Over the last few years Congress has approved new laws impacting retirement plans; first in 2019 with the SECURE ACT and again in 2022 with SECURE ACT 2.0. Included in both are literally 100's of new rules and regulations. Many of the new rules are nuanced and/or only apply to employers and the effective dates are staggered over the next few years, with many being postponed pending further clarification from the IRS before they can be implemented. Here is what you need to know about the most relevant new rules starting in 2024:
1. Qualified Charitable Distribution (“QCD”) limit is increased from $100,000 to $105,000 and will continue to adjust annually for inflation.
“QCDs” are a great planning tool for those age 70 or older that are charitably inclined. They allow the IRA owner to give directly from their IRA to a charity. The amount withdrawn from the IRA is not taxed and it counts towards the required minimum distribution (RMD) amount if the IRA owner is subject to them.
FYI: As part of the SECURE ACT, in 2023 the age at which you must take RMDs was increased from 72 to 73. Therefore, all those born in 1951 through 1959 will start RMDs at 73. In 2033, the starting age will bump up again to 75 applicable to all those born 1960 and after.
2. Part-time workers may now be eligible for their employer’s retirement plan
Beginning in 2024, employees who are age 21 and complete 500 hours of service in three consecutive 12-month periods (“long-term, part-time employees”) cannot be excluded from making employee contributions to a 401k plan. Therefore, if you worked at least 500 hours for the same employer in 2021, 2022 and 2023 then beginning in 2024 you are eligible to contribute to the employers 401k plan. This, however, does not mean you are entitled to an employer matching contribution.
FYI: the above is a SECURE 1.0 rule. SECURE 2.0 came about and effective 2025 reduced the three consecutive year requirement to two consecutive years and requires 403b plans (offered by non-profits and government) to abide by the same rule.
3. Your employer may start making ROTH contributions to your 401k
Prior to 2024, employers were required to make 401k matching contributions pre-tax even if your employee contributions were made as ROTH contributions. Beginning in 2024, employers are now permitted to match employee ROTH contributions with an employer ROTH match. Not all employers will adopt this provision into their plan. If your company’s matching contributions are subject to a vesting schedule, then they will not be able to adopt this provision; others might wait a year or two to make sure payroll and 401k recordkeeping systems are fully equipped to account for the change. Finally, something to note is employer matching ROTH contributions will be taxed as income to you in the year they are made.
4. Left-over funds in 529 education accounts can be rolled over tax-free to a ROTH IRA
There are lots of rules that apply to this, making it a little less exciting than the headline might suggest and for planning purposes we would also still like to see some more clarity from the IRS. Nevertheless, if you have leftover money in a 529 plan then you may want to consider moving that money into a ROTH IRA for the 529 beneficiary subject to the following:
- The 529 plan must have been opened at least 15 years prior
- Amounts contributed in the last 5 years (plus associated earnings cannot be rolled over)
- There is a life-time cap of $35,000 on the amount that can be rolled over
- In any one year the rollover amount is subject to the ROTH contribution limit which in 2024 is $7,000 (so it would take 5 years to complete the rollover)
- The ROTH IRA owner (ie. 529 beneficiary) must have earned income in the year of the rollover
The big change happening in 2025 is that those age 60-63 will be able to make additional catch-up contributions to 401k/403B plans which could be welcome news as tax brackets are set to shift in 2026.