As we approach the new year, I want to provide you with some essential financial planning information for 2024, particularly tailored for those in or nearing retirement due to the nature of my practice.
First, several provisions of the SECURE 2.0 retirement savings legislation (about which I’ve written previously) are scheduled to come into effect in 2024. Notably, these include:
- The additional $1,000 “catch-up” contribution that individuals aged 50 and above can make to an IRA (Individual Retirement Account) will be adjusted for inflation in the future, though the amount remains $1,000 for 2024.
- Roth retirement plan account owners will no longer be subject to annual required minimum distributions (RMDs), aligning with Roth IRA account owners.
- Surviving spouses will have additional flexibility in determining RMDs from their inherited retirement account assets. Specifically, if a surviving spouse is the sole designated beneficiary, she/he can elect to be treated as the original account owner/decedent for RMD purposes. Accordingly, if the original account owner died before being required to take RMDs, the surviving spouse can delay the start of RMDs (which are generally taxed as ordinary income) until the decedent would have reached the appropriate RMD age. This can be beneficial when the original account owner was younger than the surviving spouse.
- Starting next year, there will be no 10% early distribution penalty on withdrawals of up to $1,000 from retirement accounts for unforeseeable emergency expenses, though these withdrawals remain subject to ordinary income tax. Taxpayers have three years to repay the early withdrawal but cannot make additional emergency withdrawals during this period until repayment is complete.
- The annual limit for qualified charitable distributions (QCDs) from IRAs will be indexed for inflation. In 2024, the QCD threshold per IRA owner increases to $105,000 from $100,000.
- If you have leftover savings in a 529 higher education savings plan (officially known as a “qualified tuition program”), you can now roll over these assets tax-free to a Roth IRA in the name of the 529 plan beneficiary. However, there are important stipulations: a $35,000 maximum contribution cap, rollover amounts not exceeding the annual contribution limit for Roth IRAs, and the 529 plan account must have been open for more than 15 years.
And here are some additional figures to note:
- Social Security and Medicare:
- Social Security recipients will receive a 3.2% increase in their benefits for 2024.
- The basic Medicare Part B monthly premium rises to $174.40. Higher-income individuals, starting at $103,000 for single filers and $206,000 for joint filers, are subject to higher premiums, known as “IRMAA” (Income Related Monthly Adjustment Amounts). Medicare Part D, the prescription drug benefit, is also subject to IRMAA thresholds. The Centers for Medicare & Medicaid Services (CMS) indicates that the average total monthly premium for Medicare Part D plans will be $55.50 in 2024.
- Social Security recipients will receive a 3.2% increase in their benefits for 2024.
- Marginal Federal Tax Rates for 2024:
- The top tax rate remains 37% for individual single taxpayers with taxable incomes greater than $609,350 ($731,200 for married couples filing jointly).
- Other rates include:
- 35% for incomes over $243,725 ($487,450 for married couples filing jointly);
- 32% for incomes over $191.950 (383,900 for married couples filing jointly);
- 24% for incomes over $100,525 ($201,050 for married couples filing jointly);
- 22% for incomes over $47,150 ($94,300 for married couples filing jointly);
- 22% for incomes over $11,600 ($23,200 for married couples filing jointly);
- 10% for incomes of $11,600 or less ($23,200 or less for married couples filing jointly).
- Standard Deduction:
- For tax year 2024, the standard deduction for married couples filing jointly increases to $29,200, up $1,500 from the prior year.
- For single taxpayers and married individuals filing separately, the standard deduction increases to $14,600 for 2024, up $750.
- Heads of households will see a jump to $21,900, an increase of $1,100.
- Taxpayers 65 and older and those who are blind can claim an additional standard deduction. The additional standard deduction amount for 2024 is $1,550 ($1,950 if unmarried and not a surviving spouse).
- Alternative Minimum Tax (AMT):
- The AMT exemption amount for tax year 2024 for single filers is $85,700 and begins to phase out at $609,350 ($133,500 for married couples filing jointly, with the exemption beginning to phase out at $1,218,700).
- The AMT exemption amount for tax year 2024 for single filers is $85,700 and begins to phase out at $609,350 ($133,500 for married couples filing jointly, with the exemption beginning to phase out at $1,218,700).
- Investment and Retirement:
- Long-term capital gains and qualified dividends continue to be taxed at rates of 0%, 15%, or 20%, depending on overall taxable income. These figures do not include the 3.8% Medicare surtax on so-called net investment income for singles earning more than $200,000 and couples earning more than $250,000, as mandated under the Affordable Care Act.
- Maximum IRA contributions increase to $7,000 (up from $6,500 in 2023) for those younger than 50 and $8,000 (up from $7,500) for those age 50 and up.
- Eligibility income ceilings for Roth IRA contributions increase, with contributions phasing out at adjustable gross income thresholds of $230,000 (up from $218,000) to $240,000 (up from $228,000) for married couples filing jointly and $146,000 (up from 138,000) to $161,000 (up front $153,000) for single filers.
- The annual contribution limit for employees participating in 401(k), 403(b), and most 457 plans increase to $23,000 (from $22,500) for those younger than 50 and $30,500 (from $30,000) for those age 50 and up. For those with more than 15 years of service, 403(b) plans afford an additional catch up of $3,000.
- Contribution limits on profit-sharing plans and SEP-IRAs increase to $69,000 (from $66,000). For those age 50 and above, the limit increases to $76,500 (from $73,500), but only for those who use profit-sharing plans (SEP-IRAs do not permit so-called “catch-up” contributions).
- Long-term capital gains and qualified dividends continue to be taxed at rates of 0%, 15%, or 20%, depending on overall taxable income. These figures do not include the 3.8% Medicare surtax on so-called net investment income for singles earning more than $200,000 and couples earning more than $250,000, as mandated under the Affordable Care Act.
- Health Savings Account (HSA):
- HSA contribution thresholds increase to $4,150 for individuals and $8,300 for families. Those aged 55 (note, not 50) and older are eligible to make an additional $1,000 catch-up contribution (which is not adjusted for inflation).
- HSA contribution thresholds increase to $4,150 for individuals and $8,300 for families. Those aged 55 (note, not 50) and older are eligible to make an additional $1,000 catch-up contribution (which is not adjusted for inflation).
- Annual Gift Tax Exclusion:
- The annual tax gift exclusion, representing the amount one can give to another person without it counting against the lifetime exclusion, increases to $18,000 (from $17,000).
- Estate and Gift Tax:
- The federal estate, lifetime gift, and generation-skipping tax exclusions, which remain uniform and indexed annually to inflation, increase to $13,610,000 per person ($27,220,000 per married couple). After 2025, unless Congress acts, the exclusion amount is scheduled to revert to $5 million (indexed for inflation). The top tax rate remains 40%.
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As always, if I can be of any assistance, please let me know. Wishing you and your loved ones an enjoyable holiday season, and all the best for the upcoming new year.
Sources: IRS.gov, Kiplinger’s Tax Letter
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