Contributed by: Robert Ingram, CFP®
The IRS recently announced next year's annual contribution limits for retirement plans and IRA accounts. Compared with the historically large increases to limits in 2023, 2024 brings relatively modest increases. However, the adjustments to contribution limits and income eligibility limits for some contributions are still notable as you set your savings targets for the New Year.
Employer Retirement Plan Contribution Limits (401k, 403b, most 457 plans, and Thrift Saving)
$23,000 annual employee elective deferral contribution limit (increases $500 from $22,500 in 2023)
$7,500 extra "catch-up" contribution if age 50 and above (remains the same as in 2023)
The total amount that can be contributed to a defined contribution plan, including all contribution types (e.g., employee deferrals, employer matching, and profit sharing), will be $69,000 or $76,500 if age 50 and above (increased from $66,000 or $73,500 for age 50+ in 2023)
Traditional, Roth, SIMPLE IRA Contribution Limits:
Traditional and Roth IRA
$7,000 annual contribution limit (increases $500 from $6,500 in 2023)
$1,000 "catch-up" contribution if age 50 and above (remains the same as in 2023)
Note: The annual limit applies to any combination of Traditional IRA and Roth IRA contributions. (i.e., you would not be able to contribute up to the maximum to a Traditional IRA and up to the maximum to a Roth IRA.)
SIMPLE IRA
$16,000 annual contribution limit (increases $500 from $15,500 in 2023)
$3,500 "catch-up" contribution if age 50 and above (remains the same as in 2023)
Traditional IRA Deductibility (income limits):
You may be able to deduct contributions to a Traditional IRA from your taxable income. Eligibility to do so depends on your tax filing status, whether you (or your spouse) is covered by an employer retirement plan, and your Modified Adjusted Gross Income (MAGI). The amount of a Traditional IRA contribution that is deductible is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For example,
Filing Single
You are covered under an employer plan
Partial deduction phase-out begins at $77,000 up to $87,000 (then above this no deduction) compared to 2023 (phase-out: $73,000 to $83,000)
Married filing jointly
A spouse contributing to the IRA is covered under a plan
Phase-out begins at $123,000 to $143,000 compared to 2032 (phase-out: $116,000 to $136,000)
A spouse contributing is not covered by a plan, but the other spouse is covered under a plan
Phase-out begins at $230,000 to $240,000 compared to 2022 (phase-out: $218,000 to $228,000)
Roth IRA Contribution (income limits):
Similar to making tax-deductible contributions to a Traditional IRA, being eligible to contribute to a Roth IRA depends on your tax filing status and income. Your allowable contribution is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For 2024, the limits are as follows:
Filing Single
Partial contribution phase-out begins at $146,000 to $161,000 compared to 2023 (phase-out: $138,000 to $153,000)
Married filing jointly
Phase-out begins at $230,000 to $240,000 compared to 2023 (phase-out: $218,000 to $228,000)
If your MAGI is below the phase-out floor, you can contribute up to the maximum. Above the phase-out ceiling, you are ineligible for any partial contribution.
Eligibility for contributions to retirement accounts like Roth IRA accounts also requires you to have earned income. If you have no earned income or your total MAGI makes you ineligible for regular annual Roth IRA contributions, other strategies such as Roth IRA Conversions could make sense in some situations to move money into a Roth. Roth Conversions can have different income tax implications, so you should consult with your planner and tax advisor when considering these strategies.
Going into the New Year, keep these updated figures on your radar as you implement your retirement savings opportunities and update your financial plan. As always, if you have any questions surrounding these changes, don't hesitate to contact us!
Have a happy and healthy holiday season!
Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.
Any opinions are those of Bob Ingram, CFP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.