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5 new breaks that could help boost your retirement savings

Key takeaways

  • 2024 brings with it several important changes to retirement savings accounts.
  • RMDs from workplace Roth 401(k)s will no longer be required.
  • Older workers will be able to contribute more to their 401ks.
  • You may be able to save for emergencies in a workplace retirement plan.
  • Student loan matching may also be a possibility in workplace plans.

The new year is a great time to get your financial house in order, and 2024 brings with it a whole slate of changes to retirement plans that could make it easier for you to save for retirement or an emergency and pay off student debt.

Many of these changes stem from the SECURE Act 2.0, passed by Congress at the end of 2022, which overhauled aspects of the American retirement system. Among the most powerful:

  • Defined contribution retirement plans would be able to add an emergency savings account giving participants penalty-free access to funds.
  • Older workers will be able to contribute more to their 401(k)s and other qualified retirement accounts.
  • Required minimum distributions (RMDs) from workplace Roth 401(k)s will become a thing of the past.
  • Employers will be allowed to reward student loan payments by employees with matching contributions into their retirement accounts.
  • And rolling over unused funds in a 529 college savings plan to a Roth IRA just got a whole lot easier.

Taken together, these adjustments can help with retirement planning and provide a boost to your savings. Here are the details.

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Emergency savings in a workplace plan

Maybe your emergency savings account needs some attention, particularly after years of high inflation and price increases.

A provision of SECURE Act 2.0 lets employers add an emergency savings account to defined contribution retirement plans this year. The accounts must be designated as Roth accounts, and they must also be for non-highly compensated employees. Contributions will be capped at an annual $2,500 (but could potentially be lower as determined by the employer), and they would count toward annual contribution limits. The first 4 withdrawals in a year would be tax- and penalty-free, and contributions could be eligible for an employer match, depending on plan rules. 

Emergency saving funds could encourage people to save for unexpected expenses, as well as for short-term savings goals. That said, including an emergency savings account within a retirement plan is at the discretion of employers, and your plan administrator may offer alternative solutions.

Starting an emergency savings doesn't have to happen within the retirement plan either. Given the rules and restrictions, you may want to explore an out-of-plan option, such as Fidelity Goal Booster℠.

Higher catch-up contributions for older workers

For the 2024 tax year, catch-up contributions to IRAs will be indexed to inflation. While contribution limits to retirement accounts are typically adjusted for inflation every year, catch-up contributions to retirement plans for older individuals in the past haven’t always gotten an annual bump.

Currently, someone age 50 or older can make a catch-up contribution of $1,000 in addition to the standard $7,000 contribution to an IRA (either traditional or Roth). Indexing can help ensure catch-up contribution amounts will increase with the cost of living.

Older workers hoping for larger catch-up contributions to a 401(k) must wait until January 1, 2025, when catch-up limits will jump to a minimum of $10,000 annually or 50% higher than the catch-up amount applicable in that year, but only for individuals ages 60 through 63. That amount will also be indexed for inflation. In 2024, individuals can contribute $23,000 to a workplace retirement plan with a catch-up contribution of $7,500 for employees age 50 and over.

Interested in opening an IRA? Explore your options.

No required minimum distributions (RMDs) from a workplace Roth

While RMDs aren’t required for Roth IRAs, until 2024 you had to take required minimum distributions from a workplace Roth plan once you’d retired and reached the age at which the Internal Revenue Service (IRS) mandates taking withdrawals from qualified retirement accounts.

Starting this year, however, you don’t have to take RMDs from a workplace Roth plan if you reach RMD age in 2024 or later, which can potentially give your savings there more time to continue growing, as they would in a non-workplace Roth account. Assuming the 5-year aging rule has been met and you’re 59½ and older, withdrawals are tax-free when made. Note: You may still owe an RMD by April 1, 2024, if you reached RMD age last year and did not yet take your first RMD.

