Michael Baum, CFP®, RICP®
Vice President & Associate Financial Advisor
Thanks to legislation enacted as part of SECURE 2.0, the retirement landscape is changing yet again. These changes are designed to strengthen the retirement system by promoting saving and offering more flexibility to individuals saving for retirement.
It’s important to plan well for those changes now to take advantage of potential opportunities to save more for retirement than previously possible. Here’s what to know…
How are retirement savings rules changing in 2024 and 2025, and what are the potential benefits?
Catch-up contributions have long been an important way for individuals 50 and above to save above and beyond the normal contribution limits in their retirement accounts. Starting in 2024, the catch-up contribution limit for IRAs (Individual Retirement Accounts) for people 50 and older will begin to be adjusted to keep up with inflation. Although the catch-up contribution limit will remain the same in 2024 as in 2023 ($1,000), this is good news for future years.
In addition, starting in 2025 people who contribute to an employer sponsored retirement plan (I.e. 401(k), 403(b), and governmental 457(b)) who are between the ages of 60 and 63 will have their catch-up contribution limit increased to either $10,000 or 150% of the current catch-up limit (about $11,250), whichever is higher. This is up from the current catch-up contribution limit of $7,500. These increased catch-up contribution limits offer an incredible opportunity to maximize savings at a time in life when most people will soon be heading into retirement.
But, for some high earners, there’s an important catch – starting in 2026, for people who are age 50 or older and who earned more than $145,000 in the previous year, all catch-up contributions to an employer sponsored retirement plan will now have to be made on a Roth basis using after-tax dollars.[GU1] While this new requirement will prevent the catch-up contribution from being tax-deductible, Roth catch-up contributions grow tax-free – and they can be withdrawn tax-free in retirement.
Other positive changes to retirement savings rules coming in 2024 include:
- Required minimum distributions (RMDs) for employer-sponsored Roth accounts will be eliminated.
- Beneficiaries of long-term 529 accounts will be allowed to roll over those funds (up to $35,000) to a Roth IRA account, tax- and penalty-free.
- If you are currently making student loan payments but are unable to contribute to your company’s retirement plan, beginning in 2024 your employer will be allowed to contribute to your retirement plan for you, by applying the “employer match” typically tied to your retirement contribution to your student loan payments instead.
What should you do to take advantage of the retirement savings rule changes coming in 2024 and beyond?
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Keep in mind that many of the rules for employer sponsored retirement plans are complicated, and many employers will have to amend their plans in order for employees to take full advantage. That may take time, and some employers may simply opt not to make all these features available. There are also additional details regarding requirements and stipulations for each of these changes that are not covered here. The best thing you can do is have a conversation with a financial advisor, who can help you understand how each of these changes might affect you and what you can do to make the most of your retirement savings.
As a Retirement Income Certified Professional (RICP®) this is what I do every day for my clients, along with the rest of my team at Weiss, Hale & Zahansky, through our Plan Well, Invest Well, Live Well™ process. These changes could have a significant positive impact on your retirement savings, potentially enhancing your ability to live well in retirement if you plan well for them now. If you’d like our help, get in touch.
Presented by Vice President, Associate Financial Advisor, Michael Baum, CFP® RICP®. Securities and advisory services are offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.