Notable 2024 Tax Law Changes

Each year brings adjustments to the US tax code, and this year is no exception. Some specific changes which could be helpful to you are as follows:

• Leftover funds in a 529 education account can now be rolled over into a Roth IRA. This reduces the concern about over-contributing to a child’s or grandchild’s 529 account, as funds the student does not use towards qualifying education expenses over the course of their school, college, and post-graduate careers can fund a Roth IRA for that beneficiary. There are parameters: the 529 must have been open for more than 15 years; annual rollover amounts are restricted to the annual Roth IRA contribution limits ($7,000 this year for those under 50); there is a lifetime cap of $35,000. The option still exists to transfer unused funds to another beneficiary – a younger sibling, for example – but now there is also a Roth IRA option.
• For IRA owners subject to Required Minimum Distributions (RMD’s), the amount which can be donated directly to a charity from an IRA increases this year to $105,000. (In fact, this option is open to all IRA holders aged 70½ or greater even though the RMD age is now higher.) Such a direct donation avoids paying tax on the IRA distribution, which can cause other tax headaches resulting from increased Adjusted Gross Income. This Qualified Charitable Distribution (QCD) amount is now indexed annually to inflation.
• The standard deduction is higher: $29,200 for married couples (plus $1,550 for each spouse age 65 or older); $14,600 for singles ($16,550 if 65 or up). This continues to incentivize making charitable donations in chunks: lumping larger gifts into one year and itemizing deductions, taking the standard deduction in other years. Using a Donor Advised Fund is one tool to help accomplish this. We’d be happy to describe it to you in greater detail if you’re interested.
• Marginal income tax brackets are wider this year, thanks to higher levels of inflation last year. While the tax rates remain unchanged, this means that more of your income is taxed at the lower marginal rates; only amounts above the now-higher tax bracket thresholds are subject to increasingly higher tax rates.
• Capital gains tax rates also do not change, but the amount of overall income which qualifies you for the 0% (yes) or 15% rates on capital gains and qualified dividends increases, thanks again to widening tax brackets.
• If you wish to gift money to a child or grandchild (or anyone else), the amount you can give tax-free in 2024 has increased to $18,000 per recipient. (Couples can aggregate their amounts to donate up to $36,000 per recipient gift tax-free.) This annual gift tax exclusion allows you to gift without filing a gift tax return or using up your lifetime gift/estate tax exemption.
• Amounts which can be deferred to retirement plans increase for 2024. Higher contribution levels apply to 401(k), 403(b)’s, IRA’s, and Roth IRA’s, for example, including additional catch-up amounts for those age 50 or older. Income phaseouts limiting who can contribute to IRA’s also rise, increasing access.

This is not a comprehensive list of changes for 2024, but rather a tool to highlight some planning opportunities for you for the year ahead. As always, feel free to contact us to discuss how we might help you benefit from any of these new provisions.