/

Personal taxes

/

IRS Raises 401k and IRA Contribution Limits for 2024 Retirement Plans

8 minute read

IRS Raises 401k and IRA Contribution Limits for 2024 Retirement Plans

By

on

In 2024, think of your 401k, thrift savings plan, or 457 plan like a garden where you can grow your money for the future, with an increased limit on annual contributions. The Internal Revenue Service (IRS) sets limits on how much water (money) you can use each year to help your garden grow. These limits, including the limit on total contributions and the IRS-adjusted figures for tax year 2024, are like rules on how much you're allowed to pour into your garden to make sure it grows big and strong for when you retire. The annual contribution is the total amount of water you're allowed to use in a year. It's important to know these limits so you can plan how much to save and make the most of your money garden.

Want an easier way to file your taxes? Download our FREE tax guide for individual filers.

IRS 401(k) & IRA Contribution Limits

What are the New Contribution Limits for 2024?

In 2024, there are new rules for how much money you can put into your 401k plan, which is like a big piggy bank for when you retire. Let's break down these new limits to understand them better.

2024 Contribution Limit

For 2024, the Internal Revenue Service (IRS), which is like the money rules boss, says you can put more money into your retirement plans than before, with a specific increase for married couples filing jointly. This is great news because you can save more for when you're older. The exact amount has been set higher, allowing you to save up a bigger nest egg for your future.

Retirement Plan Contribution Limits

Not just 401k plans, but other retirement pots like the federal government's thrift savings plan, have new saving limits too. These plans help people working for the government save for retirement, just like a 401k does for other jobs. Everyone gets to save more in 2024, which is like adding an extra room to your piggy bank.

Contribution Limit for 2024

Specifically, for people under age 50 and those 50 or older, the IRS has raised the bar on how much you can save. They've also increased the catch-up contribution limit, which means if you're 50 and older, you can save even more money. It's like being allowed to put extra cherries on top of your retirement sundae.

How Does the IRS Determine Contribution Limits?

The IRS decides how much you can save in your 401k based on some important rules, including the limit on annual contributions and additional amounts people 50 and older can contribute. Let's dive into how they make these decisions.

IRS Regulations on Contributions

The IRS looks at things like how much things cost (inflation) and how the economy is doing, as well as the federal guidelines, to adjust the contribution amounts. They use this info to decide how much people can save each year. It's like adjusting how much allowance you get based on how much a new video game costs, with the IRS also adjusting the maximum contribution figures for 2024.

Factors Influencing Contribution Limits

A few big things affect these limits, including IRS regulations and the limit on total contributions for 2024. These include how much prices go up over time (inflation), how much people earn, and special rules for people who are 50 or older. The IRS wants to make sure everyone has enough room in their retirement piggy banks, especially as they get closer to retirement age.

In summary, the IRS has made it possible for people to save more money in their retirement plans starting in 2024. They look at lots of different things to decide these limits, making sure everyone has a fair chance to save for their future. Whether you're just starting or getting close to retirement, these changes, including the adjusted maximum contribution limits apply for 2024, are like adding wings to your retirement dreams, helping them fly higher.

Further Reading: Learn about Contribution Margin Income Statement now!

What Changes Are Expected Compared to 2023?

In 2024, the garden where we grow our future money - our retirement plans - is getting a bit more room to grow. Let's see how it compares to 2023.

2023 Contribution Limits

Last year, there was a limit on how much water (money) you could pour into your garden (retirement plan). The IRS set a specific amount you could save to help your garden grow until you retire.

Catch-up Contribution for 2024

For those gardeners who are 50 or older and want their garden to catch up, there's good news in 2024. The catch-up contribution limit for employees has increased. This means you can pour more water into your garden, helping it grow even more.

How Can Individuals Benefit from Higher Contribution Limits in 2024?

With more room to grow your garden in 2024, let's explore how this can help your future bloom even brighter.

IRA Contribution Opportunities

For those saving in an IRA or Roth IRA, the new rules in 2024 let you contribute more, with increased limits and the possibility for a catch‑up contribution limit for individuals 50 and older. It's like being allowed to plant more seeds in your garden to make it richer and more diverse.

