The onset of the new year provides an opportune moment to organize your financial affairs, and in 2024, a series of alterations to retirement plans could facilitate the process of saving for retirement, addressing emergencies, and managing student debt.
These adjustments primarily result from the enactment of the SECURE Act 2.0, passed by Congress at the conclusion of 2022, which involved significant revisions to various components of the American retirement system.
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Emergency Savings in a Workplace Plan
Employers, under a provision in the SECURE Act 2.0, now have the choice to integrate an emergency savings account into defined contribution retirement plans this year.
These accounts, designated as Roth accounts, specifically target non-highly compensated employees.
Contributions are capped at $2,500 annually (potentially lower, as determined by the employer) and contribute to overall annual contribution limits.
The initial four withdrawals in a year are tax- and penalty-free, and contributions may qualify for an employer match based on plan regulations.
This initiative aims to promote savings for unforeseen expenses and short-term financial goals. The decision to include an emergency savings account in a retirement plan is at the discretion of employers, and plan administrators may present alternative solutions.
RMD Exemption: Workplace Roth Accounts
While Roth IRAs have no mandatory required minimum distributions (RMDs), until 2024, retirees with a workplace Roth plan were obligated to take RMDs upon reaching the age specified by the Internal Revenue Service (IRS) for withdrawals from qualified retirement accounts.
However, starting this year, individuals reaching RMD age in 2024 or later are not required to take RMDs from a workplace Roth plan.
This exemption allows for potential additional growth in savings, akin to non-workplace Roth accounts.
Assuming compliance with the 5-year aging rule and an age of 59½ or older, withdrawals are tax-free.
It’s important to note that if you reached RMD age in the previous year and haven’t taken your first RMD, you may still owe it by April 1, 2024.
Rising Catch-Up Limits: Benefits for Senior Workers
For the tax year 2024, catch-up contributions to Individual Retirement Accounts (IRAs) will be adjusted based on inflation.
While the contribution limits for retirement accounts are typically subject to annual inflation adjustments, catch-up contributions for older individuals have not consistently received such increases in the past.
Currently, individuals aged 50 or older have the option to make a catch-up contribution of $1,000, in addition to the standard $7,000 contribution to an IRA (traditional or Roth).
Indexing is implemented to ensure that catch-up contribution amounts will rise in tandem with the cost of living.
Transferring 529 Funds to Roth IRA
If you have a beneficiary with a 529 account, such as a child or grandchild, who does not intend to utilize the funds for educational expenses, there is an opportunity to transfer these funds to a Roth IRA, potentially enhancing their retirement savings.
Effective January 1, 2024, you have the option to transfer up to a lifetime limit of $35,000 to a Roth IRA established in the name of the 529 beneficiary without incurring taxes or penalties.
This transfer is permissible if the 529 account has been maintained for the designated beneficiary for a minimum of 15 years, adhering to the annual Roth IRA contribution limits.
It’s important to note that the transferred amounts must originate from 529 contributions made at least 5 years prior to the transfer date from the 529 to the Roth IRA.
In contrast to regular Roth contributions, the legislation under the Secure 2.0 Act suggests that income limits, which typically restrict Roth IRA contributions, may not apply to the 529-to-Roth IRA transfer.
Student Loan Matching in a Workplace Plan
In the year 2024, employers have the option to introduce a matching program for student loan payments within 401(k) or other workplace retirement plans.
This development comes as student loan repayments resume after a multi-year hiatus prompted by the pandemic, presenting an attractive incentive for employees managing ongoing loan obligations.
It’s important to note that only higher education expenses are deemed eligible, and employees are required to annually certify their student loan payments to qualify for the matching program.
Eligibility for a 401(k) match may still apply, even if an employee is making minimum payments.
However, the availability of this benefit may vary by plan, and additional plan vesting and matching regulations will be applicable.