.

Unfortunately, as I write this on Sunday night, a vacuum of positive news on the tariff front has sellers picking up where they left off at Friday’s close (in the thinly traded overnight futures markets). So Monday morning’s open is already not looking too good.

GIVE ME THE BAD NEWS FIRST

More Country Responses: Friday’s sell-off began pre-market when China announced retaliatory tariffs of 34%, equal to our newly imposed tariffs on China. Other countries have made rumblings about not sitting still and will announce retaliatory tariffs of their own. We haven’t heard from the Eurozone, but I’m betting they’re preparing a backlash of their own.

CEO Optimism at Lows: Because of the lack of clarity on tariffs and their impact on their companies, most CEOs have not figured out what to expect for their companies, employees, and operations. If tariffs are to be absorbed, employees will undoubtedly have to be laid off, and perhaps locations or offices will be closed to maintain decent profit margins. Of course, this can be a precursor to a recession. The coming second-quarter earnings calls will be very telling.

Technical Support Areas May Not Hold: Just because prior institutional support in certain price areas of the markets has held before doesn’t guarantee it will hold up again. Sure, we may bounce at upcoming support points, but how long and to what amplitude? Markets that have declined as they did on Thursday and Friday don’t just turn around on a dime, so further weakness should be expected.

Slowing Growth: The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) fell into contraction territory (< 50%) last month at 49%, while the leading New Orders component dropped to a 22-month low, and the Prices Paid Index leapt seven percentage points, warning of increasing price pressures.

Last week, the ISM Services report indicated slowing growth and increasing prices, with four fewer industries reporting growth than during the previous two months. A continued downward trend would be problematic for the broader economy, as services contribute the majority of GDP.

Job Market Wobbles: Challenger Job Cuts rose 60% in March, a 205% increase from one year ago. This marks the highest level for the series outside of the COVID recession. Cuts in government, technology, and retail jobs lead to these numbers.

Friday’s Monthly Employment Situation Report from the Bureau of Labor Statistics, though better than expected with 228,000 jobs created in March, also showed the unemployment rate ticking up to 4.2% (from 4.1%). Nonfarm payrolls increased more than expected, partly due to workers' return following a strike. A continued increase in the unemployment rate would indicate serious trouble for the U.S. economy.

WHERE’S THE GOOD NEWS?

Potential Dealmaking: Signs that Vietnam and a few other countries want to negotiate lower tariffs are positive and could spark a rally. Suppose the Trump administration becomes overwhelmed with requests for meetings from countries to renegotiate tariffs. In that case, the President may hit the pause button on tariffs to allow enough time for the players to come to the table.

We’re Oversold: Markets are grossly oversold after last week's barrage of selling, and the rubber band is therefore stretched to the downside. We only need one bit of good news to see a 200-400 point rally in the S&P 500 index. Markets this oversold tend to see a violent bounce (some call it a face ripping rally), though I doubt we’ll see another “V” bottom like we saw post-COVID.

Lower Interest Rates: The betting markets have increased the odds of up to four rate cuts this year by the Federal Reserve, up from one or two expected last month. Stock markets love lower rates and tend to rally on this news. In addition, the yield on the 10-year Treasury Bill is back under 4%, which helps lower government interest costs on its massive debt load, not to mention consumers’ debt load.

Nearby Technical Support: The market indexes are approaching long-term areas where institutions have been willing to buy and support them in the past. At a minimum, it should be an area where we see a robust bounce, if not a one —to three-week rally. Seasonally, April is a positive month for the stock market.

Opportunities abound: You’re getting to buy some of the market’s best stocks at price levels we haven’t seen in years. Some stocks have lost 30%-50% of their value over the last few months. It’s better than a sale at Target Stores!

Still Up Almost 30%: Though the S&P 500 is down 17% from February’s all-time high, we’re still about 30% higher than where we traded at the start of the bull market in October 2022. This puts us back to levels where we traded in April 2024, about a year ago, so essentially, we’ve given back the last year of gains (no, it’s never fun, but no one said the stock market was a one-way ticket upward).

Quantitative Studies: When studying past periods when we had such intense selloffs as we saw on Thursday and Friday, markets tended to be higher 1-12 months out almost every time. While the past is not prologue, in this business of typically 50/50 odds, higher probabilities are the best tool to guide you on what’s more likely than not to happen.

Lower Energy Prices: Oil supplies and recession fears are helping to bring down the price of oil and related energy products. Most recessions are associated with oil price spikes, a nail in the coffin of consumer spending after a long good run. Lower oil prices leave more money in consumers’ pockets for other discretionary spending, which tends to stave off recessions.

WHAT TO DO NOW?

As discussed in Where's the "Markets in Turmoil" Special published last Thursday, it’s not about what you know in this market. It’s about how you behave or react to what’s happening.

I can’t pretend to know how exactly you’re feeling, but believe me, I’m carrying the weight of an untold number of families’ retirement life savings on my shoulders, so I understand your worry and pressure about what’s happening to your nest egg. As alluring as it sounds, the temptation to sell here and wait for a better time to invest is much harder to pull off than you think. I still know people who left the markets after the 2007-2009 financial crisis and can’t pull the trigger on stocks more than fifteen years later. If you’re truly worried, call your advisor and talk to her or him about the best way to reduce your overall risk.

Even though it’s OK to nibble a little here and there on stocks, it feels too early to go all in and yet too late to sell. While we finally saw signs of panic on Friday, Monday may bring in the laggard sellers who watched the Sunday news shows or logged on to their 401(k) over the weekend. Plus, we can expect some margin call selling for those unable to cover their leveraged positions on Friday.

People and the media casually use the word “crash” when they refer to markets. When I think of a crash, I still remember where I was and how I felt in October 1987, when the markets crashed 20%+ in one day. Sure, a 10% market decline in one week is dramatic, and it hurts, but is it a crash when we’re still up almost 30% from the last bear market bottom?

We have not seen a single-day market decline of 20% or more since the 1987 crash. Following the 22.6% drop in the Dow Jones Industrial Average (DJIA) on October 19, 1987 (Black Monday), market-wide circuit breakers were introduced to prevent such extreme losses. These rules halt trading if the S&P 500 index drops by 7%, 13%, or 20% in a single day.

Since then, the largest single-day percentage declines occurred during the COVID-19 market crash in March 2020, with the DJIA falling almost 13% and the S&P 500 dropping nearly 12%, both well below the 20% threshold.

BUY, SELL OR HOLD?

Ultimately, your retirement and investment future may be defined by:

A. The patience and discipline you exercise today by holding on and waiting for a better day to sell, or;

B. Your fear of the market going lower causes you to be one of the many architects of a coming market capitulation low that the rest of us enjoy, and you have to chase it at higher prices (if you still have the nerve to rejoin us).

As the trade war unfolds, I expect volatility to continue, but a sharp rally can’t be ruled out if key import taxes are renegotiated and adjusted.

While the tariffs announced on April 2nd were greater than markets had priced in, the effect of these levies has yet to be seen, and it will be essential to monitor the increasing recession warning flags in the coming months.

Finally, many who read my stuff know one of my favorite quotes from Peter Lynch, the renowned investor and former manager of the Fidelity Magellan Fund:

“The secret to making money in stocks is not to get scared out of them.”

Now you too know the secret.

Sam H. Fawaz is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other tax or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and their financial plan and investment objectives are different.

Source: InvesTech Research