Retirement accounts can be heavily influenced by federal rules and regulations. If you want to have a dream retirement or build wealth while you’re still working, you should keep up to date on the latest changes and use them to your advantage.
Here are the ways retirement planning has been impacted in 2024.
401(k) limit increased
The IRS increased the 401(k) limits for 2024 to $23,000. Additionally, those age 50 or over by the end of the year may contribute an additional $7,500 as a catch-up contribution.
Investing benefits from time, and the longer you hold an investment, such as stocks or a mutual fund in a 401(k) plan, the more likely it will increase to fund your retirement.
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Traditional and Roth IRA contribution limits increased
For 2024, the total amount you can contribute to an IRA (Roth or traditional) is $7,000 if you are under age 50. If you're 50 or older by the end of the year, you are allowed to contribute an extra $1,000, making your limit $8,000.
With the contribution limit increases, those who are retiring soon are able to put away more money for use during retirement.
Social Security payments went up
Social Security recipients were granted a cost-of-living increase of 3.2% for 2024. The estimated average payment will go up by $59, to $1,907 from $1,848.
The benefit increase is in response to the increased inflation over the past few years; 2022 had a record-high inflation rate of over 8%, although now it has decreased to 3.1%. Nevertheless, the additional money can be used to help combat increased cost of living for retirees.
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Medicare premiums have risen
After a drop in Medicare premiums in 2023, standard premiums for Medicare have gone back up. With a 6% jump from previous years, the cost is now $174.70 per month. The annual deductible has also increased from $226 to $240. While the increase is in the single digits, these higher costs can eat into the COLA given to Social Security recipients.
Required minimum distribution age has changed
Previously, the IRS required that retirees take a required minimum distribution (RMD) from their retirement accounts at the age of 72 and every year after that. In 2023, the SECURE Act was passed, which increased the RMD age from 72 to 73. Those who turn 73 after December 31, 2023, have until April 1, 2025, to make their first withdrawal.
Retirees are able to delay pulling money out of their retirement accounts with this change, which could result in greater earnings by continuing to grow a nest egg longer.
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Standard deduction has increased
Most taxpayers take the standard deduction rather than itemizing their deductions. The standard tax deduction offsets the amount of taxable income you have, effectively reducing the amount of tax you owe. For 2024, those amounts went up, which are as follows for each filing status:
- Married filing jointly: $27,700
- Individual taxpayers (single or married filing separately): $13,850
- Head of household can deduct $20,800
Additionally, if you or your spouse is 65 or older:
- For a single filer or head of household, add an additional $1,850
- For a couple filing jointly, add an additional $3,000
This change benefits taxpayers across the board by reducing your taxable income amount, and potentially the amount of tax you have to pay.
Full retirement age increased
Full retirement age (FRA) is when you are eligible for 100% of your Social Security benefit. Back in 1983, Congress voted to gradually increase the FRA from age 65 to 67. That increase is almost complete, settling at 67 for people born in 1960 or later. Currently, the FRA is 66 and six months. It will increase to 66 and eight months in the latter half of 2024
You can start collecting benefits at age 62, but your benefit amount will be permanently reduced, which could cost you thousands of dollars over your lifetime.
529 plans can be converted to Roth IRA
A 529 plan is a state-sponsored account to be used for education expenses. A 529 account limits what the money can be used for, but includes tuition, room and board, books, and student loans. Previously, if you had excess funds in the account, you would be penalized for using them for non-qualified expenses.
With new legislation, 529 accounts can be rolled over into a Roth IRA account, which offers greater flexibility. This new rule comes with some stipulations: the account must be at least 15 years old, the new account must be in the beneficiary’s name (not the account holder), and it is subject to Roth IRA contribution limits each year, with a lifetime maximum of $35,000 rolled over.
This doesn’t change retirement benefits for the account holders, but it can offer the beneficiaries tax-free retirement account funds to save for the future.
Bottom line
Even after retirement, rules and legislation can change, forcing you to adjust how you use your retirement funds. If you want to retire early, staying up to date on any changes can help you accommodate your retirement planning as you go, making the most of the time while you’re still working.
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