Every November the federal government comes out with new numbers relating to the standard deduction, retirement account contribution limits, tax bracket changes, tax deduction or tax credit changes, Social Security adjustments, Medicare increases or decreases, and maybe a change or two in the federal tax code. This month's newsletter will address those projected changes for 2024.
The standard deduction is going up to $14,600 for single people, 21,900 for head of household, and $29,200 for married folks filing a joint return. The numbers are slightly higher if you are over 65 ($16,550 single and joint is $32,300 if both are 65). These are the amounts you can earn in 2024 without paying federal income tax. You can see the new brackets here. Note the comments.
Iowa income tax rates will be going down in 2024 and that will continue beyond next year. Your income will be taxed gradually as you go through the four brackets in 2024. The rates range from 4.4% to 5.7% based on your income. The rates and the brackets will continue to drop over time until we hit 2026. At that point, Iowa will have a flat 3.9% rate on all income (a flat tax).
Social Security goes up by 3.2% for 2024 as it adjusts for inflation. If you are waiting on your benefit between age 62 and FRA, that equals a 10.2% return for 2023. If you are at FRA and waiting until 70, that equals a 11.2% return for 2023. $167,700 is the new amount where you stop paying into Social Security (still pay into Medicare). The actual FICA tax of 7.65% for the employee and employer has not changed.
Medicare costs will go up in 2024. The Part B premium will be $174.70 and the Part B deductible will be $240 in 2024. The average premium for Part D is estimated to be $34.50 in 2024. The Part A deductible will be $1,632. Medicare Advantage plans are going up by 64 cents in 2024. Part D max out of pocket will be $8,000 and skilled nursing 20 - 100 days will be $204 per day.
Contribution limits on IRAs go to $7,000 for 2024. Those over 50 see an increase to $8,000. The contribution limit on the 401(k), 457, 403(b), and TSP goes to $23,000 with those over 50 seeing an increase to $30,500. Here is a tip. The Roth IRA and Roth 401(k), 457, 403(b), TSP, tend to be a better option when you are in the 12% bracket. Focus on Traditional contributions when in the 22% bracket and up.
The catch up rules were changed by the IRS and then changed again. If you are 50 or over you can still put money into your 401(k)/457/403(b)/TSP pre-tax for 2024 (and 2025). Starting in 2026, all catch up contributions must go in Roth if your gross income is $145,000 (this years number, it will be higher in 2026) or higher. Again, the rules will not change until 2026.
Tax deductions and tax credits have not changed. The child tax credit will be $2,000 for children under age 17 (there are income limits that reduce the size of this credit). There is a $500 credit for those dependents 17 and older. The earned income credit caps income at $8,260/$12,390/$17,400 (no children/1 child/2 children) for those who qualify. Both are refundable credits.
There are no real changes in the capital gains tax. As a reminder, a single person can make $250,000 and a married person filing a joint return $500,000, without paying any capital gains tax when selling a property they have owned and lived in for 2 years. Selling a rental property will incur a capital gains tax based on how long you have owned it and the size of the gain in relation to that year's other income.
Long term capital gains are still taxed at 0%, 15%, or 20% based on what bracket you are in after the capital gain. The goal is to receive long term capital gains (investment held more than 1 year) while staying inside the 10% or 12% federal tax brackets. If you can do this, the tax on the gain will be 0%! Always keep this in mind when looking to sell an investment with long term gains attached to it.
The state of Iowa still does no tax retirement money in 2024. This would include Traditional accounts at work like 401(k)s, Traditional IRAs outside of work, and pensions like IPERS. Do not withhold state income tax when withdrawing money, which of course means more money in YOUR pocket. It also means avoiding paying any state tax on that money going in or out!
The IRS created a mess with the new inherited IRA rules. This rule applies to receiving the IRA from someone who passed after December 31, 2019. No RMD was required in 2020, 2021, 2022 or 2023. Learn more on that here. The 10-year rule applies to this RMD. If the deceased was taking their RMD, you must take it each year for 10 years. If not, you have 10 years to take it at some point.
There are no inflation adjusted numbers related to the taxability of your Social Security benefit because Congress has not deemed that necessary. What does this mean? More and more people will have some of their Social Security benefits taxed at the federal level based on other income (IRA, pension, job, etc.), which is used to supplement the benefit. Let's hope this is addressed in the future. Stay tuned!
Let's wrap this up. New numbers come out every November from the government, dictating limits on different kinds of tax breaks, tax deductions, tax credits, premium costs, etc. It is important that we pay attention and see if we can benefit from the changes when possible. This can help in putting more money in our pockets for our needs or others. Be aware and be vigilant!
