Now is the perfect time to top up your retirement accounts to ensure you are well-positioned for the future. Before the end of 2024, aim to top off retirement savings plans and take your RMDs if appropriate.
Retirement account changes to make before 2024:
Until December 31, you can contribute up to $22,500 to your 401(k) for 2024 if you’re younger than 50. You can put in an extra $7,500 if you’re 50 or older. For IRAs, you have until the April 2024 tax-return filing deadline to contribute the $6,500 maximum, or $7,500 if you’re 50 or older.
You can contribute even more to a retirement account if you’re self-employed. As a sole proprietor, if you want to make an employee contribution to your own solo 401(k) account for 2024 – the same employee-contribution limit applies as with a 401(k) from standard employment – you must specify the solo 401(k) and state that you plan to make an employee deferral by the end of 2024. However, you have until the April 2024 tax return filing deadline to complete your employee contribution.
Until the April 2024 tax filing deadline, you are entitled to contribute 20% of your net income from self-employment as an employer. Total contributions have a limit of $66,000, or $73,500 if you’re 50 or older.
With a SEP IRA, you can contribute 20% of your net self-employment income, with a $66,000 limit for 2024. You have until the April 2024 tax filing deadline to establish and fund your SEP IRA for 2024.
When to take RMDs:
If you turned 73 in 2024, the deadline to take your first required minimum distribution from traditional IRAs and 401(k) plans is April 1, 2024. Otherwise, you must take this year’s RMD by December 31, 2024. However, if you delay your first distribution until 2024, you will take two RMDs in 2024, which could lift you into a higher tax bracket for that year.
The law known as SECURE Act 2.0, enacted in late 2024, lowered the penalty for missed withdrawals from 50% of the amount you should have withdrawn to 25% – 10% if you correct the missed withdrawal promptly. Still, that’s a significant chunk of your nest egg, so getting it right the first time is essential.
Calculating RMDs
Subtract the previous year’s account amount from your current year’s birthdate and divide it by the IRS life expectancy ratio. Your plan provider should calculate your RMDs.