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2024: Your Guide to Contributions and Tax Law Changes

March 2nd, 2024 by Blake Pinyan

2024, along with the enactment of SECURE Act 2.0 brings some significant changes to Plan Contribution Limits in addition to Tax Law Changes which could affect your Financial Plan.

Changes in Contribution Limits

Retirement

401(k)/403(b)/457 Plans/SEP IRAs:

  • The maximum employee contribution limit for those under 50 has increased to $23,000 for 2024, marking a $500 rise from the previous year.
  • Individuals aged 50 or older can contribute up to $30,500, including a catch-up contribution of $7,500.
  • The maximum deposit allowed for most retirement accounts is now $69,000 for 2024, up by $3,000 from 2023. This encompasses employee contributions, employer matching contributions, and employee after-tax (non-Roth) contributions.
  • SEP IRA accounts have a maximum employer contribution of $69,000, as catch-up contributions are not applicable.

SIMPLE Plans: The employee contribution limit has increased by $500 to $16,000, with a catch-up contribution of $3,500 for those 50 or older.

Traditional and Roth IRAs: The contribution limit has risen by $500 to $7,000, with a catch-up contribution of $1,000 for those aged 50 or older.

IRA Deduction Limits: Active participants of employer-provided retirement accounts should be cautious of contributing to both a retirement account through work and an IRA, as their IRA deduction may be limited or nullified depending on their adjusted gross income.

  • The phaseout thresholds have increased for 2024, with single filers starting to see their IRA deductions reduced once income surpasses $77,000.
  • For married filers, this is $123,000. The phaseout thresholds increased $4,000 for single filers and $7,000 for married filers.

Roth IRA Contributions: Contributing the maximum to a Roth IRA is only possible if your income is below a specific threshold.

  • The phaseout limits for determining whether one can make a full or partial Roth IRA contribution have expanded in 2024, allowing single filers to make $8,000 more and married filers to earn $12,000 more.
  • Phaseouts now start at $146,000 of adjusted gross income for singles and $230,000 for married filers.

Social Security

  • Over 71 million Americans will see a 3.2% increase in their Social Security benefits for 2024.
  • The wage base for Social Security taxes has increased to $168,600 in 2024, up from $160,200 in 2023. In other words, Social Security no longer taxes 6.2% of employees’ incomes after their wages exceed $168,600.
  • The earnings limitations for Social Security benefits have been adjusted to $22,320 for individuals below Full Retirement Age and $59,520 for those in their Full Retirement Age year. This is the maximum amount that individuals can earn while claiming Social Security before their benefits are reduced. Previously, it was $21,240 and $56,520 respectively.

Estate and Gift Tax

  • The annual gift tax exclusion has increased $1,000, to $18,000 for 2024. This is the amount that individuals can give to as many people as they would like without having to file a gift tax return.
  • The Estate and Gift Tax lifetime exemption amount has risen to $13,610,000, up from $12,920,000 in 2023. If someone were to pass away in 2024, they could have a taxable estate of up to $13,610,000 and not face any estate taxes. Married couples are afforded double this ($27,220,000) by virtue of a portability election.

Medicare

  • The standard premium for Part B of Medicare is now $174.70 a month for 2024, an increase of about $10 a month compared to 2023.
  • The Income Related Monthly Adjustment Amount (IRMAA) threshold has increased to $103,000 for individual filers and $206,000 for married filers, based on adjusted gross income from 2022 (two years prior). This is $5,000 higher for single filers and $12,000 higher for married filers.

Tax Rates and Deductions

  • Marginal and capital gain taxes have been adjusted for inflation, with marginal rates continuing to range from 10% to 37%, and long-term capital gain rates still at 0%, 15%, and 20%.
  • Standard deductions have increased for all filing statuses in 2024, with additional deductions for individuals aged 65 or blind. This was a $750 bump for single filers to $14,600, $1,500 increase for married filers to $29,200, and a $1,100 raise for head of household filers at $21,900. Those that are age 65 or blind get an additional standard deduction of $1,950 if they are single and $1,550 if they are married, a $100 and $50 raise respectively.
  • Standard mileage rates have changed for business and medical purposes. The business vehicle deduction rate will increase from 65.5 cents to 67 cents a mile in 2024. The medical mileage rate will decrease by a cent to 21 cents per mile.

