Working Professionals – Employer Sponsored Accounts and IRAs

For working professionals, it can be hard to keep up with IRS changes. But don’t overlook the “small stuff.” For 2024, the IRS updated the rules to employer-sponsored plans, HSAs, FSAs, and IRAs. Some seemingly minor tweaks today can mean big changes in your retirement over the long term. From raising contribution limits to expanding eligibility, these updates present opportunities to boost your savings, lower your tax burden, and secure your future. Here is a brief rundown of each type of account.

• Employer-Sponsored Retirement Plans – The contribution limit for employee contributions to 401(k), 403(b), and most 457 plans jumped to $23,000, up from $22,500 in 2023. For those aged 50 and over, the catch-up contribution limit remains at $7,500, effectively allowing them to contribute up to $30,500 per year.
• Health Savings Accounts (HSAs) – If you’re in a high deductible health plan (HDHP) the annual contribution limit for individuals’ HSA accounts increased to $4,150. Contributions for HSAs under a family HDHP is now $8,300. Remember, HSA contributions are tax-deductible and grow tax-free, offering double the savings power for qualified medical expenses. For those aged 55 and over, the catch-up contribution limit remains at $1,000, i.e. no change from the 2023 amount.
• Flexible Spending Accounts (FSAs) – Contribution limits for FSAs, used for pre-tax contributions towards qualified medical and dependent care expenses, have seen a modest increase to $3,200 per year. While not a significant jump, only up $150 from the prior year, it provides slightly more wiggle room for healthcare and childcare costs.
• Individual Retirement Accounts (IRAs) – The general IRA contribution limit has climbed to $7,000 for 2024, a welcome increase for young investors and those just starting out. For individuals aged 50 and over, the catch-up contribution remains at $1,000, allowing for an $8,000 total contribution.  Don’t forget spousal IRAs for non-working spouses.  Contact your us or a financial professional if this situation may apply to you but you aren’t familiar with the rules.

High Net Worth Strategies

High net worth individuals and families face unique challenges and opportunities when it comes to estate planning and wealth transfer. Two effective ways to reduce the potential estate tax liability is to take advantage of the annual gift tax exclusion and the lifetime gift and estate tax exemption. In 2024, there is an ability to do more.

• Annual Gift Tax Exclusion – The annual gift tax exclusion allows any individual to make tax-free gifts of a fixed dollar amount every year to an unlimited number of people, relatives or not. In 2024, the annual gift tax exclusion amount will be $18,000 per recipient. This allows a person to gift up to $18,000 without it counting towards their lifetime gift amount. Here is an example of how it works. If an individual has two children and three grandchildren, the taxpayer will be able to gift $18,000 to each of their five descendants ($90,000 total), without any gift tax consequence. For married couples, each spouse can gift $18,000, so a total of $180,000 total (10 x $18,000) could be gifted to their descendants, without any gift tax consequence. If you couple this strategy with a 529 Plan, you can effectively “superfund” a 529 plan without using any of your lifetime gift allowance.
• Lifetime Gift and Estate Tax Exemption – For 2024, this limit increased to $13.61 million ($27.22 million for a married couple). You can use this limit to reduce or eliminate your gift and estate tax. For example, suppose you give away $1 million more than the $18,000 annual limit. You don’t have to send any money to the IRS, but you use up $1 million of your lifetime limit (and you need to file a gift tax return to effectively “log” this portion of your total exemption). This means you have $12.61 million left to give away or pass on tax-free. Why this is important? Because in two short years (Jan 1, 2026) this exemption amount is scheduled to be reduced to approximately $7 million, which would make many more estates subject to tax. Note that a special rule applies to spouses. A taxpayer can gift an unlimited amount to their spouse while they are alive or when they die without using any of the gift and estate tax exemption amount. Those gifted assets are, however, included in the surviving spouse’s estate at their death.

These are just a few of the changes that took effect in 2024. Back in 2023, we wrote about other strategies that could apply to you in 2024. If you’d like to review that, you can click this link here.

This is a high-level overview only; there may be more tax strategies that are specific to your situation. As always, make sure that you talk to a financial advisor or accountant for specific details and eligibility requirements based on your individual circumstances.