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The IRS Just Increased the Amount You Can Save in Your Retirement Accounts
By Pete Grieve MONEY RESEARCH COLLECTIVE
It’s all thanks to inflation.
Americans will be able to save more money for retirement in tax-advantaged accounts next year thanks to an inflation adjustment.
Under the new 2024 limits just announced by the IRS, individuals can put up to $23,000 in their employer-sponsored 401(k)s. These accounts are popular retirement savings tools because contributions are made with pre-tax dollars, which can reduce your income for federal tax purposes. Also, employers often offer a match that doesn’t count toward that employee contribution limit, making these plans even more attractive.
People age 50 and older can make “catch-up” 401(k) contributions on top of the $23,000 maximum. The catch-up contribution limit will remain $7,500 for 2024, meaning older workers can stash a total of $30,500 in their accounts next year.
401(k) contribution limit for 2024
The 2024 401(k) contribution limit is $500 higher than this year’s $22,500 max, which reflected a major increase from the 2022 limit of $20,500.
The new $23,000 limit will also apply to several other retirement plans, including 403(b)s, most 457 plans and the federal government’s Thrift Savings Plan.
Each year, the IRS looks at changes in the cost-of-living and adjusts the contribution limits accordingly based on a formula. The consumer price index showed inflation was 3.7% for the 12-month period ending in September, which is the basis of the adjustment.
IRA contribution limit for 2024
In addition to the new 401(k) contribution limit, the IRS also announced new maximums for contributions to traditional individual retirement accounts, or IRAs. These accounts are not employer-sponsored and their limits are lower, but they are tax-deferred like 401(k)s.
Individuals can contribute up to $7,000 to these accounts in 2024, up from $6,500.
The 2024 contribution limit will be the same ($7,000) for Roth IRAs, which you fund with after-tax dollars but have the benefit of withdrawals in retirement being tax-free. There are also new income caps for making contributions to Roth IRAs. The 2024 limit will be $161,000 for single taxpayers — an increase from $153,000 in 2023 — but note that Roth IRA tax benefits get phased out at lower income levels.
More details are available on the IRS website.
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