IRS Announces 2018 Inflation Adjustments
The Internal Revenue Service (IRS) recently announced a number of inflation-adjusted tax items for 2018, some of which remain unchanged from 2017. For a complete summary of the changes, follow this link for details (https://www.irs.gov/newsroom/in-2018-some-tax-benefits-increase-slightly-due-to-inflation-adjustments-others-unchanged). Some of the notable adjustments include:
- Personal exemption increases $100 from $4,050 to $4,150.
- The annual gift tax exclusion (the amount which one can gift without incurring any gift tax) will increase from $14,000 to $15,000 per donee.
- The unified federal estate tax exemption increases from $5.49M per individual to $5.6M in 2018.
Additionally, the IRS also announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2018. For a complete summary of these changes, follow this link (https://www.irs.gov/newsroom/irs-announces-2018-pension-plan-limitations-401k-contribution-limit-increases-to-18500-for-2018). A few of the highlights include:
- The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.
- The contribution limit for contributions made to IRAs remains unchanged at $5,500 for individuals under the age of 50 and $6,500 for individuals age 50 and older (including the catch-up contribution amount).
While the inflation-adjusted numbers are consistent with normal cost-of-living adjustments of prior years, a few main takeaways:
- If you’re maxing out your employer retirement plan, ensure that your deferral election would cover the $500 increase in contribution limits
- Those making annual gifts for estate planning purposes should take advantage of the additional $1,000 exclusion amount per donee
- With the increase in the federal estate tax exemption, married couples now have $11.2M of net assets to exclude from any federal estate taxes.