Knowing the rules of the game is the starting point for any endeavor. Usually that’s the easy part, and then playing the game occupies the rest of one’s focus.
However, planning for retirement has never been so generous and stable. Certainly “playing the game” offers plenty to analyze — where to invest, how much to save, how to diversify and rebalance, when to stop accumulating and start decumulating, and so on.
But in addition to this, the rules and playing board never quite stay the same. Here’s a breakdown of recent changes to remember, and upcoming ones to keep an eye out for.
- Inherited IRAs 10-Year Spend-down
Before the SECURE Act of 2019, beneficiaries of an Individual Retirement Account could “stretch” their withdrawals over their lifetime. This enabled heirs to minimize additional tax liability year-to-year.
The new required minimum distribution rule (RMD) for Inherited IRAs means that most beneficiaries must abide by a 10-year withdrawal rule, meaning the entire account must be emptied out by the 10th year after the original account owner’s death.
New owners of inherited IRAs should recognize that income tax rates are always subject to change, meaning it could be better to take more distributions earlier if they expect rates to increase in the future. On the flip side, they may not want to take miniscule amounts over the first 9 years as they could face a huge tax consequence by liquidating the remainder in year 10.
- Medicare Part D Premiums Expected to Soar
According to a recent study by HealthView Services, Part D premiums are expected to increase between 42%-57% among the 3 leading providers in the top 5 states for seniors (California, Florida, New York, Pennsylvania, and Texas). This is a result of the Inflation Reduction Act, which will lower the out-of-pocket maximum drug costs for seniors to $2,000 in 2025, versus $7,000 today.
This comes at a cost and higher premiums will spread the burden. While Social Security benefits will increase with inflation, much of it may be eaten up by Part D premiums (the Social Security cost-of-living adjustment [COLA] in 2024 will be 3.2% versus the 8.7% boost received in 2023).
- How Much You Can Make Before Paying Any Capital Gains Tax
In 2024, single filers can earn up to $47,025 in taxable income before paying any long-term capital gains tax. For married couples filing jointly, it will be $94,050. Taxable income is your adjusted gross income minus the greater of the standard or itemized deductions.
- Where to Retire and Pay Less Taxes
There are 13 states that will not impose state income tax on your Social Security, 401(k), and IRA retirement income. The 9 without any state income tax at all are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. The other 4 that do have income tax but not for Social Security, 401(k), and IRA income are Illinois, Iowa, Mississippi, and Pennsylvania.
Unused funds can be rolled over tax-free into a Roth IRA for the beneficiary. However, there is a $35,000 lifetime cap, annual rollovers cannot exceed the annual contribution limits, and the 529 account must have been open for more than 15 years.
- Roth 401(k) and 403(b) RMDs Go away in 2024
Starting next year, designated Roth accounts will no longer be subject to RMD rules, conforming to the rules that already apply to Roth IRA account owners.
- Retirement Contribution and Income Limits Going Up
The IRS has increased 401(k) plan contributions from $22,500 in 2023 to $23,000 in 2024 (workers over Age 50 can still add an extra $7,500). As for IRAs, contribution limits are increasing from $6,500 to $7,000 (savers over Age 50 still can use catch-up contributions of $1,000). The income phaseout for Roth IRA contributions has also increased from $138,000 in 2023 to $146,000 in 2024 for Single filers and from $218,000 to $230,000 for Married Filing Jointly.
Just as it is smart to know the rules before you play the game, keep these updates in mind as you plan for retirement in 2024.
Bryan Kuderna does not provide tax or legal advice. Please consult your tax or legal advisor to discuss your specific situation.
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Bryan M. Kuderna is a Certified Financial Planner™ and the founder of Kuderna Financial Team, a New Jersey-based financial services firm. He is the host of The Kuderna Podcast and author of ,"WHAT SHOULD I DO WITH MY MONEY?: Economic Insights to Build Wealth Amid Chaos".