2024 Changes that Would Impact Your Retirement Finances

April 1, 2024

Changes to retirement regulations are making 2024 out to be the perfect time to reexamine your retirement planning and make sure you’re getting the most out of your savings.

The rules are constantly changing,” says director of Personal Retirement Product Management at Bank of America Debra Greenberg. “It’s always a good idea to familiarize yourself with what’s new to see whether it makes sense to take advantage of it.”

Here’s what you should know about several changes to retirement regulations in 2024.

It Pays to Plan for Retirement

While the changes to retirement regulations may seem small, Americans need all the help they can get right now. According to the National Council on Aging, up to 80% of older adults are at risk of dealing with economic insecurity as they age, while half of all Americans report being behind on their retirement savings goals.

“The IRS adjusts many things each year to reflect cost of living and inflation,” says Jackson Hewitt’s chief tax information officer Mark Steber. “It happens each year and taxpayers shouldn’t be alarmed — they might even have a bigger benefit.” Since retirement contributions are pre-tax, saving for retirement actually lowers your taxable income, which may even place you into a lower tax bracket. Plus, you may even be eligible for a tax credit of up to 50% of what you put into your retirement accounts.

Contribution Limits Will Increase

The contribution limits for a traditional or Roth IRA are increasing in 2024. The limit on annual contributions to an IRA will go up to $7,000, up from $6,500 last year.

Individuals will be able to contribute more to their 401(k) and employer-based plans as well. For those who have a 401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan, the contribution limit is increasing to $23,000 in 2024, which is $500 more than last year. Those who are 50 and older, can contribute up to $30,500 into the same accounts.

Starter 401k Plans are Possible

In 2024, employers who don’t sponsor a retirement plan may offer a Starter 401(k) deferral-only arrangement. A starter 401(k) is a simplified employer-sponsored retirement plan with lower saving limits than a standard 401(k). Employers are not allowed to make contributions, and employee auto-enrollment is required. In 2024, the annual contribution limit to this plan will be $6,000. Beginning this year, employees with certain qualifiable emergencies may also make penalty-free withdrawals from their 401(k) of up to $1,000, though they would still have to pay the income tax on those withdrawals.

529 Plans Can Now be Converted Into Roths

For parents who will no longer need their 529 funds for their children, the Secure 2.0 Act will allow for a portion of the 529 to be rolled into a Roth IRA. Beginning January 1st, the funds can either be used for educational expenses or put toward retirement, as a Roth IRA rollover. You may rollover up to $35,000, free of income tax or any tax penalties. The only limitations are that the 529 must have been in place for at least 15 years, and certain states may not allow the rollover.

Changes to Social Security and RMDs

In January, Social Security checks will increase by 3.2% due to the latest COLA, or cost-of-living adjustment. On average, Social Security monthly benefits will increase by $59 a month, from $1,848 to $1,907. Those who receive survivors or spousal benefits will receive even more.

For 2024, the maximum benefit for a worker who claims Social Security at FRA (Full Retirement Age)is $3,822 a month, which is up from $3,627 in 2023. For 2024, the FRA is 66 years and 6 months for those born in 1957 and 66 years and 8 months for those born in 1958. That means that anyone born between July 2, 1957 through May 1, 1958 will reach FRA in 2024.

The IRS uses a calculation based on the amount in your retirement account and your life expectancy to determine the minimum amount you are required to take out each year, known as RMDs (required minimum distributions). Secure 2.0 increased the age for starting RMDs from 72 to 73, effective in 2023. If you are subject to RMDs, then you must make your withdrawal by the end of this year or by April 1st next year if it’s your first year being eligible. So if you turn 73 in 2024, you’ll have until April 1, 2025 to make your first RMD.

Rising Medicare Costs

Anyone receiving more Social Security but paying Medicare premiums may not feel much of a difference in their increased Social Security benefits since standard Medicare Part B premiums are rising by 6%. As many participants have their Medicare premium deducted right from their Social Security payment, the $9.80 increase will take a portion of the average $59 benefit increase. The annual deductible will also increase this year from $226 to $240.

