Retirement Planning Will Change in 2024
In 2024, retirement planning strategies will undergo some major changes. With new laws and regulations coming into effect, those planning for retirement will need to understand the situation and adjust their strategies accordingly. No matter where you are on your retirement journey, these provisions will impact how much you can save for the future.
Increasing IRA and 401k contribution limits.
The IRS announced an expansion of contribution limits for IRAs and 401ks through 2024. The amount individuals can contribute to their 401(k) plans in 2024 increased to $23,000, up from $22,500 in 2023. This contribution limit applies to similar employer-sponsored retirement accounts. as well as, such as 403(b) plans, most 457 plans, and the federal government’s Employee Savings Plan.
The annual IRA contribution limit will be $7,000 in 2024, up from $6,500 in 2023. These contribution limits apply to the total amount of contributions you make each year to all of your traditional and Roth IRAs. The increased limits allow savers to save more pre-tax money for retirement. As always, you can and should exceed these limits as much as possible if possible.
529 plans can now be converted to a Roth IRA.
Investing in 529 college savings plans has always been a risk. What if your child doesn’t need all the money you saved? Starting this year, unused funds from a 529 plan can be rolled over to a Roth IRA for your child—without penalty. This new tax-free rollover rule, part of SECURE 2.0 , means you won’t have to worry about the current 10% profit penalty if you have any money left over. You’ll be able to roll over up to $35,000 from your 529 savings. Of course, the amount you can rollover also depends on the Roth IRA’s annual limits.
Now for the fine print: You must own a 529 education savings account for at least 15 years before you can roll over money, and you can only roll over money that has been in the account for five years or more. And the account owner (usually the child’s parent or guardian) cannot roll the money over to their Roth IRA—it must be an account opened specifically for the beneficiary of the 529 plan.
If you’re a parent looking to create that college savings vehicle, start looking for online tools that can help you compare the offerings of different plans by state. Here’s our guide to opening a 529 for your child .
Penalty-free emergency withdrawals
Previously, retirement savers with “immediate and pressing” financial needs were technically able to take early withdrawals from their 401(k) and traditional individual retirement accounts. However, such early withdrawal will be subject to income taxes, and those under age 59½ will generally have to pay a 10% tax penalty.
You can now take one withdrawal of $1,000 per year to cover personal and family emergency expenses without paying the 10% penalty. All you need to do is “self-certify ” that you need the money in case of an emergency.
Note. Domestic violence victims under age 59 can withdraw up to $10,000 from IRAs and 401(k)s without paying a penalty.
Starter 401k Plans for Small Businesses
Starter 401ks will launch in 2024 to help small businesses offer retirement plans. The trimmed plans will have lower costs and less administrative burden for employers. Employees can contribute up to $6,000 annually, and businesses have pre-tax time to make plans. Starter 401k aims to expand access to workplace retirement plans for small business employees.
In 2024, those planning to retire will need to be aware of these changes. Consulting with a financial advisor can help you strategize how to take full advantage of increased contribution limits or take advantage of new tools like the Roth 529 conversion.