A new year typically necessitates adjustments to IRS savings and distribution thresholds, and so REDW’s trusted wealth management advisors Principal Robert Elzholz, CFP®, CRPC®, AIF®, AAMS®, and Senior Financial Planning Manager Christine Papelian CFP®, CWS®, CDFA®, EA, recap recent updates to the rules that can lead to significant tax saving opportunities for individuals in 2024.
Retirement Program Contributions
Emergency Savings Accounts
While we’d like to think that everyone has six months of savings set aside for emergencies and is contributing the maximum possible amount to their retirement plan, experience tells us that is just not the case.
Beginning in 2024, individuals earning $150,000 or less will no longer have to choose between putting funds into their retirement plan or depositing them into a low-interest savings account for an unplanned emergency. Some basic rules surround the program, but those who qualify will be able to make up to four withdrawals per year without tax penalties or fees.
Matching Student Loan Payments
For the 43.6 million people who carry student loan debt, your employers may be able to help turn those debt payments into retirement savings.
The resumption of student loan payments brings an IRS Private Letter Ruling (PLR) from 2018 into play. It permits employers to make retirement plan contributions that match qualified student loan payments. The outstanding contribution limit of the lesser of $23,000 of the employee’s compensation make this a very valuable benefit for employed individuals.
Age-Based Catch-Up Contributions
One anticipated aged-based contribution program has been pushed out to a January 1, 2026 effective date, but there is good news beginning after 2024 for those who will be between 60 and 63 at that time. Starting on January 1, 2025, workers in that age range will be able to add an additional $10,000 in contributions which will also be indexed to inflation.
Watch On Demand & Download Presentation Slides – SECURE 2.0 for Individuals: Rethinking Your Savings Strategies in 2024
Retirement Distributions
We find that people are often better with pulling in professionals to advise on retirement savings, but often still miss opportunities in optimizing retirement distributions.
Required Mandatory Distributions (RMDs)
With workers 75 and older being the fastest growing age group in the workforce, lawmakers have now adjusted the required mandatory distribution age. It will remain at 73 until 2032, then move to 75 in 2033. In conjunction with that change, the Secure Act 2.0 decreases penalties that will be applied if the RMDs are not completed, moving them from 50% to 25%, or to 10% if an RMD is taken and corrected.
It would be wise to ensure you have a Power of Attorney in place in the event that you are unable to make distributions personally. Penalties can be avoided if a Power of Attorney steps in to complete the necessary withdrawals.
Qualified Charitable Distributions
Setting charitable giving goals that align with your values can be done wisely in conjunction with identifying high-tax impact opportunities and optimizing donation timing. In 2024, a new, one-time $50,000 charitable distribution to a trust can be made. This is a big win that will allow beneficiaries to receive income throughout their lifetime when a portion of the funds are designated to go to a registered charity.
529 Rollover to a Roth IRA
Committed parents and benefactors who have funded 529 plans only to find they aren’t needed now have an opportunity to rollover up to $35,000 into a retirement plan over the beneficiary’s lifetime. The ability to transfer the funds to another recipient is still there but this gives the intended beneficiary a significant start with their retirement savings.
To qualify, the 529 plans must exist for 15 years or longer and the beneficiary has to have earned income during the years of transfers. Yearly transaction limits still apply, so planning should be done to make the transfers in increments.
While it’s certain to be closed soon, there currently is no income limit and those with significant savings should act promptly to benefit most from this new program.
Inherited IRAs after 2019? The Secure Act 2.0 applies.
The regulations for inherited IRAs remain complex, but it is worth your time to evaluate the rules to ensure you act in a timely manner.
The birthplace of a beneficiary spouse matters for inherited IRAs. If this is your circumstance, you should review the updated rules.
Beneficiaries that are 10 years younger and a non-spouse to the IRA holder (typically their child) have layers of criteria to consider, such as whether the person who died did so before or after required distributions were to begin. The timing determines the duration of the payout period and when required distributions need to occur.
Federal employees and armed forces members that hold thrift saving plan (TSP) accounts must make sure to have designated beneficiaries recorded within their plan documents. These plans can be perceived as being ‘free’ but those that inherit the plans will be subject to mandatory withdrawal from the plan along with mandatory withholding.
Savings & Retirement Strategies for 2024
Financial planning varies in individual circumstances, but some universal truths remain true for everyone:
- If you haven’t reviewed your retirement savings and distribution plan—or don’t have one—now is the best time to start planning with a wealth management professional. You’re still the decision maker, but a trusted advisor will be able to help guide you and help you understand the consequences of various decisions and scenarios.
- No matter your age, if you’re employed, there is no reason not to contribute to a savings plan when companies provide matching funds. The compounded growth amounts to significant savings the earlier a plan is started.
- For the 43.6 million individuals with student loans, if your employer has a matching program, participate in it immediately. If they don’t have one, approach them to start one. We can provide information and assistance if they’re open to the idea. Contact us.
- Backdoor Roth contributions require keeping organized records. If you’re not up for it, leave the math to a trustworthy professional. Feel free to set up a consult with one of REDW’s trusted wealth management advisors for any questions you may have. We’ll let you know if the net savings would be worth proceeding.
Professional advisement at your fingertips.
Some decisions are easy to make on your own—such as bumping up your 401(k) contributions when you receive a raise—but many others involve exacting timing and consulting tax brackets or actuarial tables. Those decisions are often made much easier by consulting professionals with trusted knowledge and years of experience.
