A piece of legislation known as Secure 2.0 passed Congress in 2022 and brought with it a raft of changes to the rules surrounding Americans' retirement savings.
Some, such as a change in the age when savers must take distributions from retirement accounts and a rule allowing companies to offer incentives to employees to contribute to workplace plans, took effect this year.
Dozens of changes are on the calendar from now through the end of 2027. Here are five key shifts that will take effect in 2024, and what they mean for you.
1. Student debt relief
Many early career workers face a conundrum when it comes to tackling financial goals: pay down student debt or invest toward retirement?
Starting next year, you may be able to do both at once. Secure 2.0 allows companies to "match" employees' student loan payments with contributions to their workplace retirement accounts.
2. Workplace emergency accounts
The law allows employers to include emergency savings accounts under the umbrella of workplace plans, such as 401(k)s. Employees would make Roth (after-tax) contributions to these accounts — called pension-linked emergency savings accounts or PLESAs — up to a maximum balance of $2,500.
3. 529 rollovers
So-called 529 accounts are a way to invest money toward a child's future education. You may be able to deduct contributions to such funds from your state income tax, and you won't owe tax on withdrawals as long as the money is put toward qualified education expenses.
Starting in 2024, money in a 529 account that goes unused can be rolled over tax-free into a Roth IRA. The 529 must have been open for at least 15 years, and lifetime rollovers max out at $35,000.
4. Penalty-free withdrawals for emergencies
Current rules allow retirement savers to pull money from their 401(k)s and traditional individual retirement accounts before retirement to meet an "immediate and heavy" financial need. The withdrawal may be subject to income tax, and those under age 59½ typically owe a 10% tax penalty.
Starting in 2024, you can make one withdrawal of $1,000 per year to cover personal and family emergency expenses without owing the 10% penalty. You only need to self-certify that you need the money for an emergency.
Victims of domestic abuse under the age of 59½ can withdraw up to $10,000 from IRAs and 401(k)s without owing the penalty.
5. Changes to Roth 401(k) rules
The Roth version of a 401(k) comes with similar tax rules to a Roth IRA. You contribute money you've already paid taxes on and in exchange for forgoing an upfront tax benefit, your money grows in your account tax-free. Provided your age is 59½ and you have held the account for at least five years, you won't owe a penny in tax when you withdraw the funds in retirement.
Until recently, there was one major difference: You had to begin taking distributions from your Roth 401(k) the year you turned 73 (or 70½ if you reached that age before January 2020) or face a penalty from the IRS.
Secure 2.0 eliminates that wrinkle starting in 2024, bringing the rules around Roth 401(k)s in line with those for Roth IRAs.
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