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

A: There are several changes taking place for retirement plans in 2024 and it’s wise to keep up with these developments to ensure you are maximizing and managing your accounts effectively. 

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, which is up from $6,500. Catch-up contributions for taxpayers aged 50 and older are subject to cost-of-living adjustments, but these limits remain unchanged for 2024 at $1,000, or $8,000 in total contributions.

The boosted contribution limits for IRAs are only available to account holders with a modified adjusted gross income (MAGI) below the set threshold for the year, or $206,000 for married couples filing jointly and $103,000 for all other filers. 

Contribution limits are also going up for 401k and other employer-sponsored plans in 2024. Limits for 401k, 403b, most 457 plans and the federal government’s Thrift Savings Plan, will bump up from $22,500 to $23,000. Employees with these accounts who are aged 50 or older can contribute up to $30,500 to their accounts in 2024.

Check out the IRS site to read the full scoop on these changes. 

2. 529 plans can now be converted to Roths

What happens if you’ve been saving up for your child’s college education throughout your working years and they’ve now decided not to go to college? In December of 2022, congress passed the SECURE 2.0 Act, which allows for a portion of eligible 529s to be converted to a Roth IRA, tax- and penalty-free. Here’s what you need to know about this change, effective January 2024:

• 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. For example, you must have held the 529 account for a minimum of 15 years to transfer the funds. 
• Not every state is allowing these conversions just yet. Check your state laws before attempting a rollover.

3. Changes to tax benefits for contributions

Eligible taxpayers can deduct contributions made to a traditional IRA from their taxable income. However, if the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work during the year, the deduction may be reduced, or phased out, until it is completely eliminated, depending on the taxpayer’s filing status and income. The phase-out ranges are seeing some changes in 2024:

• For single taxpayers covered by a workplace retirement plan, the phase-out range jumps to between $77,000 and $87,000, from $73,000 and $83,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increasing to between $123,000 and $143,000, up from $116,000 and $136,000.
• For an IRA contributor not covered by a workplace retirement plan, and married to someone who is covered, the phase-out range will increase to between $230,000 and $240,000, up from $218,000 and $228,000.
• For a married individual filing separate taxes who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains unchanged at between $0 and $10,000.

4. Starter 401k plans are coming

Starter 401ks, 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 penalties – though these distributions are subject to taxation. This includes withdrawing up to $1,000 per year, penalty-free, for people who have experienced a family or personal financial emergency this year. This rule also allows early withdrawals for certain cases of domestic abuse. 

5. 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 cost-of-living (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, which is 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, compared to $160,200 in 2023.

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 (up from $21,240 of 2023), and falling under their FRA, will have $1 withheld for every $2 earned. 

There are lots of changes coming to retirement accounts and Social Security payments in 2024, but we’ve got the scoop on them all. Use this guide to learn what you need to know about changes to retirement plans in 2024.

Your Turn: Are you making any changes to your retirement accounts in 2024? Tell us about it in the comments.