Navigating 2024 Legislative Changes: A Guide for High Net Worth Individuals
Each year ushers in legislative and regulatory adjustments that impact key financial planning areas, such as retirement account contribution limits, tax brackets, Roth IRA income phase-outs, and estate taxes. For high net worth individuals, staying abreast of these changes is essential to optimizing savings and investment strategies in alignment with the current legislative landscape.
The Impact of Inflation
One of the primary drivers behind these changes is inflation. Understanding how inflation influences financial regulations can help you maintain a robust and compliant financial plan.
2024 Retirement Account Contribution Limits
The U.S. government incentivizes retirement savings through specific tax benefits, accompanied by annual contribution limits for retirement accounts. For 2024, these limits have been adjusted to reflect current economic conditions.
- Employer-Sponsored Plans: Contribution limits for 401(k), 403(b), and 457 plans have increased to $23,000 for individuals under 50, and $30,500 for those 50 and older. The total contribution limit, including both employee and employer contributions, is now $69,000 for those under 50 and $76,500 for those 50 and older.
- SIMPLE IRA: Contribution limits are now $16,000 for individuals under 50 and $19,500 for those 50 and older.
- IRAs and Roth IRAs: Contribution limits have increased to $7,000 for individuals under 50 and $8,000 for those 50 and older.
- Health Savings Accounts (HSAs): While not a traditional retirement account, HSAs offer triple-tax advantages. Contribution limits have increased to $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those 55 and older.
Key Takeaways
- Review Your Contributions: Ensure your recurring contributions to retirement accounts and HSAs are adjusted to meet the new limits.
- Monitor Compensation Changes: If your contributions are percentage-based, fine-tune them to meet your savings targets without exceeding limits.
- Catch-Up Contributions: If you’re turning 50 in 2024, maximize your “catch-up” contributions immediately.
Income Phase-Outs for Roth IRA Contributions
Roth IRAs offer tax-free growth, making them highly advantageous. However, income phase-outs restrict direct contributions based on your Modified Adjusted Gross Income (MAGI).
- For 2024, the MAGI phase-out begins at $161,000 for single filers and $240,000 for married joint filers, up from $153,000 and $228,000 respectively in 2023.
Key Takeaways
- Calculate Your MAGI: Determine if you’re approaching the income limit to avoid ineligible contributions.
- Evaluate Eligibility: With increased limits, you may now qualify for Roth IRA contributions in 2024 even if you didn’t in 2023.
- Consider Backdoor Contributions: If you’re above the income limit, explore backdoor Roth IRA strategies with a financial advisor.
Tax Bracket Increases
The income limits for federal tax brackets have increased by approximately 5%, though the tax rates remain unchanged.
- 2024 Marginal Tax Rates: The top rate of 37% applies to incomes over $609,350 for single filers and $731,200 for married couples filing jointly, with subsequent brackets adjusted accordingly.
Key Takeaways
- Adjust Withholdings: Review the updated brackets to ensure accurate tax withholdings.
- Capital Gains Opportunities: Higher thresholds might allow you to sell appreciated assets with reduced capital gains taxes.
- Roth Conversions: Consider converting traditional IRA and 401(k) balances to Roth accounts without moving into a higher tax bracket.
SECURE Act 2.0 Updates
Signed into law at the end of 2022, the SECURE Act 2.0 brings significant changes to retirement plans, some effective in 2024 and others in subsequent years.
- Roth 401(k) Changes: Required minimum distributions (RMDs) are no longer mandated for Roth 401(k)s.
- Employer Contributions: Employers can now match contributions based on student loan payments.
- 529 Plan Rollovers: Unused 529 plan assets can be rolled into a Roth IRA, subject to limits and conditions.
Other Notable Updates
- Social Security: A 3.2% cost-of-living adjustment (COLA) has been implemented.
- Standard Deduction: Increased to $14,600 for single filers and $29,000 for married couples filing jointly.
- Estate Tax Exemption: Increased to $13.61 million per person.
- Gift Tax Exclusion: Increased to $18,000 per person.
Conclusion
The legislative landscape is ever-changing, making it crucial for high net worth individuals to stay informed and adapt their financial plans accordingly. By understanding and leveraging these updates, you can optimize your savings and investment strategies.
If navigating these changes feels overwhelming, remember you don’t have to do it alone. Our team stays updated on legislative changes to proactively manage our clients’ financial plans. Reach out to us today to ensure your strategy is aligned with the latest regulations and optimized for success.