Rosalind Evans
The year 2024 marks a significant shift in retirement planning, driven by inflation adjustments and the ongoing implementation of Secure 2.0 provisions. These changes will impact retirement savers and retirees, altering everything from tax brackets and contribution limits to estate and gift tax exemptions. Understanding these modifications is crucial for effective financial planning. This article delves into the critical retirement-related changes in 2024 and outlines potential actions to optimize retirement strategies.
Higher Tax Brackets
With inflation on the rise, 2024 will see increased income limits for tax brackets. The top marginal income tax rate remains at 37%, but thresholds for single filers and married couples have increased significantly from 2023 levels.
Potential Action Items:
– Capitalize on the 0% capital gains tax rate by selling appreciated securities.
– Consider Roth conversions, utilizing higher income thresholds to avoid moving into a higher tax bracket.
No Required Minimum Distributions on Roth 401(k)s
A significant change from Secure 2.0 is the elimination of required minimum distributions (RMDs) from Roth 401(k)s, aligning them with Roth IRAs.
Potential Action Item:
– Roth 401(k) investors can retain their assets in their plans without the pressure of RMDs, benefiting significantly younger savers.
Higher Contribution Limits
Contribution limits to various retirement accounts have been adjusted for inflation, offering increased opportunities for savings.
Potential Action Item:
– Review and increase contributions to company retirement plans and HSAs, especially for those nearing 50 who are eligible for catch-up contributions.
Higher Qualified Charitable Distribution Limit
The limit for qualified charitable distributions has risen to $105,000 in 2024, offering tax advantages for charitable donations from IRAs.
Potential Action Item:
– For those over 70.5, consider using the QCD for charitable donations, as it can be more tax-efficient than traditional methods.
Higher Estate, Gift Tax Thresholds
With the increasing gift tax exclusion, the estate tax exemption has risen to $13.61 million per person.
Potential Action Item:
– High-asset individuals should consult estate planners to strategize ahead of potential changes post-2025.
529 Rollover to Roth IRA
Secure 2.0 allows the rollover of unused 529 assets to a Roth IRA, subject to certain conditions and limits.
Potential Action Item:
– This provision offers a strategic option for those with excess 529 funds, providing a new avenue for retirement savings.
More Flexibility for 401(k) Savers
New provisions enable company matches for employees paying off student loans and offer options for emergency expenses.
Potential Action Item:
– Employees should inquire about these new features in their retirement plans and consider how they might benefit their financial situation.
Prescription Drug Costs
The Inflation Reduction Act of 2022 will change prescription drug costs for seniors on Medicare, potentially lowering out-of-pocket expenses.
Long-Term-Care Premium Deductibility
Although declining in popularity, long-term-care insurance remains relevant, with slightly adjusted premium deductibility in 2024.
The landscape of retirement planning is ever-evolving, and 2024 brings many changes that necessitate careful consideration and strategic action. From adjusting to higher tax brackets and contribution limits to understanding new provisions in Roth 401(k)s and 529 plans, individuals must stay informed and proactive. Consulting with financial advisors and revisiting retirement plans will be vital to navigating these changes successfully. As we step into 2024, it’s imperative to align our retirement strategies with the new norms to ensure financial stability and security in the years to come.