That’s a big difference from a traditional 401(k) or other workplace plan, where savings can accumulate tax-deferred, but RMDs must begin once you’ve retired and have reached age 73 or older.

Learn more about tax-savvy withdrawals in retirement in Fidelity Viewpoints®.

Student loan matching in a workplace plan

Tens of millions of people have student debt, including a substantial number who are 50 and over.

In 2024, employers can add matching for student loan payments to 401(k) or other workplace retirement plans. With student loan repayments kicking in after a multi-year pause on repayments due to the pandemic, that could be a great incentive for workers still paying off their loans. Only higher education expenses are eligible, and employees will have to certify annually their student loan payments to qualify for the match. Even if just making minimum payments, you still may be eligible for a 401(k) match. Availability may differ by plan and other plan vesting and matching rules would apply.

529-to-Roth IRA transfers

If there’s a beneficiary of a 529 in your life, such as a child or grandchild, and they don’t plan to use funds in that account for educational purposes, you may be able to transfer those dollars to a Roth IRA, which could help boost their retirement savings.

Starting January 1, 2024, you will be able to transfer tax- and penalty-free up to a lifetime limit of $35,000 to a Roth IRA established in the name of the 529 beneficiary if the 529 account has been maintained for the designated beneficiary for at least 15 years, subject to annual Roth IRA contribution limits. Note: Transfer amounts must also come from 529 contributions made 5 years or more prior to the 529-to-Roth IRA transfer date.1

Unlike other Roth contributions, the Secure 2.0 Act legislation appears to indicate that the income limits that otherwise reduce the amount someone can contribute to a Roth IRA do not restrict the 529-to-Roth IRA transfer. However, the IRS has not issued guidance on this legislation but is anticipated to do so in the future, which may result in interpretative changes. Additionally, there may be instances where the 529 beneficiary is not eligible to transfer the full amount of the annual Roth IRA contribution limit from the 529, because the 529 beneficiary had no income or not enough income during a calendar year, or made the maximum contributions to a Roth IRA or a traditional IRA during the same calendar year.

Note: Due to annual contribution limits ($7,000 annually for 2024), this strategy could take multiple years to fully transfer 529 plan assets. Additionally, the annual contribution limit and Roth earned income limits used would be the 529 beneficiary's, not the parent's, and funds may only be converted to Roth IRAs, not to traditional IRAs.

Find out more about transferring amounts from a 529 to a Roth IRA in Fidelity Viewpoints®.

Whether your plans for 2024 include beefing up your retirement savings, meeting shorter-term financial goals, or paying off the remainder of your student loans, remember it’s always best to consult with a financial or tax professional to discuss your specific circumstances. With a solid financial plan in place, you can ring in the new year with confidence.

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1. Beginning January 2024, the Secure 2.0 Act of 2022 (the "Act") provides that you may transfer assets from your 529 account to a Roth IRA established for the Designated Beneficiary of a 529 account under the following conditions: (i) the 529 account must be maintained for the Designated Beneficiary for at least 15 years, (ii) the transfer amount must come from contributions made to the 529 account at least five years prior to the 529-to-Roth IRA transfer date, (iii) the Roth IRA must be established in the name of the Designated Beneficiary of the 529 account, (iv) the amount transferred to a Roth IRA is limited to the annual Roth IRA contribution limit, and (v) the aggregate amount transferred from a 529 account to a Roth IRA may not exceed $35,000 per individual. It is your responsibility to maintain adequate records and documentation on your accounts to ensure you comply with the 529-to-Roth IRA transfer requirements set forth in the Internal Revenue Code. The Internal Revenue Service (“IRS”) has not issued guidance on the 529-to-Roth IRA transfer provision in the Act but is anticipated to do so in the future. Based on forthcoming guidance, it may be necessary to change or modify some 529-to-Roth IRA transfer requirements. Please consult a financial or tax professional regarding your specific circumstances before making any investment decision.

For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

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