Bob’s Journal for 11/16

Estate, Gift Tax Exemption Increases, Other Tax Benefits Boosted for 2024

Inflation increased the lifetime estate and gift tax exemption for 2024 as well as other tax benefits, the IRS announced last week.

The lifetime estate and gift tax exemption will be $13.610 million in 2024, up from $12.920 million in 2023. Married couples can use the portability of unused exemptions to double the exempt amount to $27.220 million for their two estates.

Remember, the lifetime estate and gift tax exemption is scheduled to be cut in half after 2025. For that to be avoided, Congress must agree either to extend the provision of the 2017 tax law or compromise on an amount between the current level and half that amount.

The annual gift tax exclusion will increase to $18,000 in 2024 from $17,000 in 2023.

Another change for 2024 is that the standard deduction will increase by $1,500 to $29,200 for married couples filing jointly. Single taxpayers will see a $750 increase to $14,600.

The income tax brackets also are adjusted for inflation. For example, the top tax rate of 37% will hit married couples filing jointly with taxable incomes of $731,200 and higher, and single taxpayers with taxable incomes of $609,350 and higher will pay that top rate.

But the income levels at which Social Security benefits are subject to income taxes aren’t indexed for inflation. The result is that each year more and more Social Security recipients have their benefits subject to income taxes.

Retirement Savings Plan Amounts Also are Increased for 2024

The IRS announced the 2024 inflation adjustments for various retirement plan provisions.

The annual limit for deferrals to 401(k) plans that are excluded from gross income increases to $23,000 from $22,500. The limit for catch-up contributions for those ages 50 and over isn’t indexed for inflation, so it remains at $7,500 for 2024.

The limit on total contributions to a 401(k) account for an individual increases to $69,000 from $66,000. This limit includes the deferrals excluded from gross income, employer matching contributions, and any after-tax deferrals the employee chooses.

For details on how to use the maximum limit and after-tax deferrals to create a substantial backdoor Roth IRA, see the article that will be in the December 2023 issue of Retirement Watch.

The limit on premiums paid for a qualified longevity annuity contract (QLAC) that defers required minimum distributions remains at $200,000 for 2024.

The ceiling on IRA contributions is increased to $7,000 in 2024 from $6,500. The limit applies to traditional IRAs and Roth IRAs and can be split between the two types of accounts.

The IRA catch-up contribution amount for those ages 50 and over isn’t indexed for inflation and remains at $1,000.

Roth IRA contributions are phased out for married taxpayers filing jointly with adjusted gross incomes between $218,000 and $230,000. For single taxpayers, Roth IRA contributions are phased out between $138,000 and $146,000.

The limit on qualified charitable distributions (QCDs) from traditional IRAs is indexed for inflation for the first time. QCDs can be up to $105,000 in 2024, an increase from $100,000 in previous years.

Also, the one-time “Legacy IRA” contribution is increased to $53,000 in 2024 from $50,000 in 2023. See the June 2023 issue of Retirement Watch for details about Legacy IRAs.

Yield on Treasury I-Bonds Increases to 5.27%

The interest rate paid on inflation-protected savings bonds, also known as Series I bonds or I-bonds, is set at 5.27% for bonds purchased November 1 through April 2024.

This is less than the 9.72% rate available in early 2022, but it is the fourth-highest yield offered on I-bonds since their initiation in 1998. Each of the four top yields on I-bonds occurred since late 2021.

An I-bond consists of two yields. There is the base yield that is fixed for the holding period of an I-bond once the bond is purchased. (Though it is considered fixed, the Treasury can adjust that base yield for new bonds and has done it from time to time.)

The variable rate is adjusted every six months for as long as the individual holds the bond. The adjustment is based on the inflation rate over the previous six months.

The fixed rate currently is 1.30%, and the latest variable rate is 3.94%. That amounts to a 5.27% yield that will hold for six months after the I-bond is purchased. The variable yield then will be adjusted based on recent inflation to establish the yield to be earned for the next six months.

Up to $10,000 of I-bonds can be purchased by an individual when the bonds are purchased online via treasurydirect.gov. The purchase limit for paper I-bonds is a $5,000 limit.

You have to hold an I-bond for at least five years to earn the full yield.

Only individuals can buy I-bonds. There are other limits and details explained on the Treasury Direct website.

The Data

The Consumer Price Index (CPI) was unchanged in October after rising 0.4% in September. Over 12 months, the CPI increased 3.2%, down from 3.7% in both September and August.

The recent low for the 12-month change was 3.09% in June.

The core CPI (excluding food and energy) increased 0.2% in October after increasing 0.3% in September.

Over 12 months, the core CPI increased 4.0% through October (a two-year low) after rising 4.1% through September.

The Producer Price Index (PPI) declined 0.4% in October, following a 0.4% rise in September.  The October decline is the largest since April 2020.

Over 12 months, the PPI is up 1.3% through October after climbing 2.2% through September.

The core PPI (excluding food and energy) was unchanged in October following a 0.2% increase in September. Over 12 months the core PPI was up 2.4% through October after rising 2.7% through September.

Retail sales declined 0.1% in October after rising 0.9% in September. October’s decline ends a six-month streak of increases in retail sales.

Retail sales increased 2.5% over 12 months through October, down from the 4.1% increase through September.

After excluding gas and autos, retail sales rose 0.1% in October, which follows a 0.8% increase in September.

The Empire State Manufacturing Index jumped to 9.1 in November from negative 4.6 in October. November’s is the highest level since April.

The Small Business Optimism Index from the National Federation of Independent Business (NFIB) registered 90.7 for October compared to 90.8 in September.

October was the third consecutive month the index declined and brought the index to its lowest level since May.

The Consumer Sentiment Index from the esteemed University of Michigan declined in the first part of November to 60.4, down from 63.8 at the end of October.

There were significant declines in sentiment regarding both current conditions and expectations. Consumers also expect inflation to increase.

This preliminary reading is the lowest level for the index in six months.

New unemployment claims decreased by 3,000 to 217,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.834 million from 1.812 million. This is the highest level since mid-April.

The Markets

The S&P 500 rose 2.70% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 2.01%. The Russell 2000 increased 3.94%. The All-Country World Index (excluding U.S. stocks) added 2.79%. Emerging market equities advanced 1.71%.

Long-term treasuries gained 1.95% for the week. Investment-grade bonds increased 1.57%. Treasury Inflation-Protected Securities (TIPS) added 0.16%. High-yield bonds rose 0.84%.

On the currency front, the U.S. dollar declined 1.38%.

Energy-based commodities increased 0.62%. Broader-based commodities rose 0.16% but gold declined 0.24%.

Bob’s News & Updates

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