Insureyouknow.org It will always be important to review your retirement savings every year, but this is  becoming even more important to do in the face of rising costs and changing regulations. With Insureyouknow.org, storing all of your financial information in one easy-to-review place can help you ensure that you are still on track to meet your retirement goals at the start of each annual review.

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Are you too old to open a Roth IRA?

July 1, 2023

Many people intend to rely on their 401(k) plans offered through employment, personal savings and collecting Social Security and Medicare benefits during retirement, but financial advisors recommend diversifying your retirement plan to include a Roth IRA. Plus, if you’re not offered a 401(k) plan through work, Social Security and savings alone may not be enough. The first step in determining whether it’s too late to open a Roth IRA is understanding the potential benefits and downsides of having one.

Understanding the Roth IRA

The difference between a Roth IRA and a Traditional IRA is that a Roth IRA allows for tax-free income during retirement, while a Traditional IRA taxes withdrawals. With a Roth IRA, contributions are taxed upfront, so all withdrawals of earnings are federal tax-free once the account has existed for five years, and the account holder is at least 59½. Contributions, though, can always be withdrawn at any age without taxes or penalties, which could be especially important during unexpected financial hardship. For anyone new to investing or planning for retirement, IRA expert and accountant Ed Slott recommends starting with a Roth IRA, saying, “There’s just no question that that is the better place,” to start.

Opening a Roth IRA

In order to contribute to a Roth IRA, you must earn an income, but there are income limits. In 2023, a single person may make $153,000 or less, while those who file jointly may make $228,000 or less. While there are no RMDs, there is a Maximum Contribution allowed of $6,500 under the age of 50 and $7,500 for those 50 and over. That means that if you have extra income to invest between the age of 50 and 70, the Roth IRA might be just right for you. Contributions are not tax deductible and all earnings grow tax-free. Because Roth IRAs do not have Required Minimum Distributions (or RMDs) after the age of 73, this is yet another reason that it might be the perfect account to consider for someone who is older and may be behind on their retirement planning.

The Benefits to Opening a Roth IRA at an Older Age

The earlier you start saving for retirement, the better. With a Roth IRA, the longer the account is open, the longer someone has to save and take advantage of compound interest. Winnie Sun, managing director of Sun Group Wealth Partners says she always points young investors to Roth IRAs, because not only can it get them started on long term investing, but it can “help them sock away money that can be accessed in an emergency.” There are still advantages to opening a Roth IRA even at an older age, as long as an individual falls within the income and contribution limits. If you’re over the age of 59½ or getting there, then once the account has been open for five years, there will be no penalty for withdrawing earnings tax-free, and if you plan to continue earning past 73 or don’t need to withdraw funds at that time, then there will be no harm in not withdrawing a certain amount per year as Roth IRAs do not have RMD restrictions. While some people view the inability to claim contributions as a tax deduction as the downside to Roth IRAs, others argue that not having to pay taxes on your distributions is the upside to that later on. Perhaps the best way of looking at this feature is that retirees may leave their heirs tax-free funds, which may be particularly important for some people. Income, though, may be the most important factor in opening a Roth IRA later in life, as some individuals don’t earn more until they are older. It may not be until an older age that an individual has the extra income that they can now invest, especially once the mortgage is paid or their children are independent. Many find themselves in the unfortunate position of not having saved up what they’ll need, and so they’ll want to make the most of their earnings while they can; that’s when a Roth IRA can help.

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The best thing to do when it comes to retirement planning is to start early, but because of various situations, this isn’t always possible for everyone. Even if an individual has been saving or has a decent 401(k) plan through their job, opening a Roth IRA at a later time can help many people plan on having extra funds during their retirement years. Insureyouknow.org can help you store all your retirement plans in one place so that your retirement accounts and other finances are easy to access and can be updated regularly. This way, you can focus on earning and enjoying your funds both now and later in life.

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