3 Policy Changes Coming to Retirement Savers in 2024
In 2022, Congress passed Secure 2.0, a transformative legislation impacting Americans’ retirement savings. With changes ranging from distribution age adjustments to incentivizing workplace contributions, the effects are unfolding, with key shifts slated for 2024. Here are three of the many policy shifts that may affect the way you save for retirement this year:
Streamlined 529* Rollovers:
529 accounts are a way to invest money toward a child’s future education. Starting 2024, unused funds in 529 accounts, designed for education investment, can be tax-freely rolled into a Roth IRA.
This option, available only after 15 years of account opening, offers flexibility with a $35,000 lifetime rollover cap.
Emergency Withdrawals without Penalties:
Starting in 2024, retirees can make one annual $1,000 penalty-free withdrawal from their 401k for personal or family emergencies. The withdrawal may be subject to income tax, and those under age 59½ typically owe a 10% tax penalty.
Simplified by self-certification, this rule also extends compassionately to domestic abuse victims allowing a penalty-free $10,000 withdrawal.
Roth 401(k) Rule Change:
The Roth version of a 401(k) follows comparable tax rules to a Roth IRA. You contribute money that has already incurred taxes, and in return for foregoing an immediate tax benefit, your account experiences tax-free growth. If you are at least 59½ years old and have maintained the account for a minimum of five years, withdrawing funds in retirement incurs no tax liability.
Historically, a significant distinction existed: mandatory distributions from a Roth 401(k) started the year you turned 73 (or 70½ if reaching that age before January 2020), or you faced an IRS penalty.
Secure 2.0 addresses this difference from 2024 onwards, aligning the regulations for Roth 401(k)s with those governing Roth IRAs.
The policy landscape is evolving, suggesting enhanced flexibility in retirement planning. As these changes unfold in 2024, Americans are encouraged to explore these opportunities for a more robust retirement savings strategy.
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*A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings prior to 2024 are taxable and subject to a 10% tax penalty. Beginning in 2024, unused 529 plan funds may be rolled into a Roth IRA assuming the following conditions are met: 1) must have owned the 529 plan for 15 years, 2) can only convert funds that have been in the 529 plan for at least 5 years, 3) rollover amount cannot exceed $35,000 and 4) rollovers must be made to a beneficiaries Roth IRA.
