For the first time since 2006, the estate tax exemption has increased.  Effective January 1, 2009, the exemption amount is $3,500,000.  That is an increase of $1,500,000 over previous years.  Each individual can exclude $3,500,000 from their taxable estate.  Because each spouse has a separate exclusion, a couple should effectively be able to exclude $7,000,000 from their taxable estates if proper planning is done.  However you should note that if a married couple creates wills that leave all property to the surviving spouse, they may miss the opportunity to use the deceased spouse’s credit.  Please consult your tax advisor for effective estate planning in this regard.

Although the estate tax exclusion was increased for 2009, the gift tax exemption remains at $1,000,000.  Under current law that amount is not set to be indexed for inflation.  However, the annual gift tax exclusion has increased from $12,000 to $13,000 for the year 2009; therefore, a married couple electing to split gifts can effectively gift $26,000 to each donee without using any of their gift tax exclusion of $1,000,000.

Also, changes to the retirement plan contributions limits are in place for the tax year 2009.  Under a Traditional IRA the contribution limit is the lesser of (1) $5,000 ($6,000 if age 50 or older) or (2) taxable earned income.   As in the past, the deduction will be phased out for those covered by a retirement plan at work once certain income limits are reached.    If neither the individual nor their spouse is covered by an employer retirement plan then a full deduction is allowable. The annual limit for a ROTH IRA is the same as for Traditional IRAs.  The ability to contribute to a ROTH IRA is also subject to gross income limitations.  Employee elective deferrals to 401(k) accounts are limited to $16,500 ($22,000 for employees age 50 or older) in 2009.   For Simple IRA’s the employee elective deferral limit is $11,500 ($14,000 if 50 or older). Participants in a 403(b) (employees of tax exempt organizations) have the same dollar limitations as participants in a 401(k) plan.  The maximum contribution to a retirement plan for an individual has been increased to $49,000 in 2009 (plus any catch up contribution that may be allowed if the participant is over age 50 and a 401(k) contribution is included).

For more information, please contact Jane Wallace at 215-564-1900.

Back to News Archive