Bradley Lacore, SVP, Director of Wealth Management and Derek Collins, Wealth Advisor

Highlighting changes taking effect in 2024

The Secure Act 2.0 was signed into law by President Biden in December of 2022. The goal of the legislation was to encourage people to save more for their retirements. Provisions were included to boost the use of retirement plans by business owners, therefore helping the business’s employees to save for retirement. With over ninety provisions in the bill, many taking effect for the first time in 2024, it is helpful to be aware of some of the new rules reshaping how we save for retirement. 

In addition to the new legislation, the high rate of inflation in recent years means that many dollar limits related to retirement plan contributions, estate planning calculations, charitable giving, education planning, and more, received increases from the 2023 limits.

Increases in retirement contribution limits for 2024

In 2024, salary deferral limits for retirement plans such as 401(k) and 403(b) plans will increase from $22,500 to $23,000.  The catch-up contribution limits for qualified retirement plan contributors over the age of fifty remained the same at $7,500 for 2024. 

The contribution limits for IRAs and Roth IRAs increased from $6,500 to $7,000, with a $1,000 catch up provision for those over the age of 50. Tax deferred contributions to IRAs are typically made by people that do not have a qualified retirement plan, like a 401(k), to contribute to. However, the increase in IRA and Roth IRA contribution limits will also benefit those individuals who make after-tax IRA contributions for the purpose of tax-free Roth conversions each year.  

Estate Planning and Family Giving

For 2024 the annual gift tax inclusion increases to $18,000 per person versus the 2023 amount of $17,000.

Giving money to loved ones using the annual gift exclusion can have multiple benefits. From an estate planning perspective, giving money up to the annual gift exclusion allows the giver of the gift to reduce their taxable estate without having to file a gift tax return, or use any of their lifetime gift exemption. The individuals giving the money often feel greater satisfaction being able to see their loved ones benefit from the gift, rather than passing their wealth to heirs only upon their death.

The lifetime gift exemption/estate exemption, often referred to as the unified credit, also increased in 2024. The total asset value that can be transferred from a decedent’s estate to heir’s, gift tax and estate tax-free, increased from $12.92 million to $13.61 million.

Important Changes to Required Minimum Distributions (RMD) and Qualified Charitable Distributions (QCD) from Retirement Accounts

The Secure 2.0 Act is also changing many of the rules governing distributions from individual retirement accounts (IRA) over the coming years.   

Owners of IRAs that turned 72 years of age in 2023 or later, can now wait until age 73 to start taking required minimum distributions (RMDs). Those who have reached RMD age but are still working and have their retirement assets in a qualified retirement plan can still forgo taking RMDs until they retire if they do not own more than 5% of the company. Business owners that own 5% or more of a company, must start taking RMDs from their retirement plan on the new or old RMD schedule depending on when they reach age 72. Individuals who turned age 72 in 2022 are not impacted by this change and still needed to take their first distribution by April 1, 2023.

Another positive change regarding RMDs from Roth 401(k) accounts took effect in 2024. Previously, only Roth IRAs were excluded from taking RMDs, but Roth balances in qualified retirement plans were subject to RMDs. Beginning in 2024, account balances in designated Roth accounts — Roth 401(k), Roth 403(b) and Roth 457 plans — are no longer subject to RMDs.

New Advantages for 529 plans

New provisions were introduced for the 529 plans in 2024, which now allow for additional tax-free outlets for unused 529 funds. Some unused 529 balances can now be rolled into a Roth IRA of the 529 plan beneficiary. Before you start overfunding your child’s 529 plan, it is important to know the restrictions on Roth rollovers.

The 529 plan needs to have existed for at least 15 years, and any money rolling out of the 529 plan must have been in the plan at least 5 years prior to the Roth rollover. The usual Roth IRA contribution limits of $6,500 per year apply and they lifetime maximum rollover from 529 plan to Roth IRA for any one beneficiary is $35,000. If the 529 account owner had switched beneficiary of the 529 at any point, this could potentially restart the 15-year period.

In closing, the changes listed above are by no means an exhaustive list of all the changes that could affect your annual planning. There could be other changes that you should consider. These are some highlights that will hopefully spur conversation with your trusted advisor. If you have any questions, please contact us.

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