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End-of-Year Estate Planning Considerations

As 2021 draws to a close, the estate planning attorneys at Adelberg Rudow detail several important factors you should consider at the end of the year when creating (or adhering to) your estate plan.

Plan to Maximize Your Contributions to Your IRA and 401(k)

In 2021, the maximum yearly contribution to a Roth or traditional IRA is $6,000, (or $7,000 for those 50 and older who are making catch-up contributions) and will remain so in 2022. It is important to note that your modified adjusted gross income (MAGI) may affect how much you can contribute to a Roth IRA.

Additionally, the maximum annual contribution to a 401(k) will increase from $19,500 to $20,500. If you are 50 or older, you can contribute up to an additional $6,500 as a catch-up contribution for a total of $27,000. You should also consider making those contributions to a Roth 401(k) if your employer’s plan provides that option.

Make Gifts to Reduce Taxable Estate

The first tax-free giving method is the annual gift tax exclusion. In 2021, the exclusion limit is $15,000 per recipient, and it rises to $16,000 in 2022. You can give up to the exclusion limit of money and property to any individual during the year without any estate or gift tax consequences. You can give in one transaction or a series of transactions. These gifts won’t count against your lifetime estate and gift tax exclusion, and the recipient won’t owe any federal taxes on the gift or gifts.

Education and medical gifts are the second method of tax-free giving. There’s no limit on the amount of tax-free gifts that can be made for qualified education or medical purposes. To be tax-free, education gifts must pay for direct tuition costs and not for items such as books, supplies, board, lodging, or other fees. The gifts must be made directly to an education institution, not as reimbursements to the student or parents. Medical gifts also must be made directly to the medical care provider to qualify for the unlimited gift tax exclusion.

Once the annual exclusion and tax-free medical and education gifts are exhausted, you can make additional tax-free gifts using the lifetime estate and gift tax exemption. The lifetime exemption amount in 2021 is $11.7 million and will be $12.06 million in 2022. In a married couple, each spouse has a separate exemption. Maryland does not have a gift tax.

Discuss Your Estate Planning Needs with the Attorneys at Adelberg Rudow

The end of the year is a busy time, but there are several important considerations you should make regarding your estate plan. Speaking with an estate planning attorney can ensure the decisions you make will help you meet your goals in an effective and efficient manner. The attorneys at Adelberg Rudow are dedicated to serving as trusted advisors for their clients, and have years of experience helping individuals, families, and business owners develop estate plans to help meet their goals. To learn more about the estate planning attorneys at Adelberg Rudow, contact us today.

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