6 Major Changes The IRS Has Made That Could Impact Your Retirement Savings
Each year, there are changes to the tax code that impact your retirement savings. Some changes can be confusing, simple, or unknown to the average person. With these new rules being implemented, you can build a larger retirement nest egg to help you in your golden years. The SECURE Act 2.0 put out a whole bunch of changes in the next few years for 401Ks and IRAs.
Retirement Account Contributions
With Secure Act 2.0, the government is making it easier for the everyday worker to save more for retirement. That can be with higher contribution limits, fewer penalties on withdrawals, and opportunities for more people to have retirement accounts. It is a huge plus for the everyday worker to have opportunities to save more, invest more, and have more money in their golden years.
Let’s break down how these six changes can impact your retirement savings.
1. IRA Contributions Have Gone Up
In 2023, the maximum IRA contributions were $6,500 for those 50 years and older. It is now going up 7.6% to $7,000 per year. The great thing about the IRA is having the option to choose the investments you want. You could open one with any brokerage and create tax-free retirement money with a Roth IRA (as long as you are under an income threshold).
2. Max Contributions to the 401K Have Gone Up
As of 2023, the maximum contribution you could make to the 401 (k) was $22,500. The new change for 2024 is that the IRS is now allowing up to $23,000 in maximum contributions from individuals. It may be $500, but that is extra money that can be invested to help you retire earlier or have more money.
3. 403Bs, Thrift Savings Plans and Most 457s Max Contributions Have Risen
Just like the 401k, many other retirement plans have raised their contributions. It is the same as the 401K, so your max contribution is $23,000. As it has been stated, the more you can contribute, the more compounding interest can work on it to help you retire with more money. It is a good thing.
4. Withdrawal of 401K Money Has no Penalty if Family is in an Emergency
Emergency funds help protect a family in case of a financial emergency. Sometimes, that may not be enough. In 2024, the IRS will allow a withdrawal of up to $1,000 per year without the 10% penalty if you or your family experiences a financial emergency. The money has to be paid back to the account within three years, so it is a short-term loan.
5. Student Loan 401K Match
With students’ higher student loan debt, it can be hard for them to save for their retirement. It makes it difficult to grab that employer match with the 401k without the ability to contribute. The SECURE Act 2.0 allows employers to match the amount that students contribute to their student loans. It helps students pay down their debt and allows them to have more money saved up for their future retirement.
6. Automatic Enrollment into 401K Plans
Starting in 2025, companies will automatically enroll their employees into 401 (k) plans. In the past, the company may have a plan, and it would be up to the employee to enroll. With poor education, many employees would not enroll in these plans and miss out on monetary gains in the process.
I worked for a company that started offering plans to its employees, but many of them in the office chose not to enroll. They didn’t know what a 401K plan was or about the matches that they could receive. The poor education on the plans that were given to the employees was damaging their ability to build a successful retirement.
Retirement Accounts Can Help A Lot in Retirement
If you have not started a retirement account, it is a good time to do so. These accounts, like an IRA or a 401 (k), are having some major changes coming up in the future that can help you save more and invest more for the future. It is time to take action. Getting an employer match can help supercharge your savings. It is better to start and get investing instead of sitting around waiting until you hit 60, wondering how you will pay for your retirement.
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