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Optimize Financial Plans For 2024

The first week of January is an excellent time to consider your financial plans for 2024. Some individuals are planning for retirement and should consider their contributions to a qualified retirement plan. Other individuals may have already retired and should consider their withdrawal strategies or required minimum distributions (RMDs). Individuals may benefit from a strategic plan to make wise financial decisions in 2024.

1. Retirement Contributions — The 2024 limit for your 401(k) contributions could be up to $30,500. The regular contribution is $23,000. If you are age 50 or older, there also is a potential $7,500 catch-up contribution amount. Individuals with moderate incomes may save $8,000 in an IRA. The regular contribution is $7,000 and the additional amount is $1,000 for age 50 and older. If you have not maxed out your 2023 IRA contribution, you can still make a transfer until April 15, 2024.

2. Tax-Free Retirement Accounts — While traditional IRA or 401(k) accounts are funded with pre-tax dollars, there are many benefits for making contributions of after-tax dollars into a Roth 401(k) or Roth IRA. Although the contributions are after-tax, your future retirement payouts will be tax-free. Some individuals have higher incomes and therefore do not qualify for a Roth IRA or their employer does not offer the Roth 401(k), but they may qualify for a Roth conversion. A traditional IRA or 401(k) can be transferred into a Roth IRA. There is a requirement to pay income tax on the transferred amount, but the future payouts will be tax-free.

3. Recently Retired — If you have retired during the past year or two, you are likely to be planning withdrawals from your savings account or investments. One of the main questions facing individuals is how much to start withdrawing. Most financial planners suggest withdrawing 4% of the account. While a conservative investor may choose to withdraw 3%, the 4% withdrawal rate is frequently advocated. Part of the withdrawal decision relates to your retirement budget. Individuals who retire may have significant expenditures on hobbies or travel. If you have substantial expenditures, you may have a larger retirement budget. You also might consider one-time expenses such as the purchase of a new vehicle or renovation of your home.

4. Fixed Payments — A popular method to receive fixed payments for a term of years or a lifetime is an annuity contract from a financial services company or a nonprofit. With the current higher interest rates on bonds, the rates on both commercial annuities and charitable gift annuities are higher. These fixed payments can be created for one or two lives. The combination of Social Security income, retirement account withdrawals and fixed annuity payments can provide a substantial income.

5. Estate Plan Review — January is an excellent time to update your estate planning documents. You should review your will (if you do not have a will you should plan to make one) and check the beneficiary designations on life insurance policies and retirement plans. Some individuals have held life insurance policies or retirement plans for many years. There may have been a change in family circumstances and the wrong beneficiary is listed on the plan document. You also should create a durable power of attorney for healthcare, which is referred to as an advance directive in some states. Your healthcare directive is designed to protect you. Your designated health care proxy will be able to make future health care decisions if you are incapacitated.

6. Required Minimum Distributions (RMD) — If you are age 73 or older in 2024, you will be required to take a distribution from your traditional retirement plans. You generally will start taking a withdrawal of 3.78% from a traditional IRA, 401(k) or 403(b) plan. The exception is for a couple with a spouse more than 10 years younger. There is a reduced withdrawal requirement for those couples. Another option to fulfill your RMD for 2024 is a qualified charitable distribution (QCD). The 2024 QCD limit is increased to $105,000 for individuals who are over age 70½.

New Digital IRS in 2024


The IRS has created a goal to move nearly all documents to digital format in 2024. This goal is designed to improve the taxpayer experience and reduce errors. IRS Commissioner Daniel Werfel noted, "During the pandemic, you saw all the photos from the IRS cafeteria in our [Austin, Texas] campus, with racks and racks of paper absolutely filling a room not normally used for storage. Tens of millions of pieces of paper that require manual processing flood our campuses and offices. It is time to ensure that no cafeteria in the IRS ever looks like that again."

The IRS is aware the 2022 filing system had an abysmal level of phone service. With the combination of the improved taxpayer service during the 2023 filing season and the new commitment to transferring paper forms into digital format, the IRS expects to have an improved level of service this year.

The IRS has a 2024 goal to move over 94% of taxpayers to a purely digital platform. The IRS has added 20 additional tax forms to electronic formats and is also progressing steadily toward making the IRS forms available in a mobile-friendly format. Many taxpayers regularly use a smartphone when surfing the Internet and the mobile-friendly forms will be helpful.

Michael Raanan is a tax professional who was previously an IRS revenue officer. He observed that a decade ago, the IRS systems were "antiquated." However, the IRS now is finally moving forward with a number of enhancements. The 2023 filing system now allows most forms to be uploaded electronically. This is a major improvement that will reduce delays for taxpayers.

