Or you can call us at (800) 548-8138.
Dear Trust Officer:
What’s happening with the federal estate and gift tax? —TAX TARGET
DEAR TAX TARGET:
The amounts exempt from federal estate and gift taxes goes up again next year, to account for inflation. The gift tax annual exclusion rises from $18,000 to $19,000. This is that amount that may be given to any one person without the need to file a federal gift tax return. There is no limit to the number of annual exclusion gifts that may be made in a year, but the exclusion expires every year. Use it or lose it.
The amount exempt from federal estate tax will be $13.99 million for those who die in 2025. Married couples each have an exempt amount, so together they can shelter $27.98 million from federal estate tax if they both die next year. The exemption may also be used for transfers by gift that exceed the annual exclusion amount.
That exemption amount will excuse the vast majority of 2025 estates from worrying about the federal estate tax. Two important caveats apply, however. Those states that still have death taxes (the term includes estate taxes and inheritance taxes; some states have both) typically impose them at much lower wealth levels. Second, under current law the amount exempt from federal estate tax is schedule to fall roughly in half in 2026.
It’s much too soon to stop worrying about death taxes.
Article ©2024 M.A. Co. All rights reserved. Used with permission.
For those who failed to save for their retirement early in their careers, the tax code has long permitted age-based “catch-up” contributions to IRAs and 401(k). The SECURE Act 2.0 established an even bigger 401(k) catch-up for those who are 60, 61, 62, and 63, a bonus contribution of $3,750. The change takes effect in 2025.
The table below shows the age-based 401(k) contribution limits for 2025 after inflation is taken into account.
2025 401(k) contribution limits
|
Age at year-end |
2024 limit |
2025 limit |
Increase |
|
Under 50 |
$23,000 |
$23,500 |
$500 |
|
50 – 59 |
$30,500 |
$31,000 |
$500 |
|
60 – 63 |
$30,500 |
$34,750 |
$4,250 |
|
64 and older |
$30,500 |
$31,000 |
$500 |
Source: IR 2024-285
The supersized limit does not apply to IRAs. The 2025 limit for deductible IRA contributions will be $7,000, with a catch-up allowance of $1,000 for taxpayers 50 and older. The IRA catch-up will be indexed for inflation in the future.
Although the added incentive to boost savings just before retirement begins is welcome, it’s not something to rely upon. Putting more money into a 401(k) plan early in one’s career, starting in one’s 30s or ever 40s, will do far more for retirement security than larger contributions late in the earning years. Earlier contributions have the benefit of many more years of compounding growth.
Article ©2024 M.A. Co. All rights reserved. Used with permission.
The Social Security Administration has announced an 2.5% benefit increase for 2025, based upon inflation for the twelve months ending September 30, 2024. As inflation has subsided, so has the rate of benefit increases—the COLA was 3.2% for 2024. For the average retiree, the increase will come to about $50 per month.
With the increase in average wages comes an increase in the wage base for those who are still working. It goes from $168,600 in 2024 to $176,100 in 2025.
Roughly 68 million Social Security beneficiaries will receive the increased benefit. The Social Security Administration did not project the total value of the COLA expense for 2025. A rough calculation would be $40.8 billion (68 million recipients x $50/month x 12 months). The increased expense will be offset by the additional 15.3% in Social Security taxes (employee plus employer share) on the $7,500 increase in the wage base (that comes to $1,147.50 in tax revenue per affected taxpayer).
Everyone has the right to claim a reduced retirement benefit at age 62, while the date for claiming full benefits varies with the year of birth. Full retirement age was originally age 65, but has been slowly raised over the years. The table below shows how the higher ages are phased in.
|
Birth Year |
Full Retirement age |
|
1943 – 1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 |
67 |
Source: Social Security Administration
Social Security benefits are intended for those who are retired. Those who keep working after beginning their benefits face the possibility of benefit reductions. One dollar of benefits will be withheld for every $2 of earned income above $1,950 per month ($23,400 per year). Note that this penalty only applies to earned income; dividends, interest income, and capital gains are not taken into account. A much higher limit applies in the year in which the retiree achieves full retirement age. In the case the exemption comes to $62,160 for the year, and one dollar of benefit is withheld for every $3 over the limit.
Those who have a “my Social Security account” with the Social Security Administration may view their specific COLA increase online. Otherwise, everyone will receive a notice by mail of the projected change to their Social Security benefits for 2025.
Article ©2024 M.A. Co. All rights reserved. Used with permission.
The Heritage Foundation’s Project 2025 received some attention in the Presidential campaign. President-elect Trump never endorsed the project during his campaign, and in fact his many of his suggestions—for example, to eliminate income taxes on tips and overtime hours—run counter to the Project’s philosophy. Still, it may provide clues to the direction of changes that the Republicans may favor next year.
What does Project 2025 advocate for taxes? Some highlights:
The problem that Congress will have to grapple with before extending the 2017 tax reforms, or creating new tax cuts, is that deficit spending is already at historic levels, and arguably is not sustainable, especially when interest rates are above average.
Article ©2024 M.A. Co. All rights reserved. Used with permission.
INVESTMENT PRODUCTS/SERVICES ARE:
NOT A DEPOSIT - NOT FDIC INSURED - NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
NOT GUARANTEED BY THE BANK - MAY LOSE VALUE
