Gifting Strategies and Catch-up Contributions

As the year-end nears, this is a good time to consider the benefits of gifting.  Gifting allows you to pass assets to beneficiaries in a tax-efficient manner.  Giving assets to your loved ones while you are alive has many benefits.  Gifting allows your beneficiaries to benefit from the gifts now and allows you the opportunity to see your gifts being enjoyed while the beneficiary is living.

Under the Federal Unified Estate and Gift Tax, an individual can gift up to $16,000 for 2022 ($17,000 in 2023) to a recipient without estate or gift tax consequences or filing requirements (unless spouses are splitting a gift in which case, they must file Form 709).  Married couples can jointly gift up to $32,000 for 2022 ($34,000 for 2023) to each recipient.  The recipient generally does not owe taxes or report the gift if it does not exclude the limits above.

There are several different ways to gift including cash gifts, gifts to 529 plans for educational expenses, or direct donations to educational institutions.  It is important to note that gifts for 2022 should be made (checked cashed) by 12/31/22. 

For those that are charitably inclined and age 70 ½ or older, another option for gifting is making a Qualified Charitable Distribution (QCD).  A QCD is a direct transfer from your IRA to a qualified 501 (c) (3) organization of an amount up to $100,000 annually.  In addition to the benefits of giving to a charity that is meaningful to you, the amount you donate to the QCD is excluded from your taxable income and can also be used to satisfy your Required Minimum Distribution (RMD).  

For those age 50 or older that are contributing to an IRA or Roth IRA, remember that you are allowed to contribute a catch-up contribution amount of $1,000 for 2022 (for a total IRA contribution of $7,000). This may be a good time to consider maximizing your IRA contributions. 

The IRS increased the contribution amounts for next year.  Beginning in 2023, individuals can contribute $6,500 to an IRA (plus $1,000 catch up for those 50 or older). 

These are some gifting strategies that may be beneficial to consider as we near the close of the year.  Please reach out to your Wheelhouse advisor if you have any questions. 

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