2024 Retirement Plan Changes

2024 retirement plan changes

Retirement plans often undergo regular annual updates, and 2024 is no exception. The SECURE 2.0 Act of 2022 brings significant updates to retirement plans, with several key provisions that took effect in 2024. These changes aim to enhance retirement savings, provide greater flexibility, and expand opportunities for taxpayers. Below are the updates specific to the 2024 tax year:

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Contribution Limits

Retirement plan contribution limits have risen, offering more opportunities to save for the future. The updated limits for 2024 include:

  • 401(k), 403(b), and 457 Plans: Employees can contribute up to $23,000, with an additional $7,500 catch-up contribution for those aged 50 or older, totaling $30,500.
  • SIMPLE Plans: The contribution limit has increased to $16,000, with a $3,500 catch-up for participants aged 50 and older, making the total $19,500.
  • Traditional and Roth IRAs: The contribution cap is now $7,000, with an additional $1,000 catch-up for individuals aged 50 or older, totaling $8,000.

These increases allow for more effective retirement savings.

Income Ceilings for Roth IRA Contributions

The increased income thresholds for Roth IRA contributions is another 2024 retirement plan change. For 2024, to make a full Roth IRA contribution, your Modified Adjusted Gross Income (MAGI) must fall below:

  • $146,000 if you are a single filer
  • $230,000 if you are a joint filer

You are ineligible to contribute to a Roth IRA if your MAGI is:

  • $161,000 or more if you are a single filer
  • $240,000 or more if you are a joint filer

If your income exceeds the threshold for contributing, you may consider a backdoor Roth IRA to maximize retirement savings.

Traditional IRA Contribution Deduction Rules

While Traditional IRAs have no income limits for contributions, your (or your spouse’s) workplace retirement plan and Modified Adjusted Gross Income (MAGI) can affect deduction eligibility. The 2024 increased thresholds are:

  • Single Filers or Head of Household (covered by a retirement plan): Full deduction if MAGI is $77,000 or less; no deduction at $87,000 or more.
  • Joint Filers (you participate in a workplace retirement plan): Full deduction if MAGI is $123,000 or less; no deduction at $143,000 or more.
  • Joint Filers (spouse participates in a workplace retirement plan): Full deduction if MAGI is $230,000 or less; no deduction at $240,000 or more.

These increases provide more flexibility for reducing taxable income while saving for retirement.

Penalty-Free Early Withdrawals

The SECURE 2.0 Act introduces for 2024 penalty-free early withdrawals for individuals under 59½ in specific cases:

  • Domestic Abuse Victims: Can withdraw up to the lesser of $10,000 or 50% of the account’s balance in cases of domestic abuse. 
  • Emergency personal expenses: Withdraw up to $1,000 annually for immediate financial needs.

However, regular income taxes still apply to these withdrawals.

2024 retirement plan changes

Rolling Over 529 Plans to Roth IRAs

Leftover funds in 529 education accounts can now be rolled over to Roth IRAs tax-free, subject to the following rules:

  • A $35,000 lifetime cap applies.
  • Annual rollover cannot exceed the yearly contribution limits (e.g., $7,000 for 2024).
  • The 529 account must have been open for at least 15 years. 
  • The Roth IRA must be established in the name of the beneficiary of the 529 plan.

This change offers a new way to repurpose leftover education savings.

Roth 401(k) Accounts

For 2024, also due to the SECURE 2.0 Act, Roth 401(k) owners no longer need to take Required Minimum Distributions (RMDs), aligning them with the rules for Roth IRAs. Still, make sure to keep track of the RMDs necessary for your traditional retirement accounts. Failure to take an RMD can result in a penalty of up to 25% of the amount not withdrawn.

Emergency Savings Accounts Within Plans

The SECURE 2.0 Act enables companies to offer emergency savings accounts for 2024 as part of their workplace retirement plans. The rules are as follows for these plans:

  • Employees can withdraw funds tax-free and penalty-free. However, contributions are not deductible.
  • Account balances are capped at $2,500.
  • Employees can withdraw at least once per month.
  • Highly compensated employees (earned more than $155,000 for 2024) cannot enroll in or contribute. 

This 2024 retirement plan change can offer an additional avenue to save for retirement.

Qualified Charitable Distribution Cap

The SECURE 2.0 Act raised the qualified charitable distribution (QCD) cap for IRAs to $105,000. IRA owners aged 70½ or older can transfer this amount directly to charities tax-free. Married couples with separate IRAs can donate up to $210,000 combined, providing an opportunity to support causes while enjoying tax benefits.

Wrapping Up

The 2024 changes to retirement plans can offer you increased opportunities to reduce your taxes and save for retirement, whether you’re maximizing contributions or taking advantage of new withdrawal options. For personalized guidance, consult with DuPage Tax Solutions to ensure you’re taking full advantage of these updates.

References
 

401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000 | Internal Revenue Service. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000

Amount of Roth IRA contributions that you can make for 2024 | Internal Revenue Service. https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2024
 
2024 IRA contribution and deduction limits effect of modified AGI on deductible contributions if you are covered by a retirement plan at work | Internal Revenue Service. https://www.irs.gov/retirement-plans/plan-participant-employee/2024-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work
 
Retirement plan distributions: IRS provides guidance on certain exceptions from 10% additional tax for emergency personal or family expenses and for survivors of domestic abuse | Internal Revenue Service. https://www.irs.gov/newsroom/retirement-plan-distributions-irs-provides-guidance-on-certain-exceptions-from-10-percent-additional-tax-for-emergency-personal-or-family-expenses-and-for-survivors-of-domestic-abuse
 
Publication 590-B (2023), Distributions from Individual Retirement Arrangements (IRAs) | Internal Revenue Service.  https://www.irs.gov/publications/p590b#:~:text=Beginning%20with%20distributions%20made%20after,trustee%2Dto%2Dtrustee%20transfer
 
 
IRS provides initial guidance to employers setting up emergency savings accounts for their employees | Internal Revenue Service. https://www.irs.gov/newsroom/irs-provides-initial-guidance-to-employers-setting-up-emergency-savings-accounts-for-their-employees#:~:text=Authorized%20under%20the%20SECURE%202.0,31%2C%202023

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