Retirement Savings Changes You Should Know About Before Year’s End

Over half of Americans need to catch up to their retirement savings goals. An additional 10 percent are uncertain about their retirement savings and planning status, according to a 2023 Bankrate survey. As the year draws to a close, it’s crucial to stay informed about significant changes to retirement savings rules that could impact your financial future.

Recent updates cover everything from required minimum distributions (RMDs) to new options for Roth contributions. This article summarizes some important retirement-related changes to look out for before the end of the year, along with planning moves to consider.

“Understanding these changes can help you make more informed decisions and potentially save money,” advises Martin Walcoe, President & CEO at David Lerner Associates, Inc.

Overview of Recent Retirement Rule Changes

Saving for is becoming slightly easier in 2024 due to the implementation of several provisions from the Secure 2.0 Act, which was enacted at the end of last year.

The landscape of retirement savings is evolving, with numerous adjustments introduced by Congress. These updates aim to provide more flexibility and reduce some burdens associated with traditional retirement accounts. Being aware of these changes is essential for effective retirement planning.

1. Student Loan Payments Now Count Toward 401(k) Matches
   

   Employers can now count student loan payments as contributions towards retirement-matching programs. If you are paying off student loans, those payments can qualify you for your employer’s 401(k) match, even though your money isn’t directly going into the retirement account. The employer’s match will still go into your retirement savings.

2. RMDs

   Required minimum distributions (RMDs) are an inevitable part of managing most retirement savings accounts in later life. Here are some changes you should know about:

   • No More RMDs from Roth 401(k) Plans – A significant update is the elimination of RMDs from Roth 401(k) plans. Previously, despite their after-tax contributions, Roth 401(k)s required RMDs, unlike Roth IRAs. This alignment simplifies retirement planning for those using Roth 401(k) plans.
   • Lower Penalties for Missed RMDs – The penalty for missing an RMD has been reduced from 50 to 25 percent of the missed amount, and it can be further lowered to 10 percent if corrected within 2 years. This change offers a more lenient approach for those who may inadvertently miss their RMDs.
   • Statute of Limitations on Missed RMDs – A new 3-year statute of limitations has been introduced for missed RMDs, starting from filing the relevant year’s tax return. This change protects retirees from indefinite penalties and interest on missed RMDs.
3.  Catch-Up Contributions
   

   With recent changes, individuals aged 50 and older will have more opportunities to boost their retirement savings. The IRS permits older Americans to make catch-up contributions, allowing them to exceed the annual limit and potentially compensate for missed savings opportunities in their earlier years.

   • Increased Catch-Up Contribution Limits Starting in 2025 – Beginning in 2025, the catch-up contribution limit for retirement plans like 401(k)s will rise from $7,500 to $10,000 annually, and this limit will be adjusted for inflation.
   • High Earners’ Catch-Up Contributions Now Roth-Based – Starting in 2026, individuals aged 50 and older earning over $145,000 annually must make catch-up contributions to their 401(k) plans on a Roth basis.  This change ensures that high earners contribute after-tax dollars, potentially benefiting their long-term tax strategy.
4.  Workplace Emergency Accounts
   According to a 2022 CFCP Emergency Savings and Financial Security survey, approximately a quarter (24 percent) of American adults have no savings set aside for emergencies, whereas 39 percent have less than one month of income saved for emergency expenses.
   • New Emergency Savings Option – Employers offering defined contribution retirement plans can now provide a pension-linked emergency savings account for non-highly compensated employees, with automatic contributions up to 3 percent of salary. The account cap is $2,500 (or lower, depending on your employer’s guidelines), and the first four withdrawals are fee-free. Employees can cash out or roll the funds into a Roth-defined contribution plan or IRA upon leaving the company.
   • Hardship Withdrawals – It’s now simpler to access retirement savings for emergencies. You can withdraw up to $1,000 annually from a retirement account for specific emergencies without the 10 percent early distribution penalty. If you repay it within three years, you might avoid taxes on the withdrawal. Additionally, domestic abuse victims under age 59½ can withdraw up to $10k from their IRAs or 401(k)s without incurring the penalty tax.
5. Roth
   There are also a few changes to Roth:
   • Roth Contributions to SEP and Simple IRAs – SEP and Simple IRAs can now accept Roth contributions. Previously, all contributions to these plans were on a pretax basis.  This change offers flexibility for small employers and self-employed individuals looking to diversify their retirement savings.
   • Employer Matching Contributions Can Be Roth – Employers can now offer Roth matching contributions to 401(k) plans. Employees who opt for this must pay income tax on the contributions but will enjoy the benefits of Roth accounts, including tax-free earnings.
6.  Enhanced Growth Opportunities for Spousal IRA Beneficiaries
   New provisions allow older spousal beneficiaries of IRAs to delay RMDs until the deceased spouse has turned 73. Additionally, these beneficiaries can use the IRS uniform lifetime table, resulting in smaller RMDs and more potential for tax-deferred growth.
7. Statute of Limitations for Excess Contributions 
   There is now a 6-year statute of limitations for excess contributions to IRAs.Contributions must match taxable compensation, with annual limits set at $7,000 for those under 50 and $8,000 for those 50 and older.

The end of the year is fast approaching, and understanding these changes is vital for anyone planning for retirement. They offer new opportunities for tax savings and more flexibility in managing retirement accounts. Review your retirement plan and consult with a financial advisor to stay ahead of these changes.

At David Lerner Associates, we are committed to helping you navigate these updates and optimize your retirement savings strategy. Contact us today to learn more about how these changes can benefit you.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.