Tax Bites

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, the limits remain unchanged for 2016:

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2016. And if you turn age 50 in 2016, you can begin to take advantage of catch-up contributions.

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2016, check with us.

Recently, the IRS released the 2016 annually adjusted amount for the unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption: $5.45 million (up from $5.43 million in 2015). But even with the rising exemptions, annual exclusion gifts offer a valuable tax-saving opportunity.

The 2015 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free — without using up any of your gift and estate or GST tax exemption. (The exclusion remains the same for 2016.)

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.

But you need to use your 2015 exclusion by December 31. The exclusion doesn’t carry over from year to year. For example, if you and your spouse don’t make annual exclusion gifts to your grandson this year, you can’t add $28,000 to your 2016 exclusions to make a $56,000 tax-free gift to him next year.

Questions about making annual exclusion gifts or other ways to transfer assets to the next generation while saving taxes? Contact us!