Rosalind Evans
The dawn of a new year, 2024, brings several significant changes in retirement planning. While some of these changes are driven by the natural progression of time and inflation, others stem from legislative updates such as Secure 2.0. These modifications will have implications for both retirement savers and retirees. In this article, we will explore the critical retirement-related changes set to unfold in 2024 and offer actionable insights for effective financial planning.
Higher Tax Brackets and Capital Gains:
In 2024, higher inflation rates will lead to upward adjustments in various financial thresholds, including tax brackets. These changes will impact both income and capital gains taxes. As Morningstar’s Mark Miller explains, “The top marginal income tax rate is 37%, but it applies to single filers with incomes of $609,350 or more and married couples filing jointly with $731,200 or more in income.” These thresholds have increased from the previous year, allowing for potential tax-saving strategies.
Potential Action Items:
– Consider realizing capital gains in the 0% range for single filers earning less than $47,025 and married couples filing jointly with incomes of less than $94,050.
– Evaluate the appropriateness of Roth conversions, taking advantage of higher income thresholds.
No Required Minimum Distributions on Roth 401(k)s:
Secure 2.0 brings a notable change for retirement savers. Starting in 2024, Roth 401(k)s will no longer be subject to required minimum distributions, aligning with Roth IRAs. This alteration provides more flexibility for retirees who wish to maintain their assets within their plans.
Potential Action Item:
Roth 401(k) investors with advantageous plans need not rush to roll their assets into a Roth IRA, especially younger savers who have been contributing to Roth 401(k) plans for an extended period.
Higher Contribution Limits for Savers:
Inflation-driven adjustments also affect contribution limits for retirement accounts in 2024. Company retirement plan contributions, such as 401(k)s, are increasing for those under 50 and those 50 and older. Similarly, IRA contribution limits and Health Savings Accounts (HSA) are rising.
Potential Action Item:
Take this opportunity to review your contributions to retirement accounts, maximize employer-matching contributions, and consider automatic contributions to IRAs, adjusting to the new limits.
Higher Qualified Charitable Distribution Limit:
Seniors over age 70.5 will see an increased qualified charitable distribution (QCD) limit to $105,000 in 2024, indexed to inflation. This change provides tax-efficient options for charitable individuals with IRAs.
Potential Action Item:
Utilize the QCD to contribute to charity while minimizing taxes and satisfying required minimum distributions for those aged 73 and above.
Higher Estate and Gift Tax Thresholds:
Estate tax exemptions are increasing to $13.61 million per person in 2024, offering significant tax benefits to high-net-worth individuals and couples. Additionally, the gift tax exclusion is also rising.
Potential Action Item:
For those with substantial assets, consider planning for potential changes in tax laws, such as the expiration of specific provisions in 2026, to minimize estate taxation.
529 Rollover to Roth IRA:
Secure 2.0 introduces the option to roll over unused 529 assets into a Roth IRA starting in 2024. This provision offers flexibility and tax advantages for beneficiaries.
Potential Action Item:
Explore the benefits of rolling over unused 529 assets into a Roth IRA, especially in cases of scholarships or unused funds.
More Flexibility for 401(k) Savers:
Secure 2.0 opens doors for greater flexibility in employer-sponsored retirement plans, such as matching contributions for student loan repayment and options for emergency expenses.
Potential Action Item:
Check with your employer to see if these new features are available and beneficial for your financial goals.
Prescription Drug Costs and Long-Term-Care Premium Deductibility:
Seniors should also monitor changes in prescription drug costs and long-term-care premium deductibility as they may impact their healthcare expenses and tax deductions.
As we enter 2024, retirement savers and retirees must stay informed about these changes and their potential financial implications. Adapting your retirement and financial plans accordingly can help you make the most of the evolving landscape. Optimizing tax strategies, taking advantage of higher contribution limits, or exploring new options like 529 rollovers, being proactive in your financial planning can lead to a more secure and comfortable retirement.
