The Internal Revenue Service (IRS) recently announced that Americans will be able to contribute more towards their retirement in 2024. The contribution limit for 401(k) and related plans has been raised to $23,000, up from $22,500 this year. Additionally, the contribution cap for individual retirement accounts (IRAs) will rise to $7,000 in 2024, compared to $6,500 in the current year.
Catch-Up Contributions for Savers Over 50
While the Secure 2.0 law passed in December 2022 allowed for the possibility of an inflation bump, the catch-up IRA contribution for savers aged 50 and over will remain at $1,000 for 2024. Similarly, participants in 401(k) and related plans who are 50 and above will have a maximum catch-up contribution of $7,500.
Smaller Bumps Compared to Last Year
Although the increases for 2024 are smaller compared to the significant raises retirement savers experienced in 2023 due to high inflation, they still offer a welcome opportunity to set aside more funds for retirement. Notably, during 2022, 15% of retirement plan participants contributed the maximum allowed amount, with 58% of those earning over $150,000 making the maximum contribution, according to Vanguard’s How America Saves 2023 report.
Changes in Income Phaseout Ranges
The income phaseout ranges for taxpayers making contributions to a Roth IRA will also see an increase. For singles and heads of household, the range will be between $146,000 and $161,000, up from $138,000 and $153,000. Married couples filing jointly will have an income phaseout range of $230,000 to $240,000, compared to the previous range of $218,000 to $228,000. Individuals below the income threshold can contribute the full amount, those within the range can make a reduced contribution, while those above the threshold cannot contribute to a Roth IRA.
Other Income Range Adjustments
The income ranges for determining eligibility to make deductible contributions to traditional IRAs and to claim the Saver’s Credit have also increased for 2024. Detailed amounts can be found here.