Retirement Planning–Updates to Contributions and Withdrawals for 2024
Retirement planning is important for financial well-being, and staying informed about changes in contribution limits and withdrawal rules can help you to make good financial decisions. There are notable updates to retirement planning in the United States in 2024. Below we share key changes regarding contributions and withdrawals that you should be aware of to optimize your retirement strategies.
1. Contribution Limit Adjustments
For 2024, the contribution limits for Traditional IRAs have experienced a slight increase. Individuals under the age of 50 can now contribute up to $7,000 annually, up from the previous limit of $6,500. Those aged 50 and older can make catch-up contributions, with a new limit of $8,000 per year, up from $7,500. These adjustments provide an opportunity for individuals to save more for their retirement on a tax-deferred basis.
Roth IRAs have also seen an increase in contribution limits. The annual contribution limit for individuals under 50 is now $7,000, up from $6,500. Individuals aged 50 and older can contribute an additional $1,000 as a catch-up contribution, bringing their total annual limit to $8,000. Roth IRAs offer tax-free withdrawals in retirement, making them an attractive option for those anticipating higher tax rates in the future.
Employer-sponsored 401(k) plans remain a popular choice for retirement savings. In 2024, the contribution limits for 401(k) plans have risen. Individuals under 50 can contribute up to $23,000 annually, an increase from the previous limit of $22,500. For those aged 50 and older, the catch-up contribution limit remains the same at $7,500, allowing a total annual contribution of $30,500. Employees are encouraged to take advantage of employer matching contributions to maximize the benefits of their 401(k) plans.
2. Changes to Required Minimum Distributions (RMDs)
Age for Initiating RMDs
The age at which individuals are required to start taking RMDs from their retirement accounts has been adjusted. Previously, RMDs were mandated to begin at age 72, but as of 2024, the starting age has been increased to 73. This change provides individuals with additional flexibility in managing their retirement accounts and delaying taxable distributions.
Changes to RMD Calculations
The formula for calculating RMDs has been updated to reflect increasing life expectancies. The new life expectancy tables result in slightly lower RMD amounts for individuals of the same age compared to previous calculations. This adjustment acknowledges the trend of people living longer and aims to ensure that retirement savings last throughout an individual’s lifetime.
Need help with retirement planning? Contact the experts at MCK CPAs.