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As the SECURE Act 2.0's provisions gradually come into effect, this landmark retirement legislation brings about a series of significant changes in 2024. From adjustments in tax brackets and retirement contribution limits to shifts in estate and gift tax exemptions, below we offer a clear overview of the key updates:
Tax Thresholds and Charitable Giving. Amidst the changes, the thresholds for estate and gift taxes have received a notable uptick in 2024, providing married couples an increased federal estate tax shield exceeding $27 million. In addition, the qualified charitable distribution (QCD) limit increased to $105,000, a welcome move that fosters charitable contributions while optimizing tax benefits. If you have an IRA and are 70 1/2 or older, you can now give up to $105,000 directly from your IRA to charity without it being counted as taxable income. This can also satisfy your withdrawal requirement. Plus, a new one-time gift of up to $53,000 to certain types of charitable trusts is allowed, helping you meet your required withdrawals in a way that benefits both you and your chosen charity.
Higher Contribution Limits in 2024. To keep pace with inflation, retirement account contribution limits have increased in 2024. For company retirement plans, such as 401(k), 403(b), and 457 plans, individuals under 50 can now contribute up to $23,000, while those aged 50 and above have a catch-up contribution limit of $30,500. Similarly, IRA contribution limits have been raised to $7,000 for individuals under 50, and to $8,000 for those 50 and above. These changes in contribution limits extend to health savings accounts, offering potential as stealth retirement vehicles.
Changes to Catch-Up Contributions. The SECURE Act 2.0 initially required individuals earning above $145,000 annually to make their catch-up contributions to retirement accounts in after-tax Roth accounts starting in 2024. However, recognizing the complexities of this transition for both employers and retirement plan administrators, the IRS has intervened to postpone the implementation of this requirement, known as section 603, to 2026. This delay allows individuals nearing retirement, especially those with incomes exceeding the $145,000 threshold, to continue making catch-up contributions on a pre-tax basis through December 31, 2025.
Expanded 401(k) Options. Your 401(k) plan received an upgrade. Employers can now match retirement plan contributions for employees who are repaying student loans, just like they would if you contributed directly to your 401(k) plan. It's a smart way to help you save for the future while paying down debt. Plus, the new rules allow plans to address emergency expenses through designated savings and penalty-free withdrawals. These changes are all about making it easier for you to manage your money and feel secure in your financial future.
New Flexibility for 529 Education Savings Plans. Now the way you can use money saved in a 529 education savings plan gets more flexible. If you've put money aside for someone's education and they don't use it all for school, you can now rollover some of it to a Roth IRA retirement account. See our article “The 529 to Roth IRA Rollover Opportunity in 2024” for more details regarding this change.
When to Start Taking Money Out. Previously, you had to start withdrawing money from your retirement accounts like a traditional IRA or 401(k) at age 72. Now, if you were born between 1951 and 1959, you don’t have to start until you’re 73. For anyone born in 1960 or later, the age moves up to 75. This means you can let your savings grow for a bit longer before you have to start taking money out.
First-Time Withdrawals. If you’re hitting the new starting age in 2024, you have a choice. You can take your first required withdrawal by the end of 2024, or wait until April 1, 2025. But waiting until April means you’ll need to make two withdrawals in 2025, which could bump up your taxes for that year.
No More RMDs with Roth 401(k) Accounts. We have good news for Roth 401(k) holders. The requirement to take out minimum amounts each year—known as Required Minimum Distributions (RMDs)—is now gone once you retire. Eliminating RMDs for Roth 401(k)s aligns them with Roth IRAs, simplifying your post-retirement finances.
Missed Withdrawals, Not as Costly as Before. Forgetting to take out the required amount comes with a penalty. The good news is the penalty is now smaller in 2024—25% of what you should have withdrawn, down from 50%. And if you fix the mistake quickly, it can drop to 10%.
How Withdrawals Affect Your Taxes and Medicare Costs. The money you take out counts as income, which can affect how much you pay for Medicare and your taxes. By starting withdrawals later, you might lower your costs in the short term. But once you start taking money out, your income goes up, which could increase your Medicare premiums and tax bill. It’s a good idea to chat with your financial advisor to navigate these updates for your best interest.
Take the Next Step to Optimize Your Retirement Strategy
Our team is dedicated to guiding you through these changes, helping you understand their impact on your retirement goals, and developing strategies to maximize your savings.
Contact Aspire Planning Associates today at (925) 938-2023 to schedule a consultation. Let's ensure your retirement plan leverages these changes to your advantage, setting you on a path to a secure and fruitful retirement.
The content in this article is provided for informational purposes only and is not intended as personal financial advice. For advice tailored to your specific situation, please consult the Aspire Planning Associates team or another certified financial planner (CFP) professional. Please note that the information presented is based on the current financial landscape, which may change over time. We recommend staying informed on relevant laws and market conditions as they evolve.
