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New Rules for a New Year

January 06, 2017

Growing Your Wealth


Estate and gift taxes in 2017

The amount exempt from the federal estate tax went up to $5.49 million per decedent on January 1, 2017, an adjustment for 2016 inflation. The lifetime federal gift tax exemption is also $5.49 million. Married couples have two exemptions, so they can shield $10.98 million from transfer taxes. However, in the minority of states that continue to have estate and/or inheritance taxes, the amounts exempt are generally much lower.

The federal gift tax annual exclusion continues to be $14,000.  No adjustment will be made to this threshold until the accumulated inflation pushes it to $15,000.  Married couples who split their gifts (that is, treat a gift by one as made equally from both of them) may give $28,000 to each of as many persons they wish, without putting a dent in their $10.98 million combined lifetime gift tax exemption.

However, there is a real question concerning how much longer the federal estate and gift taxes will stay on the books.  A majority of Republicans as well as many Democrats are on the record as favoring the end of these complicated taxes, as the revenue they raise is not significant in the federal budget. Some have defended these transfer taxes as a barrier to the accumulation of dynastic wealth, but history suggests they have not succeeded in meeting that objective to date.

President-elect Trump included elimination of the federal estate and gift tax in his tax reform proposals during the campaign.  This is likely to be a lower priority than reformation of the corporate tax, which has a far greater impact on economic growth.  Still, if the tax-reform train pulls out of the station in the spring, modification of estate and gift taxes is likely to be one of the cars.

Even if the taxes are repealed, however, that won’t mean the end of planning for “death taxes.”  It appears likely that in place of the estate tax we could see a return of carryover basis, as happened in 2010 (the year the estate tax was optional).  Alternatively, unrealized capital gains might be subjected to a capital gains tax at death, as is already done in Canada.

Social Security in 2017

Tax rate for employees 7.65%
Tax rate for self-employed 15.30%

Maximum earnings taxable

Social Security wage base $127,200
Medicare wage base no limit

Retirement earnings test exempt amounts

Under full retirement age $16,920
($1 in benefits is withheld for every $2 in earnings above the limit.)
For the year in which full retirement age is reached $44,880
($1 in benefits is withheld for every $3 in earnings above the limit, but only for months prior to reaching full retirement age.)
After full retirement age is reached no limit

Taxation of Social Security benefits

Singles with a “provisional income”*
below $25,000  no tax on benefits
from $25,000 to $34,000 tax on 50% of benefits
over $34,000 tax on up to 85% of benefits
Marrieds filing a joint return with a “provisional income”*
below $32,000 no tax on benefits
from $32,000 to $44,000 tax on 50% of benefits
over $44,000 pays tax on up to 85% of benefits
Maximum Social Security benefit at normal retirement age $2,687 

*The IRS defines “provisional income” as your modified adjusted gross income (MAGI) plus nontaxable interest plus one-half of your Social Security benefits. (MAGI is adjusted gross income plus tax-exempt income.)


Retirement plan limits in 2017

To make it possible for voluntary retirement savings to keep up with inflation, the various numerical limits embedded within qualified retirement plans are indexed for inflation. In October the IRS announced the numbers that will apply in 2017, as shown in the following table:


2017 limit

401(k) and 403(b) employee deferral limit


457 employee deferral limit (most plans)


Catch-up contribution limit


Defined contribution dollar limit


Defined benefit dollar limit


Compensation limit


Highly compensated employee income limit


Key employee in a top-heavy plan



Note that the deferral limits for 401(k) and 403(b) plans are unchanged from 2016.  Catch-up contributions are permitted by those employees who are 50 years of age or older during the calendar year.

Personal saving for retirement never has been more important.  These tax benefits make saving a bit less painful.

(November 2016)

© 2016 M.A. Co.  All rights reserved.

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This blog article is for informational purposes only, and is not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.

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