Inherited 401(k) plans, 529 rollovers, Medicare Part D: New retirement rules to watch for in 2024

0



It’s a new year, and there are some new rules that could change the way retirees manage their finances and their well-being. 

The start of 2024 brings with it changes under laws including the Secure 2.0 Act and the Inflation Reduction Act that affect employer-sponsored plans, required minimum distributions, Medicare and 529 plans. 

Retirees — or those who inherit their accounts — should be aware of these developments, which can affect medical coverage and account distributions. 

The Secure 2.0 Act, for example, increased the age when a person must start taking required minimum distributions from a retirement plan from 72 to 73 in 2023. The first RMD for those who turned 73 in 2023 can be delayed until April 1 of the following year, in this case 2024, but the subsequent RMD would still need to be taken in that same year to satisfy both years. That means account holders who turned 73 in 2023 and who wait until April 1, 2024, to take their first RMD will be required to take a second RMD by the end of this year.  

Also see: Planning to retire in 2024? Do this one thing now.

Here are some other things to be aware of in 2024.

Distributions from an inherited retirement plan

Spousal beneficiaries who are the sole inheritors of an employer-sponsored retirement plan will now have the ability to formally elect to be treated as the account owner and to delay the initial required minimum distributions until the account owner would have had to begin those withdrawals, or if later, when the spouse would have attained age 73.  

This rule was made effective under Secure 2.0 and affects defined-benefit, 401(k) and 403(b) plans, as well as governmental and nongovernmental 457 plans. By being treated as the owner of the account, an inheritor could be able to take less in RMDs than if they used the life table usually assigned for calculating beneficiaries’ distributions. 

Roth account distributions

Prior to 2024, Roth 401(k) and Roth 403(b) plans were subject to required minimum distributions. Beginning in 2024, they are not. However, any RMDs required for 2023 that were delayed until April 1, 2024, must still be taken, the IRS said.  

Medicare Part D expansion 

Individuals whose incomes are 150% of the federal poverty level or less will now be considered for low-income subsidies under Medicare’s Part D program. The expanded eligibility rule is part of the Inflation Reduction Act. Potential beneficiaries must also meet the program’s other resource requirements. Previously, beneficiaries with income levels between 135% and 150% of the poverty level received only partial low-income subsidy benefits, according to KFF, the nonprofit health organization previously known as the Kaiser Family Foundation. 

In 2024, 126 stand-alone plans under Part D will be premium-free for individuals who qualify for low-income subsidies, according to KFF — a 34% decrease from the year before. Beneficiaries will have, on average, three benchmark prescription drug plans to choose from this year.

Also see: Are you taking an RMD? 10 smart things you can use it for right now.

Roth rollovers from 529 plans 

Unused assets from a 529 plan — money earmarked for qualified education expenses — can now be rolled over into Roth IRAs, under the Secure 2.0 Act, as long as the beneficiary of the 529 plan is also the owner of the Roth IRA. The lifetime limit is $35,000 and will not be subject to taxes or the 10% penalty typically imposed on nonqualified distributions. 

There are many stipulations to this rule, however. For example, the annual IRA limit is still in effect, meaning the most a person can roll over into a Roth account in a given year is $6,500. Anyone who wants to transfer more than that will have to do so over the course of several years. The individual must have also earned at least that amount for the year for the rollover to occur. The 529 plan must also have been open for at least 15 years, and contributions from the last five years can’t be transferred tax-free, according to Charles Schwab.



Source link

About The Author

Leave a Reply

Your email address will not be published. Required fields are marked *