In a move that reflects adjustments for inflation, the IRS has announced an increase in the contribution limits for retirement accounts. This is a significant development for individuals looking to maximize their savings and ensure a more comfortable retirement.
For 2024, the contribution limit for 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan has been raised to $23,000, up from $22,500. This means that employees participating in these plans can contribute more of their pre-tax income, thus lowering their taxable income for the year while bolstering their savings for the future. This also affects Roth contributions, which are becoming more popular among savers who expect to have more income in retirement or expect future tax increases.
The IRS has also increased the limit for Individual Retirement Arrangements (IRAs) to $7,000, up from $6,500. This adjustment allows for a higher amount of annual contributions, providing an opportunity for those who may not have access to employer-sponsored retirement plans or want to save even more to contribute to tax-deferred or Roth accounts.
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. This allows for contributions of up to $30,500 in 2024 for those over 50. For IRA accounts, catch-up contributions remain at $1,000 allowing savers over 50 to contribute $8,000.
We've always advocated for carefully planning and assessing the value of traditional vs Roth contributions to better control taxes in the long run. While there are income limits for Roth IRA contributions, for some savers it may make sense to consider "back-door" Roth contributions. There are no income limits for contributing to Roth 401(k) & 403(b) accounts.
In case you were wondering, these changes are not made arbitrarily. Increased limits for both contributions and now catch-up contributions (a provision of the Secure Act 2.0) tied to inflation.
These changes are particularly important considering the rising cost of living and the uncertainty surrounding Social Security's future. By taking advantage of these higher contribution limits, individuals can take a more proactive approach to their retirement planning, potentially securing a better standard of living when they decide to step back from the workforce.
It's essential for savers to review their financial plans and consider adjusting their contributions to align with the new limits. For those working with financial planners, this is an opportune time to revisit your retirement strategy to ensure it remains robust and responsive to both the current economic climate and your personal long-term financial goals.
The IRS's decision to lift the contribution limits is a reminder of the importance of staying informed about changes in tax laws and retirement planning. It's a call to action for all of us to reassess our savings strategies and make the necessary adjustments to pave the way for a secure and comfortable retirement. If you'd like to discuss your retirement planning, don't hesitate to contact us to discuss.