Managing your finances in a tax-efficient manner requires both foresight and planning. With the IRS's recent announcement of new income tax brackets, standard deduction amounts, and retirement contribution limits for the 2024 tax year, the start of the year is an ideal time to strategize. Even though these tax changes won't be due immediately, early planning is beneficial and can provide significant advantages.
Significant updates have been made to over 60 provisions. To help you navigate these changes, here are some of the most critical updates to tax brackets and retirement contribution limits.
Tax Bracket Inflation Adjustment
Overall, tax brackets have been adjusted upwards by 5.4% for 2024. The primary purpose of this adjustment is to account for inflation, which is based on the Consumer Price Index. The government’s goal is to keep income taxes in sync with consumer buying power.
Standard Deduction
For the 2024 tax year, the standard deduction has risen to $29,200 for married couples filing jointly, marking an increase of $1,500 from the previous year. Single filers will see their standard deduction increase by $750, bringing it to $14,600.
Individual Retirement Accounts (IRAs)
In 2024, the contribution limits for Individual Retirement Accounts (IRAs) have increased by $500, raising the maximum contribution to $7,000.
For individuals over the age of 50, the catch-up contribution limit remains unchanged at $1,000. This means those over 50 can contribute up to a total of $8,000.
Roth IRAs
For Roth IRA contributions in 2024, the income phase-out range has been adjusted.
For single filers and heads of household, the range is now $146,000 to $161,000, reflecting an $8,000 increase. Married couples filing jointly will have a phase-out range from $230,000 to $240,000, up by $12,000. However, for married individuals filing separately, the phase-out range remains unchanged at $0 to $10,000.
Workplace Retirement Accounts
Participants in workplace retirement accounts such as 401(k), 403(b), and 457 plans will experience a contribution limit increase of $500 in 2024. This adjustment raises the maximum contribution amount to $23,000.
Additionally, for individuals aged 50 and older, the catch-up contribution limit continues to be $7,500, allowing them a total contribution potential of $30,500.
Gift Tax
For 2024, the annual gift tax exclusion has been raised to $18,000, up by $1,000 from the previous year.
It's important to keep in mind that this exclusion is per recipient, so if you want to give gifts to multiple individuals, you can do so up to the $18,000 limit for each person without having to pay any gift tax on those transactions.
Please note that these updates are provided for informational purposes only. Before making any decisions based on the new 2024 tax levels, we strongly recommend consulting with a tax professional.
Do you need help tax planning in 2024?
Are you comfortable with your progress towards retirement? Do you have a tax strategy in place?
If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.