Earlier this month, the IRS announced the cost of living adjustments applicable to the various retirement plan limitations for 2024, with most of these tax advantaged savings opportunities increasing slightly from the 2023 limits.
Most working professionals have access to a 401k plan or 403b plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. For 2024, you can contribute up to $23k into a 401(k) or 403(b) plan through salary deferrals, up from $22.5k in 2023. With the Roth option, you forgo a current year tax break in exchange for a promise from the government that those contributions will grow tax-free.
Anyone 50 or older by December 31, 2024 can contribute an extra $7,500 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $30.5k, up by just $500 from the 2023 max. Please note that you don’t need to actually wait until your 50th birthday to be able to start making these catch-up contributions, so adjust your deferrals as of the first paycheck of that monumental year.
Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE’s work just like 401(k) plans, which means it’s up to each employee to fund the bulk of his or her retirement savings account through salary deferrals. For 2024, the maximum contribution into your SIMPLE as salary deferrals increases to $16k, up just $500 from last year’s limit of $15.5k. Anyone 50 or older by December 31st can put away an additional $3.5k in 2024, for a total annual salary deferral of $19.5k. Your employer will generally make matching contributions into your account of up to 3% of your salary.
And if you are self-employed, you can contribute up to 20% of your net self-employment income (or 25% of your gross W2 wages paid through your practice) into a SEP IRA. The maximum contribution into your SEP IRA for 2024 increases by $3k to $69k. Solo 401k’s allow self-employed individuals to hit the $69k max on less income and increase the max for people 50 and over to $76.5k as well.
And lastly, the maximum salary for many retirement plan calculations jumps to $345k for 2024, up by $15k from the 2023 max of $330k.
Increase to IRAs
Don’t forget about IRA’s. The amount you can contribute to an IRA increases by $500 to $7,000 per person for 2024. Even if you’re covered under a retirement plan at work, you and your spouse can each contribute up to $7,000 into a traditional IRA or Roth IRA next year, as long as your combined wages and net self-employment income exceeds the total amount you both contribute. Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $8,000. And don’t forget, you have until April 15, 2024 to contribute to your IRAs for 2023.
There is a bit of good news for people looking to contribute to a Roth IRA in 2024. The amount you can earn and still contribute to a Roth increases by $8k for single individuals and $12k for joint filers as follows:
- Single Individuals – Phase-out begins $146,000 and ends at $161,000
- Married Couples – Phase-out begins $230,000 and ends at $240,000
If your income is too high for a Roth, don’t forget that the rules changed more than a decade ago, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA. This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts. For more information, please check out our article Consider Converting Retirement Accounts to a Roth IRA.
And finally, if you’re married and your spouse isn’t covered under either an employer sponsored or self-employed retirement plan during the year, the phase-out range for your spouse making a deductible IRA contribution has increased to $230k – $240k for 2024, which is identical to the Roth IRA phase-out limits.
Re-Set Your 2024 Retirement Savings Budget
Most people won’t be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2023 winding down, now’s the time to start thinking about resetting your monthly retirement savings goals for 2024.