2024 COLA Updates: Key Changes for Retirement, Charitable Giving and Gift Taxing

As inflation and economic conditions evolve, the IRS regularly adjusts financial thresholds for tax-advantaged accounts and tax exclusions to reflect changes in the cost of living (COLA = cost of living adjustments). These updates impact retirement contributions, charitable giving, and gift tax exemptions, making it essential for individuals and families to review their financial strategies each year.

Here’s what you need to know for 2024 year-end planning and the upcoming 2025 changes

Retirement Account Contribution Limits

For 2024, the IRS increased contribution limits for many tax-advantaged retirement accounts. These adjustments can significantly enhance your ability to save for the future.

1. 401(k), 403(b), and 457 Plans
   • The elective deferral limit for employees contributing to 401(k), 403(b), and most 457 plans rose to $23,000, up from $22,500 in 2023.
     • This will move up to $23,500 in 2025.
   • Catch-up contributions for employees aged 50 or older increases to $7,500, bringing the total potential contribution to $30,500 for those eligible.
2. IRAs (Traditional and Roth)
   • The annual contribution limit for IRAs increased to $7,000, up from $6,500 in 2023.
   • The catch-up contribution for individuals aged 50 and older remained unchanged at $1,000, making the total limit for older contributors $8,000. These amounts remain unchanged for 2025.
3. SIMPLE IRA and SIMPLE 401(k) Plans
   • Contributions to SIMPLE retirement accounts increased to $16,000, up from $15,500.
     • 2025 SIMPLE contributions will increase to $16,500.
   • The catch-up contribution for participants aged 50 and over rose to $3,500, up from $3,000 in 2023.
     • The 2025 catch-up contribution will rise to $3,850.
4. Income Limits for Roth IRA Contributions – The IRS only allows those below certain income levels to contribute to a Roth IRA.
   • The phase-out range for Roth IRA contributions increased.
     • In 2024, single filers with income below $146,000 can contribute the full amount. That amount decreases with a “phase out” for individuals with income between $146,000–$161,000 while those over $161,000 cannot contribute (up from $138,000–$153,000 in 2023).
     • For married couples filing jointly, the income limit for a full contribution is $230,000 with phase-out from $230,000–$240,000 (up from $218,000–$228,000 in 2023).
   • 2025 phase-out range
     • In 2025, single filers with income below $150,000 can contribute the full amount. That amount decreases with a “phase out” for individuals with income between $150,000–$165,000 while those over $165,000 cannot contribute.
     • For married couples filing jointly, the income limit for a full contribution is $236,000 with phase-out from $236,000–$246,000.

Charitable Contribution Adjustments

The IRS has not announced significant changes to the rules governing charitable contribution deductions; however 2024 marks the first year the allowable amounts have been adjusted for inflation.

1. Qualified Charitable Distributions (QCDs)
   • Individuals aged 70½ or older can continue to donate directly from their IRA to a qualified charity, up to $105,000 annually, without counting it as taxable income.
     • The inflation adjustment for QCDs permits up to $108,000 in charitable contributions for 2025
     • .

Gift Tax Exclusion Updates

The annual gift tax exclusion is one of the most significant tools for wealth transfer, and it has been increased for 2024.

1. Annual Gift Tax Exclusion
   • The exclusion amount per recipient rose to $18,000, up from $17,000 in 2023. This means you can give up to $18,000 to as many individuals as you like without triggering gift tax reporting requirements. Importantly, this is a per individual amount, allowing a married couple to gift up to $36,000 to any giftees.
   • The annual exclusion gift for 2025 increases to $19,000.
2. Lifetime Estate and Gift Tax Exemption
   • The 2024 lifetime exemption for estate and gift taxes increased to $13.61 million per individual (up from $12.92 million in 2023), or $27.22 million for married couples. This adjustment reflects inflationary trends and provides more room for tax-free wealth transfers.
   • The 2025 lifetime exemption will increase to $13.99 million per individual, or $27.98 million for married couples.