Inflation: Costs and Benefits

For someone saving for the cost of future retirement, inflation erodes your future purchasing power. One of your investment objectives is likely to have a return greater than the drag of inflation.

Believe it or not, the government (specifically the IRS) will periodically increase certain thresholds for the impacts of inflation. For example, the maximum 2019 IRA contribution increased by $500 (from 2018 levels) to $6,000. The maximum 401(k) contribution for 2019 increased to $19,000 from $18,500 in 2018. Of course, you must proactively increase your IRA/401(k) contribution rate to take advantage of the increased levels.

Another example is the estate tax exemption. Starting in 2019, individuals will be able to avoid paying estate tax on up to $11.4 million (from $11.18 million in 2018) of their wealth before the 40% estate tax starts.

Not everything has increased. The amount you can annually gift, without paying gift tax, remains at $15,000. Nevertheless, under current law, a married couple can annually gift $30,000 to each of their children (or anyone else of their choosing).