Seasons Greetings! As we quickly move into preparing for the Holiday season, we wanted to be sure to remind you of a few year-end deadlines for 2023, as well as prepare you for planning updates in 2024.
Let’s Start with Some 2023 End of Year Items:
Requests and processing times increase as we approach December, and we encourage you to contact us with your action items as soon as possible.
- RMDs – Individuals with traditional or inherited IRAs must take their required minimum distributions before December 31st. If this applies to you, our service team will be contacting you by email or phone to take your required amount with the instructions that are currently on file. If you’d like to make changes to how you take your withdrawal, be sure to contact us right away, as additional paperwork may need to be completed and filed with Schwab before the distribution can be sent.
- All employee contributions to retirement plans must be made before year end. This includes 401ks, 403bs, 457 and SIMPLE plans. Traditional and Roth IRA contributions are not due until you file taxes.
Schwab Charitable and Giving Deadlines.
- Charitable organizations need extra time to process due to the higher volumes of requests. So don’t wait until the last minute, especially if you’re contributing appreciated securities, which take longer to process than cash. All grant requests should be received by Giving Tuesday, November 28th.
- If you own a Donor Advised Fund and would like to contribute assets held in your Schwab investment account; the form must be received by December 20th. Donations by check to your donor advised fund must be postmarked by December 31st. Contributions of mutual funds and stocks held at firms other than Schwab can take two to six weeks to process. We suggest that you request your transfer by November 25th, and assets must be received by December 29th.
Gifts and 529 Contributions
- The gift tax exclusion for 2023 is $17,000 per recipient.
- Donations to a child, relative or friend’s 529 account count as a gift for tax purposes, and they are currently limited to $17,000 a year, per person, to avoid paying a gift tax or having the gift count against your lifetime gift exemption. If you want to maximize the amount you are giving to a 529 each year, the cutoff is December 31st.
Looking Ahead to 2024
Last week the IRS announced the tax year 2024 annual inflation adjustments for many of its provisions, including the contribution limits for retirement accounts, updates to estate planning considerations, tax rate schedules, and other tax changes.
- 401k, 403(b), 457 limit increase. In 2023, employees can contribute up to $23,000 into their 401ks. For employees age 50 or older, the catch up provision increased to $7,500, allowing for a $30,500 contribution to their 401k in 2024. Do remember, employee 401k contributions must be made in the 2023 calendar year.
- IRA and Roth limit increase. For a Roth or Traditional IRA, the maximum contribution amount in 2024 will jump from to $7,000. For those 50 or older, $8,000 may be contributed. These contributions are able to be made from the beginning of the year until you file taxes the following year.
- SEP IRA limit increase. Contributions an employer can make to an employee’s SEP-IRA cannot exceed the lesser of 25% of the employee’s compensation or $69,000 for 2023. These contributions are able to be made from the beginning of the year until you file taxes the following year.
- SIMPLE limit increase. The amount individuals can contribute to their SIMPLE accounts increases to $16,000. The catch-up contribution limit for SIMPLE account will remain at $3,500. You must deposit your salary reduction contributions within 30 days after the end of the tax year. For most people, this means salary reduction contributions for a year must be made by January 30 of the following year. Employer contributions must be made before the tax deadline.
Income Ranges for Deduction Eligibility Increased
- The income ranges for determining eligibility to make deductible contributions to traditional individual retirement arrangements (IRAs), to contribute to Roth IRAs, and to claim the saver’s credit all increased for 2024. Details on these and other retirement-related cost-of-living adjustments for 2024 are in Notice 2023-75.
Estate & Gifting Exclusions
- Federal estate tax exemption increase. Individuals will be able to transfer up to $13,610,000 tax-free to their descendants, up from $12,920,000 in 2023. A married couple can pass double that.
- The Washington state estate tax exemption will remain the same in 2024 ($2,193,000).
- Annual gift tax exclusion increase. In 2024, individuals can gift up to $18,000. For a married couple, this doubles to $36,000 per individual gifted.
- It is imperative to also note that the federal legislation is set to expire, or “sunset,” for these higher gift and estate tax exemption amounts on January 1, 2026. Unless Congress acts before this date, the exemptions will revert to where they were in 2017. With inflation adjustments, this will be approximately $7 million for individuals and $14 million for married couples. We are advising clients to work with their estate planning professionals early to see what thoughtful planning can be done if the provisions sunset.
- Qualified Charitable Distribution (QCD) increase. IRA holders who are 70 ½ or older and are charitably inclined will be able to send $105,000 to a charity, counting towards their required minimum distribution (RMD) for 2024.
In summary, this is a great time to tie up end of year items and begin planning for the year ahead to ensure you and your family have a game plan to accomplish your goals. How do these changes impact your savings for 2024? Are there any changes you should be making to your financial plan? Please consider us a trusted resource for you, family, and friends when these or other planning questions come up. We welcome any conversations or questions this may spark as you consider this in context of your financial picture.
With Rooted Optimism,
Disclosure: The content of this article is provided for general information purposes only. The information was compiled from sources that we believe to be reliable, however, we cannot guarantee accuracy. Tschetter Group does not provide tax or legal advice. Please consult your legal or tax professional for specific information.