Retirement savings limits are increasing.
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I.R.S. To tell This means that the amount you can save for retirement will increase. In 2024, an individual will be able to contribute up to $23,000 to her 401(k) plan, up from $22,500 in 2023. It will also give a boost to those who are playing catch-up. The catch-up contribution limit for employees age 50 and older is an additional $7,500 in 2024.
This announcement relates to cost-of-living adjustments for pension plans and other retirement-related items for the 2024 tax year. Here are some of the most common ones:
401(k) plan
The $23,000 limit applies to 401(k) plans or similar plans maintained by nonprofit and government employers (403(b) plans, most 457 plans, and federal worker thrift savings plans) applies to employee contributions. If you’re 50 or older, you can contribute up to $30,500 in 2024 with catch-up contributions for 401(k), 403(b), and most 457 plans, as well as the federal Thrift Savings Plan .
Typically, these are pre-tax contributions that workers make to their retirement plans. You’re probably already familiar with how it works in the first place. By checking a box on your benefit form, you can set aside a portion of your income to fund your retirement.
From a tax perspective, the benefit is twofold. The income will not count towards your income this year (this reduces your potential tax liability). and It grows tax deferred. Once you reach retirement age, your withdrawals will be taxed when you take them out (with some exceptions for money sent directly to charity).
IRA plan
The annual IRA contribution limit increased from $6,500 in 2023 to $7,000 in 2024. This limit applies to total contributions to traditional and Roth IRAs.
IRA plans also allow catch-up contributions for individuals age 50 and older, which will remain at $1,000 in 2024, for a total of $8,000 for workers age 50 and older.
With a traditional IRA, your contributions are tax-advantaged. If you meet the criteria, i.e. where these limits are relevant, your contributions will be tax deductible, resulting in lower taxes. Similar to a 401(k) plan, earnings within an IRA grow tax deferred and are subject to tax upon withdrawal.
In addition to contribution limits, phase-outs apply. What this means is that if you or your spouse were covered by a retirement plan at work during the year, depending on your filing status and income, your tax credit may be reduced or graduated until the credit is eliminated. This means that it may be abolished. The scope of the 2024 phase-out is:
- For single taxpayers eligible for workplace retirement plans, the phaseout range expands from $73,000 to $83,000 in 2023 to $77,000 to $87,000 in 2024. Ru.
- For married couples filing jointly, the phaseout ranges from $116,000 to $136,000 in 2023 to 2024 if the spouse making the IRA contribution is in a workplace retirement plan. In 2019, the amount will increase to between $123,000 and $143,000.
- For IRA contributors who are not covered by a workplace retirement plan and who are married to a covered individual, the phaseout ranges from $218,000 to $228,000 in 2024 and $230,000 in 2024. Increased to $240,000.
- For married people covered by a workplace retirement plan who file a separate return, the phaseout range remains in the $0 to $10,000 range (not subject to annual cost-of-living adjustments). This number will not change).
Importantly, if neither you nor your spouse participate in a retirement plan at work, the deduction phaseout does not apply.
Roth IRA Plan
When it comes to taxes, Roth IRAs are treated very differently than traditional IRAs. Unlike traditional IRAs, contributions to a Roth IRA are not deductible when made. What are the advantages? Qualified withdrawals are generally tax-free (some exceptions apply) if you have owned the account for five years and meet certain criteria, such as being over age 59 1/2.
As mentioned above, the annual contribution limit to an IRA increased from $6,500 in 2023 to $7,000 in 2024. This limit applies to total contributions to traditional and Roth IRAs.
The income phase-out also applies to Roth IRAs. In 2024, this figure for singles and heads of households increased from $138,000 to $153,000 in 2023 to $146,000 to $161,000. For married couples filing jointly, the income phase-out range increases from $230,000 to $240,000 in 2024. Also, like traditional IRAs, the phaseout range for a married person who contributes to a Roth IRA and files a separate return remains between $0 and her $10,000.
simple retirement account
SIMPLE IRA plans (SIMPLE stands for Savings Incentive Match Plan for Employees (not that simple, right?)) make it easy for small businesses that don’t currently sponsor a retirement plan to contribute to an IRA.
The amount an individual can contribute to a SIMPLE retirement account will increase from $15,500 in 2023 to $16,000 in 2024. The catch-up contribution limit for employees age 50 and older who participate in a SIMPLE IRA plan continues in 2024 with an additional $3,500. The total potential contribution for those 50 and older is $19,500.
savers credit
Some taxpayers can claim a tax credit by making qualified contributions to an IRA or employer-sponsored retirement plan. The Savers Credit, also known as the Retirement Savings Contribution Credit, is aimed at low- and moderate-income workers.
In 2024, the income limit for married couples filing jointly will increase from $73,000 in 2023 to $76,500. The head of household income limit will increase from $54,750 in 2023 to $57,375 in 2024. Also, if singles and married couples file separately, the amount increases from $36,500 in 2023 to $38,250 in 2024.
defined benefit plan
Defined benefit plans are not as popular as they once were and are commonly associated with old-fashioned pensions. However, the system remains in place for some companies who value the ability to deduct employer contributions.
In 2024, the annual benefit limit under defined benefit plans will increase from $265,000 in 2023 to $275,000.
QLAC
A qualified longevity annuity contract (QLAC) allows you to convert funds from a qualified retirement plan, such as a 401(k) or IRA, into an annuity. The dollar limit on premiums paid for QLAC has been increased to $200,000 for contracts purchased or received on an exchange after December 29, 2022, as part of the SECURE 2.0 Act of 2022 .
Qualified Charity Distribution
Qualified Charitable Distributions (QCDs) allow you to transfer funds directly from your IRA to a qualified charity. These amounts can be used to meet your required minimum distributions (RMDs) for the year, and the contributed amounts are excluded from your taxable income. You don’t even need to separate items for that.
The total amount of QCDs that can be excluded from gross income increased from $100,000 in 2023 to $105,000 in 2024.
Additionally, as part of SECURE 2.0, you can make a one-time QCD election for split interest entities. That amount was originally $50,000 and will be adjusted for inflation to $53,000 in 2024.
More information
For more information on adjusting your retirement plan to zero costs, please refer to our official guidance. Notification 2023-75.
Official income tax brackets for 2024 are not yet available, but you can check next year’s predictions here.
