What Changes Are Taking Place for Retirement Plans in 2024?

Q:  What changes can I expect for my retirement accounts and plans in 2024?

A: Here are some changes for retirement plans you can expect to see in 2024:

1.  IRA and 401k contribution limits increase

Contribution limits for traditional and Roth IRAs are going up in 2024. The limit on annual contributions to an IRA rises to $7,000, up from $6,500. Catch-up contributions for taxpayers aged 50-plus are subject to cost-of-living adjustments (COLA), but these limits remain unchanged for 2024 at $1,000.

The boosted contribution limits for IRAs are only available to account holders having a modified adjusted gross income (MAGI) below the set threshold for the year.

Contribution limits are also going up for 401k and other employer-sponsored plans in 2024.

To read the full scoop on these changes, check out the IRS site.

2. 529 plans can now be converted to Roths

In December of 2022, Congress passed the SECURE 2.0 Act, allowing for a portion of eligible 529s to be converted to a Roth IRA, tax- and penalty-free. Here’s what you need to know:

• The funds in a 529 account can now be used for qualified education expenses or for retirement. 

• You can now rollover these funds to a Roth IRA.

• You can now rollover up to $35,000 to an IRA, free of income tax or tax penalties.

• There are restrictions on who can transfer these funds and when they can do so. 

• Not every state allows these conversions.

       3. Starter 401k plans are coming

Starter 401k plans, or simplified employer-sponsored retirement plans, are being introduced in 2024. These accounts have lower contribution limits than a standard 401k, but auto-enrollment is required. In addition, employers are not allowed to make contributions to the account.

For 2024, Starter 401k limits are set at $6,000 annually, with an additional $1,000 catch-up contribution allowed for account holders aged 50 and older. Employees can contribute an extra $500 to their 401k plan in 2024.

Also in 2024, there are more exceptions allowing employees to tap into their 401k plans early without getting hit with penaltie s– though these distributions are subject to taxation. 

4. Updates to full retirement age (FRA) and Social Security payments

Full retirement age and Social Security payments will see some changes in 2024.

First, Social Security payments are jumping by 3.2% due to COLA adjustments. Social Security recipients will receive an average of $1,907 per month, up from $1,848 per month in 2023. Retirees receiving survivors or spousal benefits will also see an increase in benefits. 

The maximum Social Security benefit will be boosted to $4,873 in 2024, up from $4,555 per month in 2023. In addition, the Social Security tax wage base will see changes. The government will only tax the first $168,600 you earn.

Finally, in 2024, $1 for every $3 earned over $56,520 will be withheld for retirees who reach their FRA and hit that amount before their birthday. In addition, retirees earning over $22,320 and falling under their FRA will have $1 withheld for every $2 earned. 

Use this guide to learn all about the changes for retirement plans in 2024.