The Internal Revenue Service recently announced the 2017 adjustments to the federal gift and estate tax exclusion amounts, as well as the annual benefit plan contribution amounts.
In general, the gift and estate tax exclusion amounts tell each individual how much he or she can give away, both during life and at death, on a tax-free basis. When the amounts go up, it presents an opportunity to increase tax-free giving. These adjustments are based on year-over-year increases in inflation. Unfortunately, given that interest rates remain low, there isn’t much of a change from 2016. Nonetheless, here are the specifics on the exclusion amounts for 2017:
–Annual exclusion for lifetime gifts. The “annual exclusion” is the amount that an individual is allowed to give away per recipient each year without making a taxable gift. Many individuals utilize the annual exclusion to make annual gifts to children and grandchildren tax-free. The annual exclusion amount will remain unchanged in 2017. As a result, the first $14,000 of gifts of present interests to any one person will not be included in the total amount of a taxpayer’s taxable gifts in that year. Keep in mind that this amount generally applies to gifts made outright to a recipient. In many cases taxpayers can make tax-free transfers for qualifying educational or medical expenses directly to the provider on the recipient’s behalf, in addition to an annual exclusion gift.
–Applicable exclusion for gift and federal estate tax. The applicable exclusion for gift and estate tax is the combined amount that an individual can transfer over lifetime and/or at death that is excluded from gift tax and/or federal estate tax. The applicable exclusion amount for a decedent dying in 2017 will be $5,490,000, up slightly from $5,450,000 in 2016.
The contribution limits on tax-qualified retirement plans, such as 401(k) plans, and certain other benefit plans affect the pre-tax dollar amounts that individuals are allowed to contribute. These limits are also inflation adjusted based on the cost of living index. Some of the key limits for 2017 are as follows:
–401(k) plans. The annual 401(k) deferral limit will remain $18,000, and the annual retirement plan catch-up contribution limit (for individuals age 50 and older) will remain $6,000.
–Individual Retirement Accounts (IRAs). The annual limit on IRA contributions (whether traditional or Roth) will remain at $5,500, and the annual limit on IRA catch-up contributions will remain at $1,000.
–Health Savings Accounts (HSAs). The maximum contribution to an HSA will increase slightly from $3,350 to $3,400 for individual coverage, but will remain $6,750 for family coverage. The maximum HSA catch-up contribution will remain at $1,000.
For certain taxpayers, it can make sense to take advantage of the opportunities presented by the exclusion amounts to transfer assets to loved ones without paying gift or estate tax on the transfer, as well as maximizing contributions to tax-qualified plans. Please contact our office at 402-397-4700 if you have questions about how the 2017 limits might impact your situation.