The basics of saving for retirement tend to stay the same, but the details are constantly updated. If you don't pay attention, you may miss some important details that result in missed opportunities or an unfortunate surprise.
2024 will bring some rule changes for one of the most popular retirement savings plans in America: the 401(k). Here are three big ones you need to know about before next year.
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1. New contribution limits
The IRS adjusts contribution limits for all retirement accounts for inflation at the end of every year.
After a big step-up in limits in 2023, the IRS is letting investors stash just $500 more than last year in their 401(k) for 2024. The new limit is $23,000 for tax-deferred or direct Roth contributions. The catch-up contribution limit for individuals aged 50 and over remains $7,500.
The overall total limit for contributions to a 401(k) or other defined contribution plan increased to $69,000, or $76,500 when including catch-up contributions. That's primarily only important for savers with access and the means to use the mega backdoor Roth.
If you're regularly maxing out your 401(k), you may need to adjust your withholding to ensure you take advantage of the increased contribution limits.
2. A new way to get your employer match
The SECURE Act 2.0 of 2022 made several big changes to 401(k) matching rules. One big one for young workers goes into effect next year.
If you're currently paying down your student loans, you may be eligible to receive a 401(k) matching contribution from your employer for paying off your debt.
Paying off your student loan will stand in for direct contributions to your 401(k), and your employer will still be able to calculate your match based on your salary and loan repayment amount. Both private and federal loans qualify, as long as you took the loan for the sole purpose of paying educational expenses.
However, to get a match for your student loan repayments, your employer's plan must offer the option. Be sure to talk to the person in charge of your plan to amend it for 2024 to take advantage of it.
3. Access in case of emergencies
The IRS usually imposes stiff penalties for early withdrawals, with limited exceptions. The new law created several new exceptions for penalty-free withdrawals.
First, employees can withdraw up to $1,000 for "unforeseeable or immediate financial needs relating to personal or family emergency expenses." The withdrawal will not incur the 10% penalty, and you can repay the withdrawal within three years.
Victims of domestic abuse will be able to withdraw up to $10,000 (or 50% of the account, whichever's less). While you'll have to pay income tax on the withdrawal, you can receive a refund of your income taxes if you repay the withdrawal within three years.
The SECURE Act 2.0 also adds a new emergency savings feature for defined contribution plans like the 401(k) in 2024. Participants can contribute to a separate emergency savings account that's part of the 401(k) plan. Contributions are after-tax only (i.e., Roth) and capped at $2,500.
You can take up to one withdrawal per month, and the first four withdrawals in a year must be penalty-free. Your employer can impose fees after that, but you'll still have access to your money. Your employer may also automatically enroll you in the emergency savings account, setting aside up to 3% of your compensation.
Importantly, contributions to this new emergency savings account will qualify for matching contributions to your 401(k) investment account. If you leave the company, the funds can be converted into a Roth investment account or withdrawn.
Make sure you know the rules
The changes coming to 401(k) plans in 2024 should make it easier to save more for retirement. The new updates are especially useful for those just getting started in their career and trying to balance student loan repayment, emergency fund savings, and retirement savings. But older workers and even those nearing retirement should be aware of their options as well.
