Retirement Savings: 3 Ways Your Money Will Work Harder for You in 2024
Written by
Vance Cariaga
Edited by
Nicholas Morine
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Americans who are behind on their retirement savings will have plenty of opportunities to play catch-up in 2024 thanks to new rules designed to help bolster your nest egg.
One of the changes is that workers with an employer-sponsored 401(k) will be able to increase the amount of money they can contribute to the plan. The contribution limit will rise to $23,000 in 2024 from $22,500 in 2023. Although that represents an increase of only $500, your 401(k) could rise by more than that with a matching employer contribution.
Workers 50 and older will be able to add an additional $7,500 for a maximum yearly contribution of $30,500. That’s the same catch-up contribution amount as 2023.
These limits also apply to other retirement plans, such as 403(b) plans for employees of public schools and nonprofit organizations and the federal government’s Thrift Savings Plan, the AARP noted.
Other changes set for 2024 are related to a pair of retirement laws: Secure Act and Secure Act 2.0. These hold several provisions that can make it easier for workers to boost their retirement savings while also meeting more immediate financial obligations, CNN reported. Whether the provisions help you personally depends on your employer, because employers are only required to implement one of the four — and that one doesn’t go into effect until 2025.
Here’s a look at the three ways your retirement money can work harder in 2024.
Student Loan Payments
Beginning in 2024, Secure 2.0 will let employers offer matching contributions to workers who are making student loan payments and put that match into the employee’s 401(k) account. This way, the employee can accrue retirement savings even if they aren’t able to make significant contributions themselves. CNN cited an American Retirement Association survey showing that about one-third of employers are seriously considering offering the match.
Congress also passed separate legislation giving workers up to $5,250 tax-free to offset the payment of principal and interest on their federal and private student loans, which could free up more money for retirement plan contributions. This provision is in effect through the end of 2025.
Emergency Savings
There are a couple of provisions in Secure 2.0 related to emergency savings that are optional for employers. One provisions allows employers to create an emergency fund for workers within their 401(k) plans and then let workers make direct contributions to the fund. The employer would cap how much can go into the fund up to a $2,500 maximum, CNN reported.
In addition, the employer can match contributions to the emergency fund but the match would go into the retirement portion of the 401(k).
One thing to keep in mind is that contributions to the emergency fund would be subject to income tax, so it would be funded with after-tax money. However, the employer match would still be treated as tax deferred to the worker. This means the amount won’t show up as taxable income in the year it is made. It will also be allowed to grow untaxed until you withdraw it in retirement.
Hardship Withdrawal
The other Secure 2.0 emergency fund provision works like a hardship withdrawal from your 401(k) and is the one most likely to be adopted by employers, according to CNN. This provision lets you take out up to $1,000 a year penalty-free from your 401(k) for any type of emergency, though the withdrawal will be subject to income tax.
Workers can choose to pay the money back within three years through regular paycheck contributions. They would get a tax deduction for those contributions just as they do for regular 401(k) contributions. To take a second withdrawal of $1,000 in another year, however, the first amount withdrawn must have been paid back in full.
Meanwhile, another provision — the one employers are required to implement — will go into effect beginning in 2025. It involves part-time workers and their eligibility to participate in a company’s 401(k) plan. Under the old rules, a part-time worker had to work at least 1,000 hours over a consecutive 12-month period to be eligible, CNN reported.
That changed in 2019 with the Secure Act, which made 401(k)s available to part-time employees who worked at least 500 hours over a 12-month period for three straight years. Secure 2.0 widened eligibility even further by lowering the requirement from three years to two years. However, this provision won’t take effect until after Dec. 31, 2024.
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