Navigating the 2024 IRS inflation updates for estates, gifts and retirement plans: Key changes you should know about

Good estate planning attorneys keep their clients informed about critical financial changes that could impact their future. As we enter the new year, and with that goal in mind, here is a summary of the recently announced IRS updates to various key metrics in the estate, gift and retirement plan area for 2024. This article aims to simplify and explain these updates, ensuring you’re well-equipped to make informed decisions in the new year.

Enhanced contribution limits for retirement plans. Good news and bad news: while the IRS has raised the contribution limits for various retirement plans, some of the increases are modest at best. Still, any increase means you have greater potential to expand your retirement savings, which is always a good thing. Here are some of the key changes:

• 401(k), 403(b), 457(b) plans. The maximum contribution limit has been increased to $23,000 — a modest increase of $500 from the previous year. 
• Defined contribution and defined benefit plans. For defined contribution plans, the annual limit is now $69,000 — an increase of $3,000. Defined benefit plans see a more substantial increase, with the annual limit now at $275,000, up by $10,000.
• Minimum survivor annuity requirements. The limit on annual compensation considered by qualified plans under IRC Section 417 has risen to $345,000, an increase of $15,000.
• “Key employee” threshold for top-heavy plans (IRC Section 416). The threshold has been raised to $220,000, up by $5,000.
• “Highly compensated employee” criteria (IRC Section 414). The pay threshold for this designation has increased to $155,000, a $5,000 rise. Note that this increase will be applicable for HCE determinations in 2025, based on the compensation in 2024, due to the look-back rule.

Updates on gift and estate taxes.The 2024 updates also bring changes to gift and estate taxes:

• Annual gift tax exclusion. For 2024, the exclusion amount has increased to $18,000 per gift recipient, up from $17,000 in 2023.
• Gift and estate tax exemption. The exemption amount has risen to $13,610,000 per person, from $12,920,000 in 2023.

Watching the sunset. Important note: barring new legislation, the current gift and estate tax exemption is set to be halved after 2025. This impending reduction is due to the expiration (aka “sunset”) of a 2017 statute that doubled the exemption amount, leaving many saying — in the words of the inimitable Elton John, “Don’t let the sun…go down on me!”

Understanding these updates is crucial for effective financial planning. Talk to your trusted estate planning attorney for personalized guidance and to discuss how these changes impact your specific situation. 

Client alert authored by Bryan M. Montana (312 855 6105), principal.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.