Tax, Retirement, and Social Security Changes for 2024

ARTICLE | December 19, 2023

As we move closer to the end of 2023, it’s crucial to stay informed about the adjustments affecting taxes, retirement contributions, and Social Security benefits for the upcoming year. These changes, influenced by inflation and cost-of-living considerations, have recently been announced by the IRS and Social Security Administration (SSA).

Here’s a breakdown of what you need to know to plan effectively.

Tax provisions

For the 2024 tax year, the IRS has announced inflation adjustments impacting more than 60 tax provisions. This section will highlight several key changes, focusing on those most likely to affect a broad spectrum of taxpayers.

Standard deduction increases

One of the most notable changes is the increase in standard deductions, which differ based on filing status:

• Married couples filing jointly: the standard deduction increases to $29,200, up by $1,500 from 2023.

• Single taxpayers and married filing separately: the standard deduction increases to $14,600, up by $750 from 2023.

• Heads of households: the standard deduction increases to $21,900, up by $1,100 from 2023.

Earned Income Tax Credit (EITC)

The IRS has boosted the EITC to $7,830 for taxpayers with three or more qualifying children, up from $7,430. EITC eligibility depends on income levels and the number of qualifying children. It gradually decreases as income rises, eventually phasing out completely for taxpayers at higher income levels.

Healthcare coverage adjustments

Medical Savings Accounts (MSAs) are older tax-advantaged savings accounts generally limited to self-employed individuals and small businesses. Like Health Savings Accounts (HSAs), they must be paired with a high deductible health plan (HDHP), but they have different eligibility criteria and contribution limits.

MSAs allow taxpayers to save for qualified medical expenses that the HDHP does not cover, including the deductible. However, insurance plans must meet a minimum deductible threshold to qualify as an HDHP. There are also out-of-pocket maximums for these types of plans.

For Medical Savings Accounts in 2024:

• Self-only coverage: the minimum annual deductible is $2,800 (up by $150), and the maximum out-of-pocket expense is $5,550 (up by $250).

• Family coverage: the deductible range is $5,550 (up by $200) to $8,350 (up by $450), with an out-of-pocket limit of $10,200 (up by $550).

HSAs share many similarities with MSAs; however, they are more widely available than MSAs and have different contribution limits and rules.

For Health Savings Accounts in 2024:

• Self-only coverage: the minimum annual deductible is $1,600, and the maximum out-of-pocket expense is $8,050.

• Family coverage: the minimum annual deductible is $3,200, and the maximum out-of-pocket expense is $16,100.

Estates and gift exclusions

The estate exclusion, also referred to as the estate tax exemption, is the amount that can be passed on to heirs tax-free upon a person’s death. It is a threshold below which the estate does not owe federal estate tax. For 2024, the exclusion amount for estates of decedents is set at $13,610,000, up from $12,920,000 in 2023.

The annual gift exclusion refers to the amount an individual can give to another person in a single year without incurring federal gift tax or reducing their lifetime estate exclusion. For 2024, the annual exclusion for gifts has been raised to $18,000, up by $1,000 from 2023.

Retirement contribution limits and phase-out ranges

2024 brings encouraging news for those saving for retirement. The IRS has announced an increase in the contribution limit for 401(k) plans to $23,000, up from $22,500 in 2023. This adjustment is also available to participants in 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. However, it’s important to note that the catch-up contribution limits for these plans remain the same at $7,500.

The limit for annual contributions to traditional and Roth IRAs will also be raised to $7,000, a $500 increase from this year. The $7,000 limit is a combined maximum for contributions to both types of IRAs. For those aged 50 and older, there is an additional catchup contribution allowance of $1,000, allowing for a cumulative total of $8,000 in 2024.

Adjusted income phase-out ranges

The IRS has also recalibrated the income phase-out ranges for contributions to traditional and Roth IRAs, as well as the income limits for claiming the Saver’s Credit.

Traditional IRA phase-out ranges for 2024

• Single taxpayers with workplace retirement plans: the phase-out range for singles covered by a workplace retirement plan starts at $77,000 and ends at $87,000.

• Married filing jointly with a covered spouse: for married couples filing jointly where the contributing spouse is covered by a workplace plan, the phase-out range will be $123,000 to $143,000.

• Married with non-covered contributor and covered spouse: if the contributor is not covered by a workplace plan, but their spouse is, the phase-out range is adjusted to $230,000-$240,000.

Roth IRA Phase-Out Ranges for 2024

• Singles and heads of household: the phase-out range begins at $146,000 and ends at $161,000.

• Married filing jointly: the phase-out range for married couples filing jointly begins at $230,000 and ends at $240,000.

The Saver’s Credit is a valuable tax credit designed to encourage low and moderate-income individuals to contribute to their retirement accounts. The credit can be claimed for contributions to a 401(k), 403(b), 457 plan, Simple IRA, or SEP IRA as long as taxpayers fall within a specified income range. For 2024, the IRS has adjusted the income limits upward, expanding the availability of this credit to a broader range of taxpayers.

• Married couples filing jointly: the income limit for claiming the Saver’s Credit has been increased to $76,500.

• Heads of household: the limit is now $57,375.

• Singles and married filing separately: the income limit has been raised to $38,250.

With these increased contribution and phase-out limits, it may be wise to adjust your budget to allocate more toward your retirement savings. Even small increments can compound significantly over time.

Social Security cost-of-living increase

Social Security beneficiaries are also set to see a slight uplift in their benefits. A 3.2% cost-of-living adjustment (COLA) has been announced for 2024 to reflect current economic trends.

The increase translates to an average boost of $50 or more in monthly payments for more than 66 million Social Security recipients. The precise impact of this increase varies among different groups of recipients. For instance, retirees will see an average monthly increase of $58.

These financial adjustments for 2024 reflect the government’s response to ongoing economic changes, and taxpayers should consider these updates in their financial planning strategies. It’s advisable to consult with an expert advisor to understand the full impact of these changes on your individual situation. To ensure you’re optimizing tax-saving opportunities, please contact our office for more information.