Retirement Savings Strategies

With higher contribution limits, you can think of new ways to make your garden thrive. Saving more now means a larger, lusher garden when you retire.

Catch-up Contributions for Individuals Aged 50+

If you're 50 or older, the extra space for catch-up contributions in 2024 is like getting a bigger watering can. You can now add more to your retirement savings, helping ensure your garden is ready for your retirement.

What Plans Are Affected by the New Contribution Limits?

Not just any garden gets more room to grow in 2024. Let's look at which gardens are included.

IRA and Roth IRA Accounts

Both these types of retirement gardens get to expand in 2024. Whether you're planting with pre-tax money or after-tax money, you can sow more seeds for your future.

Workplace Retirement Plans Such as 401(k)

Your garden at work, like a 401(k) or a thrift savings plan for federal employees, also gets more room. The IRS has increased how much you can save here, making it easier to grow your retirement savings.

Individual Retirement Accounts Contribution Limits

For personal retirement gardens (IRAs), the amount you can plant each year has also gone up, allowing for a higher limit on annual contributions. Whether you're working on your own garden or one with your employer, there's more space for your savings to grow.

In summary, the IRS's new rules for 2024 mean everyone can pour a bit more into their retirement gardens, making the future brighter and more secure. Whether you're just starting or looking to catch up, there's now more opportunity to help your savings flourish.

Further Reading: Maximize your retirement savings! Discover IRS Form 8880 now.

Key Takeaways:

  1. 401k Contribution Limits: This is the max amount of money you can put into your 401k plan each year. For 2024, there's a specific number that you can't go over. It's like having a piggy bank, but you can only fill it up to a certain line, similar to the contribution limit for employees aged 50 and older in 2024.
  2. 401k Plan: This is a special savings account for when you retire, or stop working when you're older. You can put some of your paycheck into this account, and sometimes your job puts money in it, too, mirroring defined contribution plans where both the employee and employer contribute. It's like planting a tree that grows money leaves for your future.
  3. Catch-up Contributions: If you are 50 years old or older, you can put extra money into your 401k plan. It's like being allowed to run a few extra laps in a race because you started late.
  4. Pre-tax Contributions: This year, the IRS announced an adjustment, promoting tax savings now and securing more for later with increased contribution amounts for defined contribution plans. Money you put into your 401k before taxes are taken out, in line with the limit on total contributions and catch‑up contribution limit for individuals 50 and older in 2024. It means you get taxed less now, and you save more money for later, a principle underscored by the new tax deductions available for the tax year 2024. It's like hiding some of your candy from taxes so you can enjoy it when you're older.
  5. Roth 401k: This is a type of 401k where you pay taxes on the money when you put it in, not when you take it out during retirement, and for tax year 2024, the IRS also specifies higher contribution limits. So, you give up a little bit now (in taxes) to have tax-free treats later. It's like baking cookies now and getting to eat them later without any extra chores.

How can Taxfyle help?

Finding an accountant to manage your bookkeeping and file taxes is a big decision. Luckily, you don't have to handle the search on your own.

At Taxfyle, we connect small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will manage your bookkeeping and file taxes for you.

Get started with Taxfyle today, and see how finances can be simplified.

Legal Disclaimer

Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice. The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice. You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free.

We recommend a Pro file your taxes. Click here to file today.Leave your books to professionals. Click to connect with a Pro.
Was this post helpful?
Yes, thanks!
Not really
Thank you for your feedback
Oops! Something went wrong while submitting the form.
Did you know business owners can spend over 100 hours filing taxes?
Yes
No
Is this article answering your questions?
Yes
No
Do you do your own bookkeeping?
Yes
No
Are you filing your own taxes?
Yes
No
How is your work-life balance?
Good
Bad
Is your firm falling behind during the busy season?
Yes
No

published

November 15, 2023

in

Kristal Sepulveda, CPA

Kristal Sepulveda, CPA

Read

by this author

Share this article
>