Financial Insights

Proactive Tax Moves for 2024 & Action Items from Secure Act 2.0

The Federal Reserve tackling interest rates in the ongoing battle to lower inflation, the still active Ukraine/Russia war and tensions flaring in the Middle East tension were just a handful of world events which greatly affected all of us in 2023. What do these domestic and international themes have in common? We’re not able to control them.

During uncertain times, it’s valuable to focus on items we can control – how much we pay in taxes, spend, save, etc. While completely avoiding taxes is impossible, you may be able minimize with thoughtful and proactive planning throughout the year. Below are a handful of tax moves to note for 2024:

      1. Ordinary Income Taxes. Brackets have been updated and widened by the IRS for every type of filer – single, married filing jointly, qualifying widow(er)s and head of household. There is more room in each bracket to consider additional tax planning strategies such as Roth conversions, thoughtful withdrawals from tax deferred accounts, etc.

        2. Important Thresholds and Limits. The IRS increased the standard deduction for single and married filing jointly folks from $13,850 (2023) to $14,600 (2024) and $27,700 (2023) to $29,200 (2024). As a friendly reminder, there is an additional standard deduction for folks 65+ from $1,850 (2023) to $1,950 (2024). While taking the standard deduction (fixed amount) is not automatic, it is something you should be reviewing each year and compare the differences to itemizing your deductions. It comes down to simple math and with thoughtful tax planning you may be able to take advantage of certain strategies to ensure you’re not overpaying in taxes over your lifetime.

Maximum elective deferral to retirement plans (401k, 403b, 457) also increased from $22,500 (2023) to $23,000 (2024). Folks should be reviewing their existing work plan contributions to ensure they’re taking full advantage of the annual increase. Catch-up contribution limits for retirement plans did not change and will remain at $7,500 (2023 & 2024). In a perfect world, folks over the age of 50 are eligible to contribute $30,500 into a retirement plan.

Staying on the topic of retirement plans, the limit on annual additions to defined contribution and SEP plans increased from $66,000 (2023) to $69,000 (2024). This is great news for folks who are high earners in the top marginal income tax bracket as you there will be additional thousands in tax savings each tax year. In addition, the maximum annual compensation taken into account for contributions to retirement plans increased to $345,000 (2024) from $330,000 (2023).

The FSA maximum salary reduction contribution increased from $3,050 (2023) to $3,200 (2024). The HSA contribution limits for both individual and family coverage increased from $3,850 (2023) to $4,150 (2024) and $7,750 (2023) to $8,300 (2024). The catch-up contribution of $1,000 for HSA plans did not adjust for 2024.

Lastly, two of the most common investment vehicles we manage here at ACM are IRA’s and Roth IRAs. The contribution limit for IRA’s increased from $6,500 (2023) to $7,000 (2024) and the catch-up contribution of $1,000 did not adjust for 2024. Similar to the ordinary income tax brackets, the contribution eligibility for Roth IRAs also increased which will allow more folks to contribute directly. Please see below:

    3. Secure Act 2.0 | 529-to-Roth IRA Transfers. Starting from January 1, 2024, individuals have the opportunity to transfer up to a maximum of $35,000 from a 529 account to a Roth IRA established in the name of the 529 beneficiary without incurring taxes and penalties. This option is available if the 529 account has been maintained for the designated beneficiary for at least 15 years, taking into account the annual Roth IRA contribution limits. It is advisable to confirm the details with your ACM Wealth Advisor, as there are additional rules to consider.

For those with a 529 beneficiary, such as a child or grandchild, who does not intend to use the funds for educational purposes, there is the possibility of transferring the money to a Roth IRA. This transfer can contribute to enhancing their retirement savings.

It’s important to note that due to the annual contribution limits, which stand at $7,000 for 2024, the process of fully transferring 529 plan assets through this strategy may span multiple years. Furthermore, the annual contribution limit and Roth earned income limits apply to the 529 beneficiary, not the parents. Additionally, the funds can only be converted to Roth IRAs, not traditional IRAs.

    4. Secure Act 2.0 | No RMD’s for Workplace Roth. Roth IRAs do not require Required Minimum Distributions (RMDs). However, before 2024, individuals were obligated to take RMDs from a workplace Roth plan upon retirement and upon reaching the age specified by the Internal Revenue Service (IRS) for withdrawals from qualified retirement accounts.

Starting this year, there is no longer a requirement to take RMDs from a workplace Roth plan if you reach RMD age in 2024 or later. This change allows your savings in the plan more time to grow, similar to a non-workplace Roth account. If the 5-year aging rule is satisfied, and you are 59½ or older, withdrawals from the plan are tax-free. It’s essential to be aware that if you reached RMD age last year and have not taken your first RMD, you may still owe it by April 1, 2024.

This stands in contrast to traditional 401(k) or other workplace plans, where savings accumulate tax-deferred, but RMDs must commence once you’ve retired and are aged 73 or older.

Final Thoughts

Tax planning is not a one-and-done exercise and almost everything we do could be viewed through a tax lens. To help reduce lifetime taxes, it is important to be proactive throughout the year so when life or legislation changes, we can take full advantage of the adjustments and pivot accordingly. Please do not hesitate to reach out to your ACM Wealth Advisor if you have any questions.


The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.


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