As we approach the April 15th tax filing deadline and put a close to the 2024 tax year, there are a few considerations on our radar as we plan for the year ahead. Of course, some of these items are in flux with the Tax Cuts and Jobs Act set to expire at the end of the year, and while there are predictions about what changes could be made more permanent, it’s too early to tell what the new administration will decide.
As we always say, tax planning is a year-round sport, and there are still plenty of matters to plan around! For each of the ideas we share below, we’ll first discuss the relevant tax information, and then follow with an accompanying table for the relevant limits.
Increased Retirement Contributions for Individuals Between 60-63
If you will be 60-63 years old at the end of the tax year, you will be able to put an additional $3,475 into your 401(k) beyond the normal catch-up for taxpayers who are at least 50 years old. Despite it adding a layer of complexity to individuals’ saving strategies, the goal of this change was to help pre-retirees put a little extra money away towards retirement in what are likely their peak earning years.
The other half of this is that starting next year, if you make over $145,000, you will be required to make any catch-up contributions on an after-tax basis. Currently, all of these additional contributions can be put into your 401(k) pre-tax, so you aren’t taxed on the funds in the current year and instead are taxed when you take the money out in retirement.
Traditionally, this is a good thing for individuals in their highest earning years. You defer the tax now, while your tax rate is higher, and pay tax on the money in retirement when you are in a lower tax bracket. We’re doing some increased planning this year for our clients while we can still make pre-tax contributions (even for those who are not yet old enough to do so as we look to the years ahead) See Table 1, below, for more information.
Had a Job Change? Take Note of These Tax Considerations
Navigating tax season can be particularly challenging if you’re changing jobs. Here are some key considerations to keep in mind:
- W-2 Forms: Ensure you receive your W-2 forms from both your previous and new employers. These documents are crucial for accurately reporting your income. If you have any gaps between jobs, you might be eligible for unemployment benefits, which are taxable and should be reported on your tax return.
- Withholding Allowances: Review your withholding allowances on your W-4 form. A job change can affect your tax situation, so it’s wise to adjust your withholdings to avoid underpayment penalties or a large tax bill. The IRS Withholding Calculator can help determine the right amount.
- Benefits: If your new job offers different benefits, such as health savings accounts (HSAs) or retirement plans, understand how this impacts your taxable income. Contributions to HSAs and 401(k) plans can reduce your taxable income, potentially lowering your tax liability. These are important to think about as there aren’t many other ways for W-2 earners to significantly impact their tax situation without itemizing their deductions.
Charitable Giving and Selling Your Home
While there are many ways to charitably give and receive a tax benefit for doing so, one specific scenario is especially helpful for individuals who are selling their homes. This process can often result in an extraordinarily high tax bill in the year of a home sale, in part due to the additional 3.8% tax on net investment income when you are above certain limits. Thankfully, there are strategies out there that can lessen this burden.
“Bunching” your gifts can be an incredibly effective strategy in the year of sale, in which you make a few years of donations in the current year, allowing you to receive a greater tax benefit for the donations you were already planning to make. This is often paired with a Donor Advised Fund (DAF) because it allows you to receive the tax benefit now but allows you to wait to disburse the money from the DAF to the charities until you see fit.
Another strategy involves gifting from your IRA, known as a qualified charitable distribution (QCD), which can allow you to receive a greater tax benefit. This is because the income is excluded from your tax return, compared to donations to a DAF, where you receive a deduction against your return.
This difference allows individuals who are at least 70.5 years old to receive meaningful benefits throughout the rest of their return. One such example is the 3.8% tax. For some, making a donation from their IRA allows them to reduce the amount of income subject to this tax by the amount of their gift. While you give up the flexibility of the DAF in the timing of the disbursements to charities, you receive a meaningful additional benefit for the gifts that you were already planning on making. See table 2, below, for more information.
Inherited IRA RMDs Start This Year
Starting this year, if you have inherited an IRA that you received from someone who passed away after 2019, you will need to begin taking required minimum distributions (RMDs). This change is crucial to understand as it impacts your taxable income and planning strategies.
Tables
Table 1: 401(k) Limits Including Additional Catch-Up
| Category | Limit |
| 401(k), 403(b), and 457 deferral limits | $23,500 |
| Catch-up contribution (based on your age at the end of the year) | |
| Aged 50-59 | $7,500 |
| Aged 60-63 | $11,250 |
| Aged 64+ | $7,500 |
Table 2: 3.8% Medicare Surtax Thresholds on Net Investment Income
| Filing Status | Threshold |
| Single or head of household | $200,000 |
| Married filing jointly | $250,000 |
| Married, filing separately | $125,000 |
| Estates & trusts | $14,450 |