Many early career workers face a conundrum when it comes to tackling financial goals: pay down student debt or invest toward retirement?
Starting next year, you may be able to do both at once. Secure 2.0 allows companies to “match” employees’ student loan payments with contributions to their workplace retirement accounts.
The law allows employers to include emergency savings accounts under the umbrella of workplace plans, such as 401(k)s. Employees would make Roth (after-tax) contributions to these accounts — called pension-linked emergency savings accounts or PLESAs — up to a maximum balance of $2,500.
So-called 529 accounts are a way to invest money toward a child’s future education. You may be able to deduct contributions to such funds from your state income tax, and you won’t owe tax on withdrawals as long as the money is put toward qualified education expenses.
Starting in 2024, money in a 529 account that goes unused can be rolled over tax-free into a Roth IRA. The 529 must have been open for at least 15 years, and lifetime rollovers max out at $35,000.
Current rules allow retirement savers to pull money from their 401(k)s and traditional individual retirement accounts before retirement to meet an “immediate and heavy” financial need. The withdrawal may be subject to income tax, and those under age 59½ typically owe a 10% tax penalty.
Starting in 2024, you can make one withdrawal of $1,000 per year to cover personal and family emergency expenses without owing the 10% penalty. You only need to self-certify that you need the money for an emergency.
Victims of domestic abuse under the age of 59½ can withdraw up to $10,000 from IRAs and 401(k)s without owing the penalty.
The Roth version of a 401(k) comes with similar tax rules to a Roth IRA. You contribute money you’ve already paid taxes on and in exchange for forgoing an upfront tax benefit, your money grows in your account tax-free. Provided your age is 59½ and you have held the account for at least five years, you won’t owe a penny in tax when you withdraw the funds in retirement.
Until recently, there was one major difference: You had to begin taking distributions from your Roth 401(k) the year you turned 73 (or 70½ if you reached that age before January 2020) or face a penalty from the IRS.
Secure 2.0 eliminates that wrinkle starting in 2024, bringing the rules around Roth 401(k)s in line with those for Roth IRAs.
DON’T MISS: Want to be smarter and more successful with your money, work & life? Sign up for our new newsletter!
Get CNBC’s free Warren Buffett Guide to Investing, which distills the billionaire’s No. 1 best piece of advice for regular investors, do’s and don’ts and three key investing principles into a clear and simple guidebook.
24World Media does not take any responsibility of the information you see on this page. The content this page contains is from independent third-party content provider. If you have any concerns regarding the content, please free to write us here: contact@24worldmedia.com
