The IRS has released the 2024 inflation adjustments for benefits and contributions under qualified retirement plans (Notice 2023-75) and many other important tax provisions (Rev. Procedure 2023-34). The adjustments were more modest than last year but still included significant increases in the amount taxpayers can contribute to retirement accounts and pass to heirs tax-free.
Tax laws require the IRS to adjust the dollar amounts of dozens of tax provisions each year to account for inflation. The tax brackets were generally adjusted by a rate slightly more than 5% (in $50 increments), representing a smaller increase in rates than last year. The adjustment reflects a decline in inflation during 2023 (inflation cooled down to 3.2% year-over-year in the October measurement of prices, although it started out higher at the beginning of the year).
Key adjustments for retirement savings provisions include:
- 401(k) Plans: The limit for contributing to Section 401(k) plans and other retirement accounts will increase $500 to $23,000. The limit for catch-up contributions for individuals 50 and older remains at $7,500.
- Defined contribution plans: The limit for total employee and employer contributions to defined contribution plans will be up $3,000 to $69,000.
- Defined benefit plans: The limit on annual benefits from a defined benefit plan will increase $10,000 to $275,000.
- Compensation limits: The annual compensation limit for certain tax-favored retirement plans will increase $15,000 to $345,000.
- Individual Retirement Accounts (IRAs): The limit on deductible IRA contributions will increase $500 to $7,000, while the catch-up contributions are not subject to cost-of-living increases and remain unchanged at $1,000. The adjusted gross income (AGI) phase-out range for deductibility of IRA contributions for individuals who participate in an employer retirement plan will be increased to between $77,000 and $87,000 for singles (up from between $73,000 and $83,000 in 2023) and to between $123,000 and $143,000 for joint filers (up from between $116,000 and $136,000 in 2023). The AGI phase-out range for contributions to a Roth IRA will be increased to between $146,000 and $161,000 for singles (up from between $138,000 and $153,000 in 2023) and to between $230,000 and $240,000 for joint filers (up from between $218,000 and $228,000 in 2023).
The IRS adjusted several important thresholds for transfer tax planning, including:
- Unified lifetime estate and gift tax exemption: $12.92 million (up $900,000)
- Annual exclusion for gifts: $18,000 (up $1,000)
- Exemption for a child to whom the “kiddie tax” applies: $1,300 (up $50)
Important adjustments for individuals include:
- The alternative minimum tax exemption:
- $133,300 for joint filers or surviving spouse filers (up $6,800)
- $85,700 for unmarried individual filers, other than surviving spouses (up $4,400)
- $66,650 for married filing separate filers (up $3,400)
- $29,900 for estate and trust filers (up $1,500)
- The standard deduction:
- $29,200 for joint filers (up $1,500)
- $21,900 for heads of household (up $1,100)
- $14,600 for single and married filing separate filers (up $750)
- Health flexible spending account annual cap: $3,200 (up $150)
The IRS also made several adjustments related to penalties:
- Minimum failure-to-file tax return penalty:
- $510 (up $25) for failures under Section 6651(a)
- $245 (up $10) for partnership return
- $245 (up $10) for an S corporation return
- Per-return penalties for failing to file a correct information return or payee statement:
- $60 (up $10) for a corrected return filed within 30 days
- $120 (up $10) for a corrected return filed by Aug. 1
- $310 (up $20) for full failure
- $630 (up $50) for intentional disregard
- Maximum penalties for failing to file correct information returns or payee statements:
- More than $5 million in gross receipts
- $664,500 (up $34,000) for correct returns filed within 30 days
- $1,993,500 (up $102,000) for correct returns filed by Aug. 1
- $3,987,000 (up $204,000) for full failures
- $5 million or less in gross receipts
- $232,500 (up $12,000) for correct returns filed within 30 days
- $664,500 (up $14,000) for correct returns filed by Aug. 1
- $1,329,000 (up $68,000) for full failures
- More than $5 million in gross receipts
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