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401(k) & IRA Alert: Max contributions rise in 2024
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The Internal Revenue Service (IRS) has announced significant increases to the contribution limits for 401(k) plans and individual retirement accounts (IRAs) in 2024. These changes are designed to help Americans save more for their retirement, and it’s crucial that taxpayers understand the new limits to maximize their savings.
The 401(k) contribution limit will rise from $22,500 in 2023 to $23,000 in 2024, a $500 increase. This also applies to 403(b) plans, most 457 plans, as well as the federal government’s Thrift Savings Plan (TSP). Additionally, the IRA contribution limit will increase from $6,500 in 2023 to $7,000 in 2024. This increase applies to both traditional and Roth IRAs, providing more opportunities for taxpayers to save for their golden years.
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 $7,500 for 2024, therefore, the total contribution amounts for those aged 50 and over is $30,500. The catch-up contribution limit for employees 50 and over who participate in SIMPLE plans remains $3,500 in 2024. Lastly, the IRA catch-up contribution limit has been increased to $8,000 under SECURE 2.0 to include an annual cost-of-living adjustment, ensuring that this important provision keeps pace with inflation.
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 have all increased for 2024. For traditional IRA deductions, taxpayers can now deduct contributions if their modified adjusted gross income (MAGI) is less than $73,000 for single filers and $116,000 for married filing jointly, up from $73,000 and $114,000 respectively in 2023.
Similarly, the income limits for Roth IRA contributions have been raised. Single filers can now contribute the full amount if their MAGI is less than $138,000, up from $134,000 in 2023. For married filing jointly, the limit is now $218,000, up from $214,000.
The Saver’s Credit, which provides a tax credit for eligible low- and moderate-income individuals who contribute to qualified retirement plans, also sees an increase in the income limits. Taxpayers can now claim the credit if their MAGI is less than $73,000 for joint filers, $54,750 for heads of household, and $36,500 for single filers and married filing separately, up from $72,000, $54,000, and $36,000 respectively in 2023.
The phase-out ranges for single taxpayers covered by a workplace retirement plan have been increased for 2024. For 2024, the phase-out range for single taxpayers covered by a workplace retirement plan is between $77,000 and $87,000. This is an increase from the previous range of $73,000 to $83,000. This means that taxpayers with modified adjusted gross incomes (MAGIs) within this new range will be able to claim a partial deduction for their retirement plan contributions.
For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range for 2024 is increased to between $123,000 and $143,000, up from between $116,000 and $136,000. 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. This means that if your modified adjusted gross income (MAGI) falls within this range, your ability to deduct contributions to a traditional IRA may be reduced or eliminated entirely.
If you’re not covered by a workplace retirement plan but your spouse is, the phase-out range for your IRA contributions in 2024 has increased significantly. The new phase-out range is between $230,000 and $240,000 of modified adjusted gross income (MAGI), up from the previous range of $218,000 to $228,000.
The recent changes to the income phase-out range for taxpayers making contributions to a Roth IRA are also increased. For married couples filing jointly, the phase-out range has increased to between $230,000 and $240,000, up from the previous range of $218,000 to $228,000. Additionally, the phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment. This means that the phase-out range for these individuals will remain constant, providing a consistent and predictable framework for their retirement planning. The income phase-out range for single taxpayers and heads of household has also been increased, now ranging from $146,000 to $161,000, up from the previous range of $138,000 to $153,000. This change will enable more individuals to contribute to a Roth IRA, which can be a valuable tool for building wealth and securing a comfortable retirement.