The Internal Revenue Service made a welcome announcement for those who save for retirement: starting in 2024, the maximum amount that can be contributed to 401(k) and other well-known accounts will increase.
The IRS increased the annual contribution limits for most 457 plans, 401(K), 403(b), and the government-sponsored Thrift Savings Plan by $500 to $23,000, citing the growing cost of living.
The catch-up contribution programme, which will have a $30,500 cap, will allow individuals 50 years of age or older to contribute an additional $7,500 to such plans in 2024.
Usually, the purpose of these plans is to allow employees to save money in retirement accounts tax-deferred, so reducing their total taxable income.
IRA plans
Contributions to IRAs will be limited to $6,500 in 2024, although the catch-up contribution cap for people 50 and over will remain at $8,000.
Raising the contribution cap makes it possible for savers to reach their retirement savings targets, which is especially beneficial for individuals attempting to “catch up” later in life.
In addition to increasing contribution amounts, the IRS is boosting the income requirements for IRA holders to be phased out:
- The phase-out range for single taxpayers enrolled in a company’s retirement plan has been raised from between $73,000 and $83,000 to between $77,000 and $87,000.
- For married couples filing jointly, the phase-out range is raised from $116,000 to $136,000 to between $123,000 and $143,000 if the spouse contributing to the IRA is covered by a job retirement plan.
- The phase-out range for an individual who contributes to an IRA but is not protected by an employment retirement plan and is married to an eligible person has been raised from $218,000 to $240,000.
- The phase-out range for a married individual filing a separate return who is enrolled in a workplace retirement plan is fixed at $10,000 and is not subject to an annual cost-of-living adjustment.
IRA Roth
In contrast with tax-deferred plans, Roth IRA contributors pay taxes on their contributions; however, after years of growth, they can typically take money tax-free.
As previously mentioned, the cap for 2024 Roth contributions increases by $500, from $6,500 to $7000.
Next year, there will be a more inclusive phaseout of Roth IRAs based on income.
For taxpayers contributing to a Roth IRA, the range increases by $8,000 to $146,000 to $161,000 for heads of household and individuals. The income phase-out range jumps by $12,000 for married couples filing jointly, to between $230,000 and $240,000. When a married person files a separate return and contributes to a Roth IRA, the phase-out range stays between $0 and $10,000 and is not adjusted for inflationary each year.
The Saver’s Credit and the Simple IRA
Self-employed people and workers of small businesses can save money for retirement under the SIMPLE, or Savings Incentive Match Plan for workers.
Contributors to SIMPLE will be able to deposit $16,000 instead of $15,500 in 2024.
New income thresholds for low- and moderate-income workers who qualify for the Retirement Savings Contributions Credit, also known as the Saver’s Credit, will take effect in 2019: married couples filing jointly will now have to pay $76,500, up from $73,000; heads of household will now pay $57,375, up from $54,750; and singles and married people filing separately will now pay $38,250, up from $36,500.