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Military Finances 101: 2024 by the Tax Numbers Thumbnail

Military Finances 101: 2024 by the Tax Numbers

Taxes

The New Year is here. Time for updates to reflect (or not) inflation that occurred over the last year. Let's take a look at them.

Savings and Investing.

Here are the new limits that apply to your retirement accounts.

  • IRAs. Maximum contribution to a Traditional or Roth IRA is $7,000 for those under age 50. Those 50 and older can contribute an additional $1,000
  • Deductibility of Traditional IRA contributions can be limited if you or your spouse (if married) is covered by a retirement plan at work.
  • For Single Taxpayers covered by an employer's retirement plan the phase-out is from $77,000 - $87,000 of Modified AGI (for most MAGI = AGI)
  • For a Married Taxpayer covered by an employer's retirement plan the phase-out is from $123,000 - $143,000
  • For a Married Taxpayer whose spouse is covered by an employer's retirement plan the phase-out is from $230,000 - $240,000
  • Not everyone can contribute to a Roth IRA (Pay Attention to this one, it's a common mistake).
  • Single Taxpayers can't contribute directly to a Roth IRA if their MAGI exceeds $161,000. The phase out starts at $146.000
  • Married Taxpayers can't contribute to a Roth IRA if their MAGI exceeds $240,000 and their phase out begins at $230,000
  • 401(k), 403(b), TSP and Similar Plans
  • Employees can defer $23,000 of wages into a 401(k), 403(b) or TSP. Those 50 or older can defer an additional $7,500
  • Contributions to a SIMPLE-IRA are limited to $16,000 with $3,500 in catch-up contributions
  • Maximum contribution is limited to $69,000 for 401(k)'s (and their cousins) and SEP plans. In the case of 401(k)'s the limit is the combined deferral amount and employer contributions/matching.

Stealth (and not so Stealthy) Tax Increases.

There are several parts of the tax code that are not inflation adjusted. That means fewer taxpayers will get some credits/deductions and some will pay taxes on more of their income. That means taxes are going up for those so affected.

  • Credits.
  • The phase out for the American Opportunity Credit remains from $160,000 to $180,000 of AGI (1/2 that for single taxpayers). It has been at that level for decades
  • A year or two ago the income limit for the Lifetime Learning Credit was increased to the same amount as the American Opportunity Credit, but it is not inflation adjusted either.
  • The Child Tax Credit and Other Dependent Credit income phase out remains at $400,000 of AGI ($200,000 for Single)
  • Deductions.
  • The deduction for losses on actively managed real estate phase out range remains at $100,000 - $150,000 (no change for Single taxpayers). Like the American Opportunity Credit, this one hasn't changed for decades either
  • Stealth Increases.
  • The income thresholds for the Net Investment Income Tax and the wage threshold for the Additional Medicare Tax remain at $250,000 in AGI and wages respectively ($200,000 for Single). That means more people will pay these taxes.
  • The threshold for taxation of Social Security remains unchanged (this one could affect Mom & Dad in 2023 due to the big COLA last year)
  • Up to 85% of Social Security benefits are taxable for married couples if MAGI (calculation of this one is a little tricky) exceeds $44,000. For single taxpayers the amount is $34,000
  • Up to 50% of Social Security benefits are taxable if a married couple's MAGI exceeds $32,000 and $25,000 for all other taxpayers
  • Not So Stealthy of an Increase.
  • The Social Security wage base is increased to $168,600 from $160,200. This means that if your income equals or exceeds this amount you get the opportunity to pay an additional $520.80 ($1,041.60 if self-employed) in Social Security taxes

The time to start preparing your 2024 tax return (yes, I meant 2024) is now. Once the clock strikes midnight next December 31st, your tax return is determined. You're just writing it down.

Military Finances are Different

Virtually all Americans pay taxes, but the Tax Code treats Active and Retired Senior Military Officers and NCOs differently. That carries over to your other financial related issues as well. That's why we think you should work with a Financial Advisor or Planner that deals with Active and Retired Military members every day. If you'd like to find out how we do that, use the button below to schedule a free initial consultation.

If you found this article useful, you might like the following blog posts:

So, You Want to Be a Military Landlord


Military Finances 101: Tax Relief for Military Spouses


If You Get the VA Funding Fee Refunded, Do You Pay Taxes on It?



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