The Internal Revenue Service (IRS) recently unveiled its annual updates to retirement account contribution limits and cost-of-living adjustments for 2024.
These updates bring welcome news for individuals planning for their financial future, particularly regarding contributions to various retirement accounts, such as 401(k) plans, IRAs, etc.
Here is an overview of the key changes and updates provided by the IRS for the upcoming year:
401(k) and Similar Plans
One of the most significant announcements is the increase in the contribution limit for 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan.
In 2024, individuals will be allowed to contribute up to $23,000, up from the previous limit of $22,500 in 2023. This increase offers employees an enhanced opportunity to build their retirement savings.
IRAs (Individual Retirement Arrangements)
For those contributing to IRAs, the annual contribution limit has been raised to $7,000 in 2024, up from $6,500 in the previous year. Additionally, individuals aged 50 and over can make catch-up contributions, which remain at $1,000 for 2024.
Employees aged 50 and over participating in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan, will still be able to make catch-up contributions for $7,500 for 2024.
This means that individuals in this age group can contribute up to $30,500 starting next year. For those participating in SIMPLE plans, the catch-up contribution limit remains at $3,500.
Income Ranges and Deductible Contributions
The income ranges that determine eligibility for deductible contributions to traditional IRAs, contributions to Roth IRAs, and claiming the Saver’s Credit have all increased for 2024.
These adjustments provide more individuals with the opportunity to save for their retirement while taking advantage of tax benefits.
- For single taxpayers covered by a workplace retirement plan, the phase-out range for deductible contributions to traditional IRAs has increased to between $77,000 and $87,000, up from $73,000 to $83,000.
- For married couples filing jointly, if a workplace retirement plan covers the contributing spouse, the phase-out range is increased to between $123,000 and $143,000, up from $116,000 to $136,000.
- For an IRA contributor not covered by a workplace retirement plan but married to someone covered, the phase-out range is raised to between $230,000 and $240,000, up from $218,000 to $228,000.
- For married individuals filing separately covered by a workplace retirement plan, the phase-out range remains between $0 and $10,000 without an annual cost-of-living adjustment.
For Roth IRAs, the income phase-out ranges are increased as well. Singles and heads of household can contribute between $146,000 and $161,000, up from $138,000 to $153,000, while married couples filing jointly can contribute with an income range of $230,000 to $240,000, up from $218,000 to $228,000. The phase-out content for a married individual filing a separate return remains between $0 and $10,000.
The income limit for the Saver’s Credit, also known as the Retirement Savings Contributions Credit, has increased for 2024. It now stands at $76,500 for married couples filing jointly, up from $73,000; $57,375 for heads of household, up from $54,750; and $38,250 for singles and married individuals filing separately, up from $36,500. This credit provides additional financial incentives for low- and moderate-income workers to save for retirement.
SIMPLE Retirement Accounts
For individuals contributing to SIMPLE retirement accounts, the maximum contribution limit has increased to $16,000 for 2024, up from $15,500.
Additional Changes Under SECURE 2.0
Under the SECURE 2.0 Act of 2022, a few other changes have been implemented:
- The limitation on premiums paid for qualifying longevity annuity contracts remains at $200,000 for 2024.
- A deductible limit on charitable distributions has been introduced, with a limit of $105,000 for 2024, up from $100,000.
- A deductible limit for a one-time election to treat a distribution from an individual retirement account made directly to a split-interest entity has been set at $53,000 for 2024, up from $50,000.
These adjustments and changes in retirement contribution limits and tax benefits offer individuals a more significant opportunity to secure their financial well-being in retirement. Individuals need to stay informed about these updates and consider how they can optimize their retirement savings and financial planning in light of these changes.
Consulting with a financial advisor can help individuals maximize these opportunities and ensure a more secure financial future.