Tax brackets, 401K limits, and the standard deduction get increased each year with inflation. Here are the new brackets recently announced by the IRS for 2024.
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Speaker 1 (00:07):
Welcome back to 30 Minute Money, the podcast that delivers action-oriented smart money ideas and bite-sized pieces. Today, joining me in our beautiful ROC Vox Studios and Bushnell Basin, Steve Wershing of Focused Wealth Advisors, your
Speaker 2 (00:19):
Beautiful, newly renovated studios, they look beautiful.
Speaker 1 (00:23):
Thank you very much. See, I keep my hair short, but it would be as white as yours. Now, after that experience, I imagine you know how it is when you renovate or do any kind of construction project, it just
Speaker 2 (00:39):
Spins out of control and
Speaker 1 (00:40):
Air. It does. But yeah, thank you. I'm very happy and the sound is great. I love it. Excellent. Making your podcast even Betterer,
Speaker 2 (00:48):
Betterer, betterer and betterer.
Speaker 1 (00:51):
So what do we got going on today? We're going to talk about all kinds of fun stuff.
Speaker 2 (00:55):
Today we're going to talk about the new tax brackets for 2024, which we're just released by the IRS. This
Speaker 1 (01:03):
Just hot off the presses.
Speaker 2 (01:05):
Hot off the presses. Ouch. I'm burning my fingers. So we used to have something that we would refer to as bracket creep, which meant that when the brackets were fixed and you were working and you were getting cost of living raises, you would go from one bracket to the next bracket to the next bracket. Even though on an inflation adjusted basis you weren't making any more. And so a few years ago, the IRS decided to fix that, and so now the brackets index with inflation, and so they go up a little bit each year. So if you get a cost of living raise, which after inflation you're getting paid the same amount, you're not going to pay any more in tax. And so because inflation has been fairly significant over the past few years, the brackets went up pretty substantially this year, and that's good news for us in 2023, a couple that is filing jointly, for example, was in the 12% bracket up to about $83,550. In 2024, that's moving up to $94,300. So $10,000 higher than keep
Speaker 1 (02:09):
You win that bracket.
Speaker 2 (02:10):
Yeah, the bracket goes up that much more. So if you got a raise, then pretty good chance you'll be in the same tax bracket. So that's good. If you were in the 22% bracket, the top of that bracket's going up to a little over $201,000. So that's good too. Those are the two brackets we really want to make the most in terms of filling that tax-free bucket. And so this gives us a little bit more room, even more exciting is the standard deduction, which you add up all your income sources and then if you don't itemize deductions, and very few people do these days because the standard deduction is very high, and so most people don't have that much in the way of things they could deduct. The standard deduction is going up to $29,200, which is wonderful because what that means is the first $29,000 of income that you get is not taxed. It gets removed from your return by the standard deduction, and that's how you get yourself down to taxable income.
Speaker 1 (03:08):
Now with this change, are there some people that were in the higher tax bracket just barely and then now they're in the lower one?
Speaker 2 (03:16):
It could be. I mean, if you were making $90,000 or if you had taxable income of $90,000 in 2023 and your income didn't change, then yeah, you would drop substantially. You'd be going from a 22% bracket to a 12% bracket, so your marginal rate just got cut in half.
Speaker 1 (03:31):
Wow. A lot of people could be like, yeah, this is great.
Speaker 2 (03:35):
Well, exactly, and then especially with the standard deduction going up. So if you're making about the same as you did the year before your standard deduction goes up, so that's less taxable income and the bracket went up a little bit. So yeah, you could even potentially drop a bracket, which would be great, which would be wonderful. So in addition to that, contribution limits for retirement plans are going up. So in 2024, you can put $23,000 into your 4 0 1 k plus a little bit more. If you're over 50 and into your IRAs, you can put $7,000 plus a little bit more if you're over 50. So all of these things are going up. And so why is that important? Well, these are critical planning thresholds when we're doing advanced tax planning. And so one of the things, the principles that we keep our eyes on is how much can we maximize a low bracket to put money into, not just to save taxes today, but to put money into the tax-free bucket so that you can save tax money on it later so you can lower your taxes later in life.
And this gives us more room to do that. So if you are in your fifties, for example, and your income is in the mid eighties, a taxable income, that means that you've got nine or $10,000 of that bracket that you could still utilize. So you might be working and paying your taxes if you have that extra nine or $10,000, well, we might want to do a Roth conversion and make the maximum use of that 12% bracket so that we can put more money in the tax-free bucket so that you can never have to pay tax on it again after. Now, and that's especially important for two reasons. We've talked about it a lot. One is we know taxes are going up in 2026, so that 12% bracket's going away, it will be the 15% bracket and I'm betting, and the likelihood gets higher and higher every day.
