2018 brings several changes to gifting, estate tax and retirement savings limits.
The gift tax exclusion increases in 2018 to $15,000 from one donor to one recipient up from $14,000 for each of the past five years. For married couples giving gifts, each can give $15,000 to a recipient for a total of $30,000 in each calendar year. Gifts over these amounts can still be given, but a gift tax return, IRS Form 709, must be filed. No tax will be owed, but your lifetime gift tax exclusion will be lowered by the amount of each large gift listed on your Form 790. These gifts do not have to be cash, however, the best rule of thumb is to gift cash and have your heirs inherit any appreciated assets you own.
Estate Tax Exclusion
The tax bill passed in December 2017 has increased the threshold to begin paying Federal Estate tax from Estates valued at $5.6 M to Estates valued at $11.2M. No Federal Estate tax is due if the value of all assets in the estate are below $11.2M amount. Many states do not follow the Federal rules – mostly northeastern states, including Maryland. Check your state for your specific exclusions.
IRA/Roth IRA Contributions
To contribute to an IRA or a Roth IRA you must have earned (W-2 or 1099-MISC) income. You can contribute up to your earned income or the limit whichever is lower. For 2018, the limits have not changed. If you are under age 50, you can contribute up to $5,500. If you are age 50 at any time in 2018 or older, you can contribute up to $6,500.
401k Plan Contributions
These limits have increased in 2018. If you are under age 50, you can contribute up to $18,500. If you are age 50 or older in 2018, you can contribute up to $24,500. I recommend you contribute at least enough to receive your full employer match.
BONUS: You can contribute to both an IRA/Roth IRA AND a company retirement plan (401k, 403b, 457, TSP) up to the full limits of both.
Roth IRA income limits
If you are a high earner, you may be limited or phased out of a Roth IRA contribution. For 2018, you can contribute up to the limit if:
- For Married filing Jointly tax filers: your adjusted gross income (bottom of page 1 of your 1040 tax form) is Under $189,000. The contribution amount declines for AGI between $189,000 and $199,000. For AGI over $199,000 NO Roth IRA contribution can be made.
- For Single filers: your adjusted gross income AGI (bottom of page 1 of your 1040 tax form) is under $120,000. The contribution amount declines for AGI between $120,000 and $135,000. For AGI over $135,000 NO Roth IRA contribution can be made.
These situation are complex and can be confusing. Please email us at [email protected] or call our office at 703-956-6662 if you have any questions.
This site is provided for your information and does not constitute tax advice. Please consult with your accountant or tax advisor for specific guidance.