2024 Tax Numbers Are Out…and Ripe for Picking
Last week the IRS announced inflation adjustments to more than 60 tax provisions for 2024. Although “inflation adjustments” may not sound like that big of a deal, it may have some low hanging fruit you don’t want to miss picking.
We are in an ideal time to plan for your future. Short-term interest rates are favorable and inflation has expanded caps and limits to contributions and gifting amounts, and the 2018 Tax Cuts and Jobs Act is still in play for the most part through 2025… which most likely means lower taxes for your family and larger gifting limits.
The key thing to note in all of that is the year 2025. Tax cuts will start disappearing, which means your opportunity to take advantage of this perfect harvest will go away. In other words, you may only have a single year to enjoy a good, low hanging harvest.
If you haven’t started planning yet, well… you may have some work to do.
Keeping in line with our analogy – you need to plan your garden, get your soil ready, purchase your tools; then seed, plant, fertilize, water, weed, get rid of unwanted pests, water some more, watch your crops grow, and then finally harvest.
Let’s take a look at some of these newly released numbers to give you some ideas on what that garden needs to entail.
First… estate tax
- Current lifetime gift and estate exemption amount: $12.92 million
- 2024 amount: $13.61 million
- 2026 currently set amount after tax reform ends: $6.81 million (barring no further adjustment for inflation)
What does that mean for you? The amount you can pass to your children without tax (approximately 40% in 2026) drops in half! If you plan ahead, there are pest control measures to hedge this risk… but if you don’t, well…
Next…gift tax
- Current annual exclusion amount: $17,000 per person
- 2024 amount: $18, 000 per person
What does that mean for you? Fertilizer! If this tool is used correctly, it may help you supercharge your plan to avoid your heirs paying that nasty 40% tax rate plus the risk of another nasty 40% generation skipping tax that could be caused by you gifting dollars to your grandkids. A thousand dollars doesn’t seem like a lot, but this is the exemption amount for each person to use to give to each person. For example, a couple with 10 grandchildren could effectively give $360,000 by using this exclusion.
Last, but certainly not least…retirement
- 401(k) contribution limits increased $1,000 to $31,000 if you are over age 50
- Simple plan contribution limits increased $500 to $19,500 if you are over age 50
- IRA and Roth IRA contribution limits increased $500 to $8,000 if you are over age 50
What does that mean for you? It depends. With the Secure Act 2.0 broadening the opportunity to contribute to a Roth 401(k), Roth Simple IRA, etc., you may be able to create tax-free dollars for your future… or you may be able to capture a larger tax deduction if needed this year. The important thing to note here though, is that you have created a long-term plan to follow in order to really maximize your benefits.
There is certainly low hanging fruit ripe for the picking, but it is disappearing quickly. A garden can’t be started and harvested in the same day—neither can a fruitful Life Plan!
Have questions? Ready to get started? We’re here to help.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.