The taxes are going to be going up in the future. There's pretty much no other way that the government can get out of its debt problem without raising taxes. And so those taxes might go up substantially. So if you're in a 12% bracket today, we know you're going to be in a 15% bracket if you're making the same money, and that might even go to a 17 or a 20 or a 22% bracket. So if there's more room to do more work in there, these right now, then we should make the most of it and take advantage of it.
Speaker 1 (06:15):
I have some people who have asked me to not pay them until January. That's for work completed in November. And I know that that's kind of a little off topic here, but it's the idea is there is like, I want to keep this, I don't want to put this in there yet because it's going to change,
Speaker 2 (06:37):
Speaker 1 (06:38):
How does this affect everybody? Why is this so important?
Speaker 2 (06:41):
Yeah. Well, it's important because we do long-term tax planning. We do long-term advanced tax planning. And so it's important because if there's more room in those brackets now, if there's more opportunity to put things away for later, there's an opportunity to put more in the deferred bucket. But there's even more important, there's an opportunity to put more into the tax-free bucket, and that's really the name of the game for most people. Most people have a lot of their savings, a lot of their retirement put in the tax deferred bucket, which is good, but it creates that required minimum distribution time bomb that when you hit 73 or 75, all of a sudden you're going to be forced to take a certain amount out and that can push you up a bracket or two. And if you're in your fifties now, that's not going to be for 20 years. So who knows what tax rates are going to be at that point. So the ultimate goal, like the ideal place we want to get to, and we usually can't do it because there's too much to adjust, but ideally we'd like to get to a point where your required minimum distribution is exactly equal to your standard deduction because if that's the case, you take out the required minimum and it's totally wiped out by the standard deduction. So effectively, everything you've taken out is not taxed. Wouldn't
Speaker 1 (07:54):
That be lovely? It
Speaker 2 (07:55):
Is lovely. It's a lovely place to be. And then if that happens, that just snowballs, right? Because if you have very low or no taxable income, then your social security is not taxable either, and you can take some capital gains from things and you would be in the 0% capital gains bracket. So if you can do enough of this adjustment, you can conceivably get into a no tax retirement, which is, that means all the stuff you've worked so hard to get, all the stuff that you've been able to put away, you get to use it all. You don't have to share any of it with the government. Wow. Again, that's a pretty tall order, but that's ultimately, if we can get there, mostly that's where we would like to be.
Speaker 1 (08:35):
And I think you're the guy who can figure out how to get us
Speaker 2 (08:39):
There. That's right. Exactly. Your
Speaker 3 (08:45):
Retirement is at risk, not from the stock market, not from inflation. Taxes are putting your retirement at risk. I'm certified financial planner, Steve Waring and I specialize in helping people create low tax retirements. Unmanaged taxes can take 30, 40, even 50% of your retirement income. Learn how to defend yourself against excess taxation. Our complimentary webinar will cover all the principles you need to know to protect your money for you and your family, and keep it away from the government. This free webinar will cover how taxes are different in retirement, the taxes you pay in retirement that you don't have to pay during your working life, how to move savings into a tax-free environment, the Widows Tax, the Secure Act, the Secure Act 2.0 and what they mean to you. The webinar is free, but you have to register to save your spot. So go to focused wealth advisors.com/webinars and find out more and sign up right there. Even if you're not planning to retire for the next five or 10 years, this information will be critical for you. The longer you have to put the strategies into effect, the more you can accomplish. That's focused wealth advisors.com/webinars to find out more and to sign up today.
Speaker 1 (10:11):
Alright, so good news about or possible good news about taxes. What are your 30 minute action item?
Speaker 2 (10:17):
30 minute action item is check your tax bracket, take a look at your last tax return and figure out what bracket you're in so you can see how much more room you're going to have in the coming year.
Speaker 1 (10:27):
All right, there you have it. And you have 30 minute.money to get the rest of our podcast. There's a lot of information there about everything you can think of, and there's a lot of learning to be had, especially from me. I go back and listen to some of the old ones too, so that I can refresh myself to keep up with Mr. Wessing here. Are
Speaker 2 (10:46):
You following me? One of the old ones? Is that what you just did?
Speaker 1 (10:49):
No, sir. Steve Wershing can be found at focusedwealthadvisors.com, and you can find me on my website, rocvox.com Until next time, we will see you 30 minute money.