Meyers Wealth Management

Just a few pieces of useful information for convenient reference.

All of the following applies to tax year 2024 unless otherwise indicated. Please let us know if you notice any errors.

IRA Contributions

The annual contribution limit for IRAs — which applies to traditional IRAs, Roth IRAs — in total across any combination of the two for the year — for direct contributions, whether deductible or not (ie. not rollovers, conversions, etc) is $7000 per person. If you are 50 or older this year, you can put in an extra catch-up contribution of $1000 for a total of $8000.

If you participate in an employer-based retirement plan, you may not be able to deduct IRA contributions. The deduction phases out as follows:
• Single: $77,000-$87,000
• Married filing jointly: $123,000-$143,000
• Married filing separately: $0-$10,000 (not indexed for inflation)
• Non-active participant married to active participant (“spousal IRA”): $230,000-$240,000

Remember that if you make any non-deductible contributions to a traditional IRA — or any distributions from one into which you’d previously made non-deductible contributions, you’re going to have to file an IRS Form 8606 which tracks that after-tax basis in your IRA.

Roth IRA contributions are phased out between $146,000-$161,000 (single) and $230,000-$240,000 (MFJ). (MFS phased out between $0-$10,000. MFS is not indexed for inflation). If your income is above those limits, and you otherwise qualify to make IRA contributions (ie. have earned income), you may still be able to make such contributions to a traditional IRA account, but you may not be permitted to deduct those contributions. See above.

401k Contributions

Employees may contribute up to $23,000 to a 401k. This may be pre-tax (“traditional”) or Roth, in total. And this limit applies across employers — meaning that if you change jobs in the middle of the year, you don’t get to put $23,000 into both employer plans — the sum across them cannot exceed this. When you change jobs, the new employer should ask you how much you put into the old employer’s plan that year.

If you are 50 or older, you may make an additional catch-up contribution of $7500 — for a total of $30,500.

In addition, there’s a separate limit — this one applies on a per employer basis — that at no employer may the combination of contributions you and your employer makes (which means this includes profit sharing, employer match, etc) may you put in more than $69,000 in total. (This excludes that catch-up — so if you’re 50 or over, between you and your employer, you may contribute as much as $76,500!)

When making contributions to plans like this, employers must take into consideration certain compensation elements — for example, the employee compensation limit for calculating contributions is $345,000; the key employee compensation threshold for “top heavy” testing is $220,000 (up from $215,000 in 2023) (or a 5% owner or an employee who owns more than 1% of the company and earns more than $155,000); and the highly compensated employee (HCE) threshold for non-discrimination testing is $155,000 (up from $150,000 in 2023 and $135,000 in 2022). These latter two may affect how much certain employees may contribute, in order to make sure that the plan is helping everyone in the company participate.

Social Security and Medicare Payroll Taxes

The Social Security wage base — the maximum income on which one pays full Social Security taxes, is $168,600. (up from $160,200 in 2023 and $147,000 in 2022). The tax rate on those wages, combining taxes paying for Social Security retirement benefits and for Medicare, is 7.65% for employees (and employers pay another 7.65% on behalf of those employees, too). For self-employed individuals, who have to pay both halves, the rate is 15.3%. Wages above that limit are still subject to Medicare taxes.

These rates are built from 6.2% for Social Security (subject to the cap noted above), and 1.45% for Medicare (no cap — applies to all income). The employer pays 6.2%+1.45% = 7.65%. And the employee also pays 7.65%.

There’s also an Additional 0.9% high-income payroll tax which helps fund Medicare. It applies to incomes in excess of $200,000 (single), $250,000 (MFJ), or $125,000 (MFS). This is not currently indexed for inflation.

Remember, your future Social Security benefits are based on your highest 35 wage growth adjusted years of income. For more about how that’s computed, and how missing a few years, or having some lower-earning years may affect it, see our Social Security Basics note at https://meyersmoney.blog/2021/02/15/social-security-benefit-basics/

Medicare Part B and D (IRMAA)

Medicare Part B and Part D are not free. If you have more than 40 covered quarters of earnings Part A (inpatient/hospital) is fully covered, if you have 39 or fewer, you may buy coverage.

Part B (outpatient/medical), and Part D (prescription drugs) have monthly costs, and additional premiums for folks whose income two years prior (so premiums in 2024 are based on income in 2022) were above various thresholds.

Basic Part B is $174.70/mo for singles < $103,000 and married < $206,000.
The various tiers increase the premiums to as much as $594/mo (for singles with income > $500,000 and married > $750,000).
Part D surcharges can be as high as $81/mo (plus the plan premium, depending on the plan chosen).

