Big tax changes are on the horizon for 2024 and the years ahead. From updated contribution limits, to changing tax credits—including new rules around Electric Vehicle (EV) and solar benefits—here are some of the most notable changes that may impact your tax bill next April.
If you set up automatic contributions, note these new limits.
For 2024, the IRS has increased the annual contribution limits for both 401(k) accounts and Health Savings Accounts (HSAs). If you have an automated contribution plan in place for either of these accounts, 2024’s higher limits mean you may have an opportunity to increase your savings rate—and further reduce your tax burden.
For 401(k) savers…
In 2024, the annual maximum contribution limit will increase to $23,000. If you’re over 50, there’s also an extra catch-up contribution in place, which raises your total contribution allowance to $30,000.
This higher limit is an excellent chance to bolster your retirement nest egg while benefiting from some additional tax savings.
Early in the year, we recommend sitting down with your financial advisor to compare your total contribution allowance to how much you’re actually contributing every month. An easy way to make sure you’re hitting your maximum contribution limit is to divide that limit amount by the number of pay periods left in the year. That answer will tell you exactly how much you should be funneling into your 401(k) each pay period to maximize your benefit and the tax savings that come with it.
One more 401(k) detail to note: If you’re turning 50 in 2024, you qualify for that catch-up contribution even if your birthday is the last day of the year.
For HSA savers…
In 2024, the contribution limit on HSAs is $4,150 for individuals and $8,300 for families. There’s also a $1,000 catch-up contribution allowed for those 55 and older.
If you want to max out this benefit—which is a tax-optimized move we advise just about all clients to make—it’s important to double-check your savings rate early in the year.
If you have automatic withdrawals in place, you may need to manually adjust your deposit amounts to ensure your contributions are aligned with the new limits. And as with 401(k) catch-up contributions, if you turn 55 this year, make sure that extra catch-up bonus is incorporated into your financial plan, so you don’t miss out on the added benefit.
What about the EV and solar power credits?
If you’ve seen a car commercial or researched green energy options, you’ve no doubt come across ads and articles about two significant tax credits: The EV credit and the solar investment credit. These tax credits can be a great tax benefit for some individuals, but they’re a bit complicated to qualify for. It’s a good idea to talk to your financial advisor about the requirements and regulations before you make a purchase.
New EV credit limits tighten qualifications
The EV credit landscape is shifting considerably, with significant changes in eligibility and claiming procedures rolling out in 2024. To qualify for an EV credit, several conditions must be met, including:
- Purchase cost
- Purchasing deadline
- Maximum income
- Manufacturing requirements
- Vehicle type and use
EVs that don’t meet every single one of these criteria may qualify for a reduced credit or no benefit, which is why it’s important to speak to your financial advisor early in the process.
In addition to these specific criteria, a few additional factors further complicate your ability to apply the EV credit. Some dealerships may be allowed to apply the credit directly to the vehicle’s price on the lot, reducing its initial sale price. However, if you accept this lower price and don’t end up qualifying for the tax credit, you’ll owe the difference on your taxes. Plus, the EV credit is not refundable. If you don’t owe taxes, due to other credits or benefits reducing your bill, or your owed taxes are less than the total credit, you won’t receive the excess benefit as a refund.
The solar investment tax credit will decrease in the coming years
The federal solar tax credit is a benefit designed to encourage homeowners to install solar panels and shift to green energy usage. In 2024, you may be able to claim the credit—worth up to 30% of your total panel system cost—if you:
- Pass a system inspection and are permitted to operate your system in the year 2024.
- Have a tax bill that’s higher than the value of the credit.
Some states and regions have additional rules that impact how much of the credit you can apply, and how you can earn the benefit. Nationally, the solar investment tax credit will be decreasing in a few years, so it’s a credit worth considering sooner, rather than later.
With these tax changes on the horizon, proactive planning is key.
The first few months of the new year are the best time to review your financial plan, revisit your long-term goals, and make sure your tax savings strategy aligns with both. The earlier you adjust your withholdings and retirement plan, the more options you have to meet your goals and enjoy your hard-earned income.
Here are a few steps you can take:
- Review and adjust your auto-savings tools. Reassess your tax withholdings and auto-deposits, compared to the new contribution limits, catch-up provisions, and your long-term savings goals.
- Review your retirement plan. Based on your expected income, investments, and updated savings rate in 2024, retirement may be a little closer than you think. Reevaluate your retirement trajectory, looking for opportunities to optimize your approach or strengthen your plan.
- Solidify your tax plan. Based on the credits and deductions you plan to take in 2024, make a clear plan and timeline for when you’ll make the necessary purchases, deposits, or filings needed to optimize your benefits and minimize your tax burden.
If you don’t already have a financial or tax advisor—or you’d like a second opinion on your plan—now is also a good time to establish a new partnership.
At Cook Wealth, our team is dedicated to helping you keep up with these tax changes and plan for a smart, tax-savvy future. We’re here to guide you through these adjustments—and whatever the market throws at you—so your financial strategies stay aligned with the goals that matter to you.
When you’re ready to optimize your tax strategy and build a plan you’re confident in, connect with our team.