2024 Social Security COLA Overview

Understanding COLA

COLA, designed to counteract inflation, reviews price changes annually. In 2023, a record 8.7% increase occurred, primarily due to inflation in 2022. For 2024, the COLA is 3.2%, resulting in a $57.48 monthly rise in the average retirement benefit

Tax Bracket Adjustments

Increased benefits may push retirees into a new tax bracket. However, the IRS has adjusted income thresholds by 5.4% to accommodate the higher cost of living. This aims to prevent taxpayers from moving to a higher tax bracket solely due to increased living costs

Social Security Benefit Taxes

Social Security benefits' taxability, established in 1984, ranges from 50% to 85%. The formula considers earned income, taxable interest, dividends, pensions, annuities, and other income. Understanding these thresholds is crucial to estimating the tax impact

Thresholds for Taxation

For married couples filing jointly with a total income of $32,000 or less, no Social Security taxes apply. Income between $32,000 and $44,000 may incur up to 50% taxation, while over $44,000 could lead to 85% taxable benefits. Similar thresholds apply for individuals filing as single

Additional Tax Changes

In 2024, the qualified charitable distribution limit increases to $105,000. The annual gift amount rises to $18,000 per person or $36,000 for married couples. These changes offer strategic options for retirees to manage taxes

State-Specific Considerations

Twelve states tax some Social Security benefits. Retirees should explore state income tax breaks. For example, Kentucky provides a $31,110 exclusion for retirement plan income

Planning for Social Security Taxes

Consider adjustments to other income streams, like pensions and interest from CDs or money markets, to offset potential tax impacts. Assessing state tax laws and optimizing income sources can enhance tax planning

Estate Planning and Gifting Strategy

The annual gift amount increase to $18,000 per person offers opportunities for gifting strategies. Understanding lifetime gifting limits (up to $13.61 million) can aid in effective estate planning

Final Considerations

Retirees should proactively plan for Social Security tax implications. Factors such as state laws, gifting strategies, and income source adjustments play a vital role in optimizing tax outcomes