Key Financial Updates Coming in 2024
As the new year has arrived, we wanted to give our clients a preview of financial adjustments and rule updates for 2024. Here are some of the highlights:
Social Security benefits are receiving a 3.2% cost of living adjustment for 2024. This is much lower than the 9.1% adjustment for 2023, reflecting a slowdown in the growth of inflation.
Several Federal tax adjustments will be going into effect as well including an increase in the tax brackets to account for inflation. The Federal standard deduction will increase by $750 for single filers and $1,500 for joint filers. The means the new Federal standard deductions will be $14,600 for single filers and $29,200 for joint filers. The maximum child tax credit will remain $2,000 per qualifying child while the refundable portion of the credit will increase from $1,600 to $1,700. The annual gift tax exclusion amount will increase from $17,000 to $18,000 per person. It is estimated that the lifetime estate and gift tax exclusion amount will increase from $12,920,000 to $13,610,000 per person.
Participants in retirement plans will be able to contribute more to their accounts next year. Individuals will be able to contribute $23,000 to 401(k) plans, up $500 from 2023. The “catch up” contribution cap for people 50 and older will remain $7,500. Under the Secure Act 2.0 passed last December, 401(k) catchup contributions for savers earning over $145,000 would have had to make them as after-tax Roth contributions starting in 2024. However, the IRS delayed this provision for two years after employers and plan administrators asked for more time to prepare. The contribution limit for IRAs will also increase by $500, up to $7,000 while the catch-up limit will remain at $1,000.
For the first time since being introduced in 2006, Qualified Charitable Distributions (QCD) will begin indexing for inflation next year. The limit has been $100,000 per year and will grow to $105,000 in 2024. A QCD is a tax-free IRA distribution to a qualifying charity for owners and beneficiaries aged 70 ½ or older. The QCD can also satisfy all or part of the IRA holder’s required minimum distribution for the year.
Another provision from the Secure Act 2.0 expands uses for 529 college savings accounts. Starting in 2024, up to a lifetime limit of $35,000 in 529 assets can be converted to a Roth IRA for the beneficiary of the 529 account. This will help mitigate some of the risk of over funding a 529 plan and ending up with unused funds that could be subject to taxes and penalties if withdrawn for non-education purposes. There are several criteria that need to be met to qualify for the conversion. So, please reach out to us for more details.
As always, please contact your CPC advisor with any questions. Happy New Year!
