The Biggest Retirement Changes Coming in 2024

Cooling inflation and the recent rise in the stock market have given many retirement accounts a welcome comeback.

Add in January’s 8.7% increase in Social Security’s cost of living adjustment (COLA) to beneficiaries’ monthly checks, and the retirement landscape for retirees in 2023 will begin to liven up.

What will change for retirement in the coming year? Spoiler alert: Inflation adjustments and the phase-in of the Secure 2.0 retirement law signed by President Joe Biden in late 2022 will have a significant impact.

Here’s a snapshot of what’s in store for retirees in 2024.

Potential Tax Burden on Social Security Benefits

A potentially new concern for retirees’ budgets as the 2023 tax season begins in April: taxes.

“Because Social Security recipients received a high COLA of 8.7% in 2023, we expect more beneficiaries will be subject to federal income tax on their Social Security benefits for the first time in the upcoming 2024 tax season,” said Mary Johnson, Social Security and Medicare Policy Analyst of the Senior Citizens League, told Yahoo Finance.

According to the Social Security Administration, about 40% of Social Security recipients pay federal income taxes on their benefits. If you file a federal tax return as an “individual” and your total income from all sources, including your Social Security benefit, is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your income exceeds $34,000, up to 85% of your benefits may be taxable.

For co-applicants: If you and your spouse have a combined income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits; If it’s more than $44,000, up to 85% of your benefits may be taxable.

About 40% of people who receive Social Security must pay federal income taxes on their benefits.  (Getty Creative)About 40% of people who receive Social Security must pay federal income taxes on their benefits.  (Getty Creative)

About 40% of people who receive Social Security must pay federal income taxes on their benefits. (Getty Creative) (Douglas Sacha via Getty Images)

Changes to Retirement Account Rules

If you’re sitting on unused funds in 529 education accounts, take it easy. Starting in 2024, you can transfer these savings to a Roth IRA tax-free.

The story goes on

Of course there are limitations. For example, there is a lifetime limit of $35,000 and rollover amounts cannot exceed the annual contribution limit for Roth IRAs. So if you’re under 50 and have $35,000 in unused 529 assets, you could roll over $7,000 per year over five years (this contribution limit can change annually). And the 529 account must have been open for more than 15 years.

For 2024 and later years, certain Roth accounts in a 401(k) or 403(b) plan will no longer be subject to required minimum distributions – the minimum amounts you must withdraw from your retirement accounts each year if you are age 73 or older .

Read more: These are the new traditional IRA and Roth IRA limits in 2024

If you participate in an employer-provided retirement plan, you can generally delay taking your RMD until the year you retire. Roth IRAs do not require withdrawals until after the owner’s death.

Moderate increase in social security

Retirees receive a 3.2% cost of living adjustment through Social Security. According to the Social Security Administration (SSA), this will reduce the average retirement benefit by $59 per month, from $1,848 to $1,907, starting in January.

The adjustment will provide some relief to the more than 70 million retired seniors and disabled workers, but may not be enough to ease retirees’ ongoing budget concerns.

“Many retirees will likely be underwhelmed,” Johnson said. “In our latest survey, more than two-thirds of older adults say their monthly budget for essentials like housing, groceries and prescription medications is 10% higher than it was a year ago.”

Read more: What is the retirement age for Social Security, 401(k), and IRA withdrawals?

Higher Medicare spending

Higher costs for Medicare could eat up some of this COLA increase. The standard monthly rate for Part B increases from $164.90 to $174.70, deducting about $10 per month from the COLA profit. The annual deductible for all Medicare Part B beneficiaries will be $240 in 2024, an increase of $14 from $226 in 2023.

People with traditional Medicare coverage generally pay a monthly premium for health insurance (Part B) and for prescription drug coverage (Part D). These premiums vary depending on the plan. Some people pay a monthly premium for Part A inpatient hospital insurance.

Many retirees will also face higher premiums for Medicare Part D prescription drugs in 2024. Overall, average monthly Part D premiums will be “significantly higher” in 2024, according to an analysis by KFF, a nonprofit provider of health policy research. According to KFF, the national average monthly Part D premium is expected to rise 21% to $48 in 2024, up 21% from $40 in 2023.

Young pharmacist explains to the customer how to dose a medication.Young pharmacist explains to the customer how to dose a medication.

Many retirees will face higher Medicare Part D prescription drug premiums in 2024. (Getty Creative) (Halfpoint via Getty Images)

Starting next year, the new law, the Inflation Reduction Act, will allow Part D “base” premiums to increase by no more than 6% annually. However, insurers have a lot of leeway in adjusting the premiums, co-payments and deductibles that consumers actually pay.

People with higher incomes pay even more. If you earn more than $103,000 as an individual or more than $206,000 as a co-filer, you will pay an additional amount of between $12.90 and $81.00 per month in 2024, apart from 12.20 to 76 .40 for your Part D coverage your premium. For most people, this supplement is deducted from their Social Security check.

A welcome change: Inflation cooled in November year-on-year. For many retirees, every little bit helps when it comes to their budget.

Kerry Hannon is a senior reporter and columnist at Yahoo Finance. She is a workplace futurist, career and retirement strategist, and author of 14 books, including In Control at 50+: How to Succeed in The New World of Work and Never Too Old To Get Rich. Follow her on X @kerryhannon.

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