Earlier this month, the IRS announced the updated plan contribution limits for 2024. Each year the agency reviews contribution limits to determine if adjustments should be made based on fluctuations in the Consumer Price Index for All Urban Consumers (CPI-U). As outlined in IR-2023-203, there will be an increase in contribution limits for both 401(k) plans (up $500 over last year) and for Individual Retirement Accounts (IRAs) by the same amount. Unfortunately, there will be no increase to the $1,000 IRA catch-up contribution limits currently available. To help clients, prospects, and others, WhippleWood CPAs have provided a summary of the key details below.
2024 Changes to 401k, 403b, and Other Plan Types
The contribution limit for employees participating in defined contribution plans including 401(k), 403(b), and various 457(b) plans will be increased starting January 1, 2024, to $23,000. As mentioned above this represents a $500 increase in the annual maximum.
Catch-up contributions (applicable to individuals 50 years and older) will remain at $7,500. This means these employees will be able to contribute a maximum annual amount of $30,500 starting next year. It is important to note, that the catch-up contribution amount for those participating in SIMPLE plans remains unchanged at $3,500 per year.
2024 Changes to IRAs
The limit on annual contributions to an IRA will also be increased. The maximum amount will be adjusted by $500, up to $7,000 for the year. IRA catch-up contribution amounts underwent a change when the SECURE Act 2.0 was passed to allow for annual cost of living adjustments. Despite this, there was no increase announced meaning catch-up contribution limits will remain at $1,000.
There is an option for taxpayers to deduct traditional IRA contributions assuming certain conditions are met. It is important to note if the taxpayer or their spouse was covered by an employer-sponsored retirement plan, then the available deduction amount could be reduced or phased out until eliminated. The details will be determined by the taxpayer’s filing status and income. The phase-out ranges for 2024, include:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000, up from between $73,000 and $83,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000, up from between $116,000 and $136,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
There were also increases in the income phase-out range for Roth IRAs. Starting in 2024, the phase-out for increase to between $146,000 and $161,000 for singles and heads of household. For married filing jointly, the phase-out range increased to between $230,000 and $240,000. Finally, married individuals filing a separate tax return will not receive an increase over 2023.
The recently announced contribution increases are an opportunity to expand retirement savings in the coming year. While the increases may appear to be limited it is essential to take advantage of such changes. Even small increases in the contribution amount can result in significant money later due to compound interest and other market forces. If you have questions about the information outlined above or need assistance with retirement planning, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.