A Recap of 2024 Retirement Savings Legislation

The landscape of retirement savings in the United States is experiencing crucial changes following newly enacted legislative changes for 2024. These updates and reforms seek to enhance the flexibility of retirement savings accounts and transform how Americans save and prepare for retirement. Here are some of the more significant changes this year.

Contribution increase

One key 2024 retirement savings legislative update pertains to contributions into retirement plans such as the 401(k). The legislation introduces a significant increment in contribution limits, allowing Americans to save more for retirement. This change enables individuals to accumulate a more substantial retirement savings nest egg and allows them to manage their taxable income, given the pre-tax nature of these contributions.

The annual contribution limit for 401(k)s increased by $500 to $23,000 for individuals under 50 and $30,500 for those 50 and older. The annual contribution limit for SIMPLE IRAs also increased to $16,000, with an additional $3,500 catch-up contribution for workers 50 and older.

Required Minimum Distributions (RMDs)

Simultaneously, the legislative amendments also seek to extend the age limit for retirement account distributions. Previously, the age for mandatory minimum distributions (RMDs) from retirement savings accounts began at 70.5 years. However, under the new SECURE Act 2.0 guidelines, distributions are now mandatory at age 73. This delay affords retirees additional time to grow their assets and manage their retirement income more effectively.

The SECURE 2.0 Act reduced the penalty for failing to take required minimum distributions (RMDs) from 50% to 25% of the amount not distributed. If the missed RMD is corrected promptly, the penalty may be reduced to 10%.

The contribution age restriction eliminated

Another notable aspect of the 2024 retirement savings legislative changes revolves around reducing age restrictions on Individual Retirement Account (IRA) contributions. In the past, individuals aged 70.5 years and above were barred from contributing to their 401(k) and traditional IRAs. This restriction has been eliminated, allowing older Americans to continue contributing to their IRAs as long as they continue working.

Part-time worker 401(k) participation

One key goal of these 2024 legislative changes is to make retirement planning more accessible and manageable for all employees, regardless of whether they work part-time or full-time. To this end, the new laws mandate employers with a 401(k) plan extend eligibility to part-time workers who meet specific criteria. This part-time eligibility change will significantly increase the number of Americans who can contribute to a 401(k) plan, ensuring greater retirement readiness.

In summary, the 2024 retirement savings legislative changes represent a significant step forward in encouraging and facilitating retirement savings participation among Americans. The amendments cater to a diverse range of individuals, from full-time employees to non-working spouses, reflecting a multi-dimensional approach to retirement savings. These legislative changes have implications for those nearing retirement and younger generations seeking to save for their retirement and financial future.