Internal Revenue Service announcement The amount individuals can contribute to their 401(k) plan in 2024 will increase from $22,500 to $23,000 for 2023. Additionally, the annual contribution limit to an IRA increases from $6,500 to $7,000 in 2023. Not bad!
The new three legs of the retirement mall consist of you, you and you, these retirement contribution limits for 2024 are important. Contribution limits must increase to keep pace with inflation. Consequently, we must continue to save and invest more to beat inflation.
Most of us cannot rely on a pension in retirement. If you have a pension, count yourself a lucky lottery winner. I’ll take a pension for life over a 401(k) plan any day. Pension is worth more than you think!
Social Security is expected to run out entirely by 2034, with no increase in retirement age or reduction in benefits. As a result, people under the age of 45 will not count on paying 100% of their Social Security benefits. In fact, it may be better not to rely on Social Security at all.
Highlights of Retirement Contribution Changes for 2024
Here are the key highlights of retirement contribution limits for 2024 Take full advantage!
1) 401(k), 403(b), 457 Plan, Thrift Savings Plan 2024
The contribution limit for employees participating in 401(k), 403(b), and most 457 plans as well as the federal government’s Thrift Savings Plan has been increased from $22,500 to $23,000.
Catch-up contribution limits for employees age 50 and older participating in 401(k), 403(b) and most 457 plans, as well as the federal government’s Thrift Savings Plan, remain at $7,500 through 2024.
Therefore, participants in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan who are age 50 and older can contribute up to $30,500 starting in 2024. The catch-up contribution limit for employees 50 and older who participate in SIMPLE plans will remain at $3,500 for 2024.
2) IRA contribution limit 2024
The annual contribution limit to IRAs increased from $6,500 to $7,000. The IRA catch-up contribution limit for individuals age 50 and older was revised under the SECURE 2.0 Act of 2022 to include an annual cost-of-living adjustment but remains at $1,000 for 2024.
In traditional Individual Retirement Systems (IRAs), the income limits for contributing to Roth IRAs and determining eligibility to claim the saver’s credit have increased for 2024.
Taxpayers can deduct contributions to traditional IRAs if they meet certain conditions. If the taxpayer or the taxpayer’s spouse is covered by a workplace retirement plan during the year, depending on filing status and income, the deduction may be reduced or phased out until it is eliminated.
If neither the taxpayer nor the spouse is covered by a workplace retirement plan, the phase-out of the deduction does not apply.
Phase-out ranges of income to be able to contribute to a traditional IRA through 2024
- For single taxpayers covered by workplace retirement plans, the phase-out range increased from between $73,000 and $83,000 to between $77,000 and $87,000.
- For married couples filing jointly, if the IRA contributing spouse is covered by a workplace retirement plan, the phase-out range increases from $116,000 and $136,000 to between $123,000 and $143,000.
- 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 increases from $218,000 and $228,000 to between $230,000 and $240,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to the annual living-expense adjustment and ranges from $0 to $10,000.
The income threshold for contributing to a Roth IRA is low
The low income thresholds for contributing to a traditional IRA have always bothered me. The income thresholds of $83,000 for singles and $143,000 for 2024 appear arbitrary. Why shouldn’t high income earners have the same right to contribute to a traditional IRA?
For the financial health of our citizens, we should encourage everyone to save for retirement, not just a select group. Goodness knows there are plenty of people with high six-figure incomes who later find themselves in financial trouble due to lack of savings.
The sooner we enable all workers to save for their retirement, the better.
2024 income phase-out range for Roth IRA contributions
The phase-out income range for taxpayers contributing to Roth IRAs has been increased to between $146,000 and $161,000 for singles and heads of households, from $138,000 to $153,000. In other words, once you earn more than $161,000 as a single taxpayer or $153,000 as head of household, you can’t contribute a dollar to a Roth IRA.
For married couples filing jointly, the income phase-out range is between $230,000 and $240,000, increasing from $218,000 to $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 it makes sense to omit to omit Folks in the 24% marginal income tax bracket? A 245% marginal income tax income is middle class income in high cost areas of the country.
Government can save taxpayers money
Contributing to a Roth IRA is probably a wash when you’re in the 24% marginal income tax bracket. Contributing to a Roth IRA or converting a Roth IRA when you’re in the 32% marginal tax bracket will likely cost you a tax loss.
I suspect most retirees will pay a marginal tax rate higher than 24% in retirement compared to working. Let’s be real. To generate $191,951+ in income and distributions as a single today, you would need an investment portfolio of $4.8 million that would return 4% today. For married couples, you’ll need an investment portfolio or assets of more than $9.6 million.
So maybe the government is really thinking and is saving money on income taxes of 24% and higher tax brackets!
Still I had to contribute to a Roth IRA when I wanted to
I used to contribute to Roth IRAs when I had the chance. If I had, I would have over $200,000 in my non-existent Roth IRA today. My Roth IRA will provide some nice retirement diversification since all money can be withdrawn tax-free.
Additionally, I was able to contribute to a Roth IRA while working at McDonald’s and other service jobs in high school from 1993-1995. 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 focused on finding a job!
As a 23-year-old recent college graduate in 1999, I didn’t know much about Roth IRAs so I didn’t contribute. By 2001 when I knew more, my income had already exceeded the income limit.
Income limit threshold for saver’s credit
The income limits for the Savers Credit (Retirement Savings Contribution Credit) for low- and moderate-income workers are:
- $76,500 for married couples filing jointly, up from $73,000
- $57,375 for heads of household, up from $54,750
- $38,250 for single and married filing separately, up from $36,500.
The amount individuals can contribute to their Simple Retirement Account has been increased from $15,500 to $16,000.
Additional changes made under Secure 2.0 are as follows:
- The premium limit for a qualified longevity annuity contract is $200,000. For 2024, this limitation remains at $200,000.
- An adjustment has been added to the deductible limit on charitable distributions. For 2024, this limitation is increased from $100,000 to $105,000.
- Added a deductible limit for a one-time election to treat distributions from a separate retirement account made directly by trustees to a split-interest entity. For 2024, this limitation is increased from $50,000 to $53,000.
These and other retirement-related lifestyle spending trends for 2024 are detailed Notice 2023-75Available at IRS.gov.
Always take full advantage of contribution limits
For a more secure retirement, please try to maximize your available tax-advantaged retirement plans. Additionally, try and make maximum contributions to your IRA or Roth IRA while you can! There’s a decent chance your income will eventually exceed the threshold at which IRA contributions are possible.
One of the benefits of going back to work in 2024 is to start contributing to my solo 401(k) plan again. I haven’t consulted since 2015. So, my single 401(k) plan has lagged behind where I want 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 single 401(k). Any excess income will be saved and invested in my children’s education.
Reader questions and suggestions
What are your thoughts on the various 2024 retirement plan contribution limits? The $23,000 employee maximum from a 401(k), 403(b), or 457 plan seems like a hefty sum now. Are you taking full advantage?
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