Health Savings Account (HSA)

  • The minimum deductible for individual HSA plans is now $100 higher at $1,600, with family plans $200 higher at $3,200.
  • The maximum out-of-pocket amounts have increased to $8,050 for individual plans and $16,100 for family plans, a $550 and $1,100 raise respectively.
  • Contribution limits have risen $300 for individual plans to $4,150 and $550 for family plans to $8,300, with a $1,000 catch-up contribution available for those aged 55 and older.

Major SECURE ACT 2.0 Changes Being Implemented In 2024

Elimination of Required Minimum Distributions (RMDs) for Roth Employer Plans

Commencing this year, Roth employer plans no longer mandate RMDs. Previously, individuals with Roth funds in an employer plan (such as 401(k)s, 403(b)s, etc.) were subject to RMDs upon reaching the designated age. In 2024, the decision to retain Roth funds in the employer plan versus transferring them to a Roth IRA will resemble the considerations for pre-tax 401(k)s versus IRAs. Factors such as investment availability, fees, management level, and retirement income plan design will influence this decision.

529 Plan to Roth IRA Transfer

Effective now in 2024, 529 plan owners gain the ability to transfer funds to their account beneficiary’s Roth IRA, provided the following criteria are met:

  • Transfers are directed to the 529 beneficiary’s Roth IRA, not the owner’s.
  • The Roth IRA owner must have earned income.
  • The maximum annual transfer amount from the 529 plan to the Roth IRA aligns with the IRA contribution limit ($7,000 for those under 50 and $8,000 for those 50 or over).
  • The maximum lifetime transfer limit from the 529 plan to the Roth is $35,000.
  • The 529 plan must have been active for at least 15 years before any transfer.
  • Contributions and earnings made within the last 5 years cannot be transferred.

Student Loan Payments as Elective Deferrals for Employer Matching.

In 2024, employers can credit employees’ retirement accounts with matching contributions based on their payments toward student loans for qualified higher education expenses. This provision applies to various retirement plans including 401(k)s, 403(b)s, SIMPLE IRAs, and government 457 plans.

This adjustment aims to assist employees burdened by high student loan balances, enabling them to contribute to retirement accounts despite financial constraints.

Withdrawals for Emergency Expenses or Domestic Abuse

Starting this year, employers may permit employees to withdraw up to $1,000 annually from their retirement accounts for unforeseeable or immediate financial needs related to personal or family emergency expenses. This withdrawal is exempt from the 10% early withdrawal penalty, with subsequent distributions requiring repayment of the original withdrawal.

Additionally, retirement plan participants who are victims of domestic abuse may withdraw the lesser of $10,000 or 50% of their vested balance in 2024, within 12 months of the domestic abuse event. This withdrawal is also exempt from the 10% early withdrawal penalty, and repayment can occur over a 3-year period.

Surviving Spouse Election to be Treated as Employee

Beginning this year, surviving spouse beneficiaries can use their deceased spouse’s age to determine when RMDs commence. This election offers several advantages:

  • RMDs are deferred until the deceased spouse’s designated age.
  • RMDs are calculated based on the Uniform Life tables, resulting in smaller required withdrawals.
  • The surviving spouse is treated as the original owner, potentially allowing beneficiaries to circumvent the 10-year withdrawal rule (if they are considered an eligible designated beneficiary)

This election is particularly beneficial if the surviving spouse is older than the deceased spouse, granting more time before RMDs are required. For example, if Sue (68) loses her husband, Bob (66), Sue could elect to use Bob’s age (66) for IRA RMD purposes, delaying her RMDs by two years compared to using her own age.

Conclusion

In summary, 2024 brings a plethora of inflation-adjusted limits and noteworthy provisions stemming from SECURE ACT 2.0. At Anchor Bay, we meticulously track these changes in planning limits and tax laws so you can focus on what matters most to you. Count on us to navigate these intricacies and serve as your trusted advisor every step of the journey!