If your retirement funds are invested in a 401(k), IRA, or other tax-advantaged account, you'll soon be able to contribute more. The IRS recently announced higher limits for retirement plan contributions starting in 2024. This is great news for savers looking to maximize their nest eggs.
How 401(k) and IRAs Maximize Tax Savings
401(k) plans and IRAs are two popular savings vehicles for people to save for retirement while lowering their taxable income. A 401(k) is an employer-sponsored plan that allows pre-tax contributions from your paycheck. This lowers your taxable income now, and the funds grow tax-deferred until retirement. IRAs also offer tax-deferred growth but are set up individually rather than through an employer.
One major benefit of 401(k) plans is that employers may match part of your contributions, essentially giving you free retirement money. The contribution limits are also higher than IRAs, allowing you to defer more pre-tax income. IRA contributions are made with after-tax dollars but can still grow tax-free. This makes them a good choice for people without access to a 401(k) or those maxing out their 401(k) and wanting to save more. Further, IRA contributions are potentially tax deductible for low-to-moderate income earners.
The bottom line is that 401(k) plans and IRAs give you a way to save on taxes now while setting aside funds that can grow tax-free for retirement. Taking advantage of these accounts can put you in a better financial position for your later years.
Key Contribution Updates Coming in 2024
One of the most significant changes is an increase in the 401(k) contribution limit from $22,500 to $23,000 for 2024. If you save through a traditional 401(k) or similar employer-sponsored plan, you can defer more of your pre-tax paychecks into the account next year.
The IRA contribution limit is also getting a boost, going up from $6,500 to $7,000, meaning your ability to fund a Roth or traditional IRA will be higher in 2024. Catch-up limits for account holders 50 and over will stay the same at $7,500 for 401(k)s and $1,000 for IRAs.
In addition, the income ranges used to determine IRA eligibility and deductibility will be expanded. Check the updated phