The Internal Revenue Service announced that the amount individuals can contribute to their 401(k) plans in 2024 has increased to $23,000, up from $22,500 for 2023. In addition, the limit on annual contributions to an IRA increased to $7,000, up from $6,500 in 2023. Not bad!
Given the new three legs of the retirement stool consist of you, you, and you, these retirement contribution limits for 2024 are important. Contribution limits must continue to increase to keep up with inflation. As a result, we must continue to save and invest more to hopefully beat inflation.
Most of us can no longer count on pensions in retirement. If you have a pension, count yourself as a lucky lottery winner. I’d take a pension for life any day over a 401(k) plan. The value of a pension is more than you think!
Without any increase in the retirement age or a reduction in the benefit amount, Social Security is expected to fully run out by 2034. As a result, folks under age 45 shouldn’t count on getting 100% of their Social Security benefits getting paid out. In fact, it may be best not to count on Social Security at all.
Highlights Of Retirement Contribution Changes For 2024
Here are the main highlights of the retirement contribution limits for 2024. Take full advantage!
1) 401(k), 403(b), 457 Plans, Thrift Savings Plan 2024
The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan, is increased to $23,000, up from $22,500.
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.
Therefore, participants in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,500, starting in 2024. The catch-up contribution limit for employees 50 and over who participate in SIMPLE plans remains at $3,500 for 2024.
2) IRA Contribution Limits 2024
The limit on annual contributions to an IRA increased to $7,000, up from $6,500. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 to include an annual cost‑of‑living adjustment but remains at $1,000 for 2024.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2024.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income.
If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.
Income Phase-out Ranges To Be Able to Contribute To A Traditional IRA For 2024
How much of your IRA contribution you can deduct on your taxes depends on your income level and whether or not you or your spouse have a 401(k) or other retirement plan at work.
- For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000, up from between $73,000 and $83,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000, up from between $116,000 and $136,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
The Income Threshold To Contribute To A Traditional IRA Is Low
The low income thresholds in order to contribute and get the full deduction on a traditional IRA have always bummed me out. The 2024 income thresholds of $83,000 for singles and $143,000 for married filers seem arbitrary. These incomes are in the 22% marginal income tax bracket. Why shouldn’t higher income earners have the same right to contribute to a traditional IRA for the full deduction as well?
For the financial health of our citizens, we should be encouraging everyone to save for retirement and benefit, not just selected groups. Goodness knows there are plenty of people with higher six-figure incomes who get in financial trouble later on due to a lack of saving.
The sooner we enable all workers to save for their retirement, the better.
Income Phase-out Ranges For 2024 For Roth IRA Contributions
The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $146,000 and $161,000 for singles and heads of household, up from between $138,000 and $153,000. In other words, once you earn more than $161,000 as a single taxpayer or $153,000 as a head of household, you can’t contribute a dollar to a Roth IRA.
For married couples filing jointly, the income phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.
We know from the 2024 tax brackets that $146,000 – $161,000 for singles and $230,000 – $240,000 for married couples puts them in a reasonable 22% marginal income tax bracket.
But does it make sense to exclude folks in the 24% marginal income tax bracket? A 24% marginal income tax income is a middle-class income in higher-cost areas of the country.
Government Might Be Saving Taxpayers Money By Limiting Roth IRA Contributions
Contributing to a Roth IRA when you’re in the 24% marginal income tax bracket is likely a wash. Contributing to a Roth IRA or doing a Roth IRA conversion when you’re in the 32% marginal tax bracket will most likely make you a tax loser.
I doubt most retirees will be paying a higher than 24% marginal tax rate in retirement than while working. Let’s be real.
In order to generate today $191,951+ in income and distributions as a single, you’ll need an investment portfolio of $4.8 million today returning 4%. For married couples, you’ll need an investment portfolio or net worth of more than $9.6 million. That’s not going to happen for 95%+ of Americans since a top 1% net worth starts at about $13 million today.
So maybe the government is actually being thoughtful and saving income earners in the 24% and higher tax brackets money! As a reminder, Roth IRA contributors pay taxes up front so they don’t have to pay taxes upon withdrawal.
Still Wish I Had Contributed To A Roth IRA When I Could Have
I wish I had contributed to the Roth IRA when I was younger. If I had, I would have over $200,000 in my non-existent Roth IRA today. My Roth IRA would have provided for some nice retirement diversification since all of the money can be withdrawn without taxes.
From 1993-1995, I was working at McDonald’s and other service jobs in high school. Then I did more odd jobs in college from 1995-1999. However, the Roth IRA was introduced as part of the Taxpayer Relief Act of 1997. Junior year of college was spent studying abroad in China and senior year (1998-1999) was focused on finding a job!
As a 23-year-old recent college graduate in 1999, I simply didn’t know much about the Roth IRA so I didn’t contribute. By the time 2001 rolled around when I did know more, my income had already surpassed the income threshold.
Now that I know better, I’ve opened up Roth IRA accounts for my kids. I will make them work to earn up to the Roth IRA maximum contribution amount. Not only will they build a health Roth IRA account by the time they graduate high school, they should also build work ethic and character.
Income Limit Threshold For Saver’s Credit
The income limit for the Saver’s Credit (Retirement Savings Contributions Credit) for low- and moderate-income workers is:
- $76,500 for married couples filing jointly, up from $73,000
- $57,375 for heads of household, up from $54,750
- $38,250 for singles and married individuals filing separately, up from $36,500.
The amount individuals can contribute to their SIMPLE retirement accounts is increased to $16,000, up from $15,500.
Additional changes made under SECURE 2.0 are as follows:
- The limitation on premiums paid with respect to a qualifying longevity annuity contract to $200,000. For 2024, this limitation remains at $200,000.
- Added an adjustment to the deductible limit on charitable distributions. For 2024, this limitation is increased to $105,000, up from $100,000.
- Added a deductible limit for a one-time election to treat a distribution from an individual retirement account made directly by the trustee to a split-interest entity. For 2024, this limitation is increased to $53,000, up from $50,000.
Details on these and other retirement-related cost-of-living adjustments for 2024 are in Notice 2023-75, available on IRS.gov.
Always Take Full Advantage Of The Contribution Limits
For a more secure retirement, please try to contribute the maximum to your available tax-advantaged retirement plans. In addition, try and contribute the maximum to your IRA or Roth IRA while you can! There’s a decent chance your income will eventually surpass the threshold where IRA contributions are possible.
One of the benefits of working again in 2024 is to start contributing to my solo 401(k) plan again. I haven’t consulted since 2015. Therefore, my solo 401(k) plan has fallen behind from where I’d like it to be for my age.
It would be nice to earn $23,000 in tax-deferred income in 2024 as I max out my solo 401(k). Any extra income will be saved and invested for my children’s education.
Reader Questions And Suggestions
What are your thoughts about the various 2024 retirement plan contribution limits? The $23,000 employee maximum to a 401(k), 403(b), or 457 plan seems like a good amount now. Are you taking full advantage?
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