New Rules for Retirees in 2024

It’s a new year, and there are some new rules that could change the way retirees manage their finances and well-being. As we enter 2024, the Secure 2.0 Act and the Inflation Reduction Act bring several changes that impact employer-sponsored plans, required minimum distributions, Medicare, and 529 plans.

Changes to Required Minimum Distributions

Under the Secure 2.0 Act, the age at which individuals must start taking required minimum distributions from a retirement plan has increased from 72 to 73 in 2023. For those who turned 73 in 2023, the first RMD can be delayed until April 1 of the following year (2024). However, it’s important to note that the subsequent RMD would still need to be taken in the same year to satisfy both years. In other words, account holders who turned 73 in 2023 and choose to delay their first RMD until April 1, 2024, will be required to take a second RMD by the end of this year.

Distributions from Inherited Retirement Plans

Spousal beneficiaries who are the sole inheritors of an employer-sponsored retirement plan now have the option to formally elect to be treated as the account owner. This allows them to delay the initial required minimum distributions until when the account owner would have had to begin those withdrawals or, if later, when the spouse would have attained age 73. This rule, effective under Secure 2.0, applies to defined-benefit, 401(k), and 403(b) plans, as well as governmental and non-governmental 457 plans. By being treated as the owner of the account, an inheritor may be able to take less in RMDs compared to using the standard life table for calculating beneficiaries’ distributions.

Roth Account Distributions

Starting in 2024, Roth 401(k) and Roth 403(b) plans are no longer subject to required minimum distributions. However, any RMDs required for 2023 that were delayed until April 1, 2024, must still be taken, according to the IRS.

These new rules bring changes that retirees and those who inherit retirement accounts should be aware of. Understanding these developments is essential for managing medical coverage and account distributions effectively in 2024.

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. This expansion of eligibility is a result 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, as reported by KFF.

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

Roth Rollovers from 529 Plans

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

There are several stipulations to this rule. For instance, the annual IRA limit still applies, meaning individuals can only roll over up to $6,500 into a Roth account in a given year. Those who wish to transfer more than that will need to do so over the course of multiple years. Additionally, the individual must have earned at least the amount being rolled over for the year. The 529 plan must also have been open for a minimum of 15 years, and contributions made within the last five years cannot be transferred tax-free, according to Charles Schwab.