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Key financial changes for the new year

John WyckoffAs 2014 begins, it’s a good idea to look ahead to the financial changes expected. There has been a lot of recent news coverage of the politics and policies around our nation’s budget, the “fiscal cliff” and more; with Congress continuing to work on large-scale financial issues, it’s possible that further action will be taken. That said, there are several changes we do know will happen that may affect financial planning for 2014. Here’s an overview of what to expect.

Social Security and Medicare

The 63 million Americans receiving Social Security benefits will see a 1.5 percent increase in payments beginning in January, due to an annual cost-of-living adjustment.

People younger than full retirement age who are simultaneously collecting Social Security benefits and working will see their payments reduced by $1 for every $2 earned more than $15,480 a year, or $1,290 a month. This “retirement earnings test exemption amount” allows $350 more in earnings per year without penalty than in 2013.

People who reach full retirement age in 2014 will see their payments reduced $1 for every $3 earned more than $41,400 for the year – an increase of $1,320. The maximum monthly Social Security benefit is $2,642 in 2014, up from $2,533 in 2013.

Medicare Part B insurance and deductible costs will remain the same; however, the Part A hospital inpatient deductible has been raised $32 for each benefit period or hospital stay.

Retirement plans and health savings accounts

Employees can contribute up to $17,500 in their employer-sponsored retirement plan – 401(k), 403(b) or 457(b) plans – a limit that is unchanged from 2013. Similarly, Individual Retirement Account contributions are capped at $5,500, the same level as last year. “Catch-up” limits will also remain steady, allowing people to contribute an additional $5,500 to their retirement plan and $1,000 to IRAs if they are 50 or older.

For people who participate in a health savings account, the annual maximum contribution in 2014 will increase to $3,300 for individuals and $6,550 for families.

Taxes

As for tax changes in 2014, there will be a slight upward modification of tax brackets, with the personal exemption amount increasing from $3,900 to $3,950. Other increases include a bump in the maximum taxable earnings for Social Security taxes to $117,000 – an increase of $3,300 over 2013. The alternative minimum tax exemption amount and corresponding exemption phase-out threshold has increased slightly, while the annual gift tax exclusion remains at $14,000 for individual gifts, or $28,000 for joint gifts.

Stay updated

Again, these are the financial changes we know to expect for 2014; however, there may be more in the near future as Congress continues working in January. To stay updated on any additional developments, it’s a good idea to speak with a financial planner and tax professional early this year.

John Wyckoff is a senior investment counselor with StanCorp Investment Advisers. Contact him at 971-321-8090 or at john.wyckoff@standard.com.

About John Wyckoff