Long Term Capital Gains and Qualified Dividends

LTCGs and Qualified Dividends are taxed at preferential rates. The tax computation “stacks” these types of income on top of ordinary income. So you compute the taxes on your ordinary income using the regular tables, and then, to the extent that you have any LTCGs and QDs, those are taxed at the following rates using parallel brackets stacked on top of that ordinary income already computed and taxed:
0% up to ($47,025 Single; $63,000 Head of Household; $94,050 Married Filing Jointly) and to the extent that it exceeds that,
15% up to ($518,900 Single; $551,350 Head of Household; $583,750 Married Filing Jointly) and to the extent that it exceeds that,
20% for all above that.

When the 12% bracket is really the 27% bracket…

This puts an interesting twist on marginal income tax rates. For example, if a single person has (after removing deductions, etc) $30,000 of ordinary income and $17,025 of Long Term Capital Gains income — their marginal tax rate is not obvious! If they have $100 of additional ordinary income, (a) that additional ordinary income is taxed at 12%, so $12 more in taxes — but (b) that also pushes $100 of those capital gains up into the 15% LTCG bracket which were previously not taxed — so an additional $15 in taxes are due. That means that the effective marginal rate on that last $100 was not 12% or 15% — but instead, it was effectively 27% because of the interaction of the two brackets. That extra $100 of ordinary income resulted in taxes $27 higher.

Similar effects happen anywhere there are income thresholds, phaseouts, or income-related additional charges — the effective marginal tax rate can be a lot higher than the rates published on our tax tables!

Health Savings Accounts (HSAs)

If you have a qualifying high-deductible health plan (whether through your employer or not), you may also qualify to open and fund a Health Savings Account (HSA). These are magic – they are the only account for which you both get a tax deduction for making contributions and the growth is also tax-free when it comes out (if used for qualifying healthcare expenses).

In order to qualify, a health plan must have a minimum deductible of either $1600 (single) (up from $1500 in 2023) or $3200 (family plan) (up from $3000 in 2023), and the maximum out-of-pocket expense in the plan cannot be higher than $8050 (single) (up from $7500 in 2023) or $16,100 (family) (up from $1500 in 2023).

If your plan meets the requirements, then you may contribute as much as $4150 (single) (up from $3850 in 2023) or $8300 (family) (up from $7750 in 2023) to an HSA. Your employer may make a contribution on your behalf (free of taxes to you, and even deductible for the employer) and you may make additional contributions (usually via payroll deductions) to max it out.

Standard Deductions

Single: $14,600
Married filing jointly: $29,200
Head of household: $21,900
Married filing separately: $14,600

Kiddie tax limited standard deduction on unearned income: $1300 (up from $1250 in 2023) and the next $1300 of unearned income is taxed at the child’s marginal tax rate (mixed in with any earned income the child has, using the child’s standard deduction, etc). Any unearned income above $2600 will be taxed at the parent’s marginal rate. This is to keep parents from shifting investment income to children taxed at lower rates.

Elderly or blind persons may get an additional deduction of $1700 (single) or $1350 (married – potentially for each spouse)

Alternative Minimum Taxes

The AMT system is a parallel tax system. You compute your taxes both ways and pay whichever is higher. The main differences are that AMT does not allow a deduction at all for State, Local, and Property taxes, and additionally, Incentive Stock Option exercise creates AMT income on the “bargain element” which is not taxed in the ordinary tax system. There are other differences, too, but those are the most notable. Usually, one computes one’s normal income taxes, then adds back in these pieces which were deducted or excluded and uses this new AMT adjusted income to compute taxes using the simplified AMT tax schedule.

AMT Exemption: $85,700 (single); $133,300 (MFJ)
AMT Exemption Phaseout starts at: $609,350 (single); $1,218,700 (MFJ)
AMT Tax Rates: 26% up to $220,700 (2023 – need 2024 update); 28% of the amount over that

Gift and Estate Taxes

Annual gift tax exclusion: $18,000 (per giver, per recipient)
Estate and Gift Tax basic exclusion: $13,610,000

*** A deceased spouse’s unused credit amount is portable to the surviving spouse — however, in order to claim this portable credit, an estate tax return must be filed, even if no taxes are due.
Maximum estate tax rate: 40%

Trusts and Estates (Fiduciary)

Trusts and estates (not the estate tax on transfers to heirs, but taxes paid by an estate which continues to exist and hold assets) have a severely compressed tax rate table, reaching the maximum 37% income tax bracket at only $15,200. They similarly hit the 20% LTCG/QD rate at only $15,450. They also have a compressed AMT schedule with a much smaller exemption and phaseout range.