Raanan notes there still are issues. A client had planned an overseas wedding and paid for the tickets and vendors. However, the IRS sent a notice that his passport was on hold due to an unpaid tax bill. The client was very concerned and asked, "Are we going to be able to resolve this and have my passport released by the time the wedding comes around?” Fortunately, Raanan was able to resolve the problem.

Former IRS Commissioner Mark Everson is a tax professional with a financial services group. He notes that the new staff and the digital methods could "make the filing season a lot better to begin with, just having more seasoned people at the helm."

An ongoing concern for the IRS is there may be a government shutdown during the filing season. Congress is facing a budget deadline of January 19, 2024. If Congress is not able to resolve the current deadlock with the White House, there could be a federal government shutdown. Because this is the middle of the tax filing season, this could be a major problem for the IRS.

The other potential risk for the IRS is that a budget compromise may continue to reduce the additional IRS modernization funds. The original Inflation Reduction Act (IRA) funding of $80 billion has been reduced to under $60 billion. If this amount is reduced further, it will impact the ability of the IRS to move forward with the digital initiatives.

On December 14, Commissioner Werfel noted that automation and artificial intelligence will continue to enable the IRS to move forward. While the advancements in technology also increase the risks of a data breach, the improvements are generally welcomed. Werfel concluded, "I do not think you can move the needle from zero to 100 overnight. That may take more time. But it will eventually get you there with a nation and a set of taxpayer that is increasingly more comfortable with his new state of affairs.”

Tax Contests by Political Parties In 2024


With the 2024 elections for the White House, House and Senate, there will be major budget and tax challenges. The candidates for all of these offices will focus largely on the domestic economic agenda, but there clearly will be significant impact on taxes.

Both Democratic and Republican candidates have general positions that will impact decisions in the tax area. A major challenge for the next administration will be the projected expiration of the Tax Cuts and Jobs Act (TCJA) at the end of 2025. Marc Goldwein is a spokesperson for the Committee for a Responsible Federal Budget. He stated, "The elephant in the room that maybe no one is going to want to talk about, but they are going to have to, is that huge parts of the [Tax Cuts and Jobs Act] are scheduled to expire in 2025. One way or the other, whoever wins the presidency is going to have to deal with them."

TCJA reduced both individual and corporate rates. The corporate rate was reduced from 35% to 21%. The combination of the business and personal income tax reductions added approximately $2 trillion to the national debt between 2018 and 2025.

While both parties have opposed certain aspects of TCJA, there also is some agreement on potential extension of tax reductions. Both parties generally desire to extend parts of the tax reductions for low and middle-income families.

The Democratic party has regularly proposed an expansion of the child tax credit. TCJA doubled the credit from $1,000 per child to $2,000 per child. The credit was raised briefly to $3,600 per child. The tax brackets for individual taxpayers were also lowered. Democratic candidates have generally supported maintaining the tax benefits for individuals with incomes under $400,000 per year.

A major question for extending some of the TCJA provisions will be revenue offsets. A full extension of TCJA would cost $3 trillion to $4 trillion over a decade. With the large current federal debt, it is likely that there will be some combination of extensions for part of the TCJA provisions and additional revenue raisers. Two Democratic proposals are to increase taxes on high income individuals and to no longer permit a step up in basis on estate capital assets. A Republican proposal is a 10% tariff on all imports. These proposals could raise over $2 trillion during a decade but may lead to a reduction in overall economic output.

Another area of potential controversy is clean energy deductions and credits. The credits in the Inflation Reduction Act were initially projected to cost $270 billion over a decade. The actual price tag for the green energy credits may now exceed $1 trillion.

The credits were designed to reduce the dominance of China in the clean energy supply chain. China currently produces 16 of the 32 major minerals that are used to produce electric vehicles and batteries. The credits are designed to move production of many of these critical materials back to the United States.

A final factor that could have impact on the tax plans would be a third party run by retiring Senator Joe Manchin III of West Virginia. He has discussed the possibility of running on the "No Labels" ticket. While a third-party candidate has never won the Presidency, it is possible that his candidacy could impact the election.

Treasury Secretary Janet Yellen was very pleased with the 87% IRS phone service level for taxpayers during the past filing season. With the combination of increased IRS staffing and the new digital form capabilities, she believes the IRS will have a successful filing season again this year.

Editor's Note: Your editor does not take a specific position on the multitude of candidates and tax issues for 2024. This information is offered as a service to our readers.

Applicable Federal Rate of 5.2% for January — Rev. Rul. 2024-2; 2024-2 IRB 1 (18 December 2023)


The IRS has announced the Applicable Federal Rate (AFR) for January of 2024. The AFR under Sec. 7520 for the month of January is 5.2%. The rates for December of 5.8% or November of 5.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2024, pooled income funds in existence less than three tax years must use a 3.8% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”

Published December 29, 2023

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