​​Understanding the IRS's 2024 Contribution Limits

The Internal Revenue Service (IRS) has unveiled the contribution limits for 2024, and there are some significant changes in the world of retirement planning. These adjustments present fresh opportunities for you to enhance your retirement planning and move closer to achieving your financial goals.

Higher 401(k) Contribution Limits

Starting with 401(k) plans, the contribution limit for employees participating in 401(k), 403(b), and most 457 plans, including the federal government's Thrift Savings Plan, has been increased. In 2024, individuals can contribute up to $23,000, up from $22,500 in 2023. These plans are excellent vehicles for building retirement wealth, and the higher contribution limit provides individuals with more opportunities to save effectively for their future.

IRAs Also See Increases

Contributions to Individual Retirement Arrangements (IRAs) have also seen an uptick. The limit for annual contributions to an IRA has risen to $7,000, up from $6,500. For those aged 50 and over, the IRA catch-up contribution limit remains $1,000 for 2024. However, this is a valuable option for those looking to enhance their retirement savings.

Catch-Up Contributions Remain Steady

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan, remains at $7,500 for 2024. This means that individuals aged 50 and over can contribute up to $30,500 starting in 2024. Additionally, employees 50 and over who participate in SIMPLE plans can still make catch-up contributions of $3,500 in 2024.

Expanded Income Ranges for Deductions and Contributions

The income ranges for determining eligibility to make deductible contributions to traditional IRAs, contribute to Roth IRAs, and claim the Saver's Credit have all increased for 2024. This expansion is a positive development for many taxpayers. Here's a quick breakdown:

• For single taxpayers covered by a workplace retirement plan, the phase-out range for deductible traditional IRA contributions is now between $77,000 and $87,000, up from the previous $73,000 to $83,000.

• For married couples filing jointly where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range now extends from $123,000 to $143,000, compared to the prior $116,000 to $136,000.

• If an IRA contributor is not covered by a workplace retirement plan but is married to someone who is, the phase-out range has grown to $230,000 to $240,000, up from $218,000 to $228,000.

• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range remains between $0 and $10,000 and is not subject to an annual cost-of-living adjustment.

The income phase-out range for those making contributions to a Roth IRA has also expanded. For singles and heads of households, the income phase-out range is now between $146,000 and $161,000, up from the previous $138,000 to $153,000. For married couples filing jointly, the range has increased to $230,000 to $240,000, compared to the earlier $218,000 to $228,000. Finally, for a married individual filing a separate return and contributing to a Roth IRA, the phase-out range remains between $0 and $10,000.

Saver's Credit Enhancements

The income limit for the Saver's Credit, also known as the Retirement Savings Contributions Credit, has seen notable improvements. For married couples filing jointly, the income threshold is now $76,500, an increase from $73,000. Heads of household can benefit from an income limit of $57,375, up from $54,750. Singles and married individuals filing separately can now claim the credit with an income of up to $38,250, compared to the earlier limit of $36,500.

Simple Retirement Account Changes

For those contributing to SIMPLE retirement accounts, there's good news as well. The amount individuals can contribute has been raised to $16,000, up from $15,500 in 2023. These accounts provide a straightforward way to save for retirement, and the increased contribution limit is a bonus for those who utilize them.

These changes come as part of the SECURE 2.0 Act of 2022 and aim to provide individuals with greater opportunities to enhance their retirement savings and secure their financial futures. However, remember that these limits are subject to change based on inflation and other factors, so staying informed is crucial for effective retirement planning. If you're unsure about how these changes affect your retirement strategy, it's always a good idea to consult with a financial advisor who can provide guidance tailored to your specific situation.

Here is a visual representation of the 2024 contribution limits:

As we step into 2024, it’s important to understand the changes to your retirement accounts and be aware of the contribution limits so that you can make decisions with confidence. Schedule a call with our team to build your plan and secure your financial future.

*The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.