What’s New for Retirement Saving for 2024?

By Gene Balas, CFA®
Investment Strategist

There are a number of exciting changes to retirement savings from updates to the IRS tax code this year, including those pertaining to inflation adjustments to employer-sponsored retirement plan contribution limits (including catch-up contributions). There are also new Roth IRA provisions as well as changes to required minimum distribution requirements from retirement plans. Additionally, new phase-out ranges for traditional IRA contributions also goes into effect.

2024 Retirement Plan Contribution & Benefit Limits

Let’s discuss some of these new changes that apply for the coming tax year (2024), and of course, you’ll want to check with your tax advisor to see how the broad generalities of these rules described here apply to the intricacies and specifics of your own individual situation. Plus, your SEIA advisor is a valuable resource to help you navigate some of these changes to help you plan, save, and invest for a successful retirement.

Contribution limits to certain retirement plans and new Roth account provisions

The employee contribution limit for those who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan is increased to $23,000 for 2024, up from $22,500 in 2023. The Roth 401(k) contribution limits for 2024 are the same as the pretax limit for traditional 401(k) plans. And if you have access to multiple plans through different employers during the year, you are still limited to the total employee contribution amount for the year. So, if you contribute to more than one employer’s plan during the year (say, for example, you change jobs), be sure to avoid overcontributing to those retirement plans as penalties may apply.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan remains $7,500 for 2024. Therefore, participants in these plans who are 50 and older can contribute up to $30,500, starting in 2024. The catch-up contribution limit for employees 50 and over who participate in SIMPLE plans remains $3,500 for 2024.

Employer matching can now be treated as a Roth contribution. Previously, any employer matching contributions had to be treated as a pre-tax contribution, meaning they went into a traditional 401(k) account or the equivalent. The new law changes that, allowing matching contributions also to go into a Roth version of the account, if desired. However, unlike the prior pre-tax matching funds, matching amounts that go into a Roth account are taxable.

Rolling over unused funds in 529 plans to a Roth IRA

In 2024, unused funds in 529 plans can be rolled over into Roth IRAs for the beneficiary of the 529 plan. One of the biggest downsides of saving in a 529 education savings plan has been what to do with any unused funds. The SECURE Act 2.0 allows that money to be rolled over into a Roth IRA. But there’s some fine print: The money can be rolled over into a Roth IRA for the beneficiary after the account has been open for at least 15 years, and is limited to the maximum annual Roth contribution. In addition, there’s a $35,000 lifetime limit on the rollover amount. Certain details are still being finalized in Congress.

Required minimum distributions for IRAs and other retirement plans

The age for required minimum distributions (RMDs) rises with the SECURE Act 2.0. The age to start taking RMDs is now 73, as of 2023, up from age 72. Then starting in 2033, the age for beginning to take RMDs jumps to 75. The law applies to 401(k) plans, 403(b) plans and IRAs, among others.

If you don’t meet your RMD, you’ll be hit with a penalty. Previously, that penalty was 50% of the amount that a person didn’t withdraw. The new law reduces that penalty to 25%. If one misses an RMD from an IRA, they may be able to reduce that penalty to 10 percent if you correct the deficiency in a timely manner and refile your taxes.

IRA and Roth IRA contribution limits

The limit on annual contributions to an IRA will increase to $7,000, up from $6,500. (The IRA catch-up contribution limit for individuals aged 50 and over remains $1,000 for 2024.)

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

Here are the phase out ranges for 2024:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000, up from between $73,000 and $83,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000, up from between $116,000 and $136,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $146,000 and $161,000 for singles and heads of household, up from between $138,000 and $153,000. For married couples filing jointly, the income phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

These are just a few of the general provisions of the new changes to the tax code pertaining to retirement plans in 2024. There are other important new provisions for taxes in 2024 beyond just those for retirement plans. Since tax laws are complicated, you should consult with your tax advisor as appropriate, as well as review your retirement planning with your SEIA advisor. He or she will be able to help you find the best way for you to plan, save, and invest. We are always ready to serve you in your financial planning and investment management needs.

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