Retirement-planning strategies are undergoing some major shifts in 2024. With new laws and regulations taking effect, those planning for retirement will need to understand the landscape and adjust their strategies accordingly. No matter where you are in your road to retirement, these provisions will impact how much you can save for the future.
IRA and 401k contribution limits increase
The IRS has announced expanded contribution limits for IRAs and 401ks for 2024. The amount individuals can contribute to their 401(k) plans in 2024 has increased to $23,000, up from $22,500 for 2023. This contribution limit applies to similar employer-sponsored retirement accounts as well, such as 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan for workers.
The limit on annual contributions to an IRA will be $7,000 in 2024, up from $6,500 in 2023. These contribution limits apply to the grand total contributions you make each year to all your traditional and Roth IRAs. The increased limits allow savers to sock away more pre-tax money for retirement. As always, you can and should max out these limits, if possible.
529 plans can now be converted to Roth IRAs
Investing in 529 college savings plans has always been a risk. What if your kid doesn’t need all the money you saved? Starting this year, unused funds from a 529 plan can be rolled over into a Roth IRA for your kid—without penalty. This new tax-free rollover rule—a part of SECURE 2.0—means you don’t have to worry about the current 10% penalty on the earnings if you end up with money left over. You will be able to roll over up to $35,000 from your 529 savings. Of course, the amount you can roll over is also subject to annual Roth IRA limits.
Now for the fine print: You must have owned the 529 educational savings account for at least 15 years before you can roll over the money, and you can only roll over money that’s been in the account for five or more years. And the account holder (usually a child’s parent or guardian) can’t roll over the money into their own Roth IRA—it must be an account established specifically for the beneficiary of the 529 plan.
If you’re a parent and are looking to set up this college savings vehicle, start looking at online tools can help you compare different plan’s state-by-state offerings. Here’s our guide to opening a 529 for your kid.
Penalty-free withdrawals for emergencies
Previously, retirement savers with an “immediate and heavy” financial need could technically make an early withdrawal from their 401(k)s and traditional individual retirement accounts. However, that early withdrawal would be subject to income tax, and those under age 59½ typically owed a 10% tax penalty.
Now, you can make one withdrawal of $1,000 per year to cover personal and family emergency expenses without owing the 10% penalty. All you need is to "self-certify" that you need the money for an emergency.
Note: Victims of domestic abuse under the age of 59½ can withdraw up to $10,000 from IRAs and 401(k)s without owing the penalty.
Starter 401k plans for small businesses
Starter 401ks are coming in 2024 to help small businesses offer retirement plans. The stripped-down plans will have lower costs and fewer administrative burdens for employers. Employees can contribute up to $6,000 annually and businesses have until tax time to set up the plans. The Starter 401k aims to expand access to workplace retirement plans for small business employees.
As 2024 unfolds, those planning for retirement will need to stay on top of these changes. Consulting with a financial advisor can help you strategize how to take full advantage of increased contribution limits or use new tools like the Roth 529 conversion.
from LifeHacker https://ift.tt/P5o1JGu
0 comments:
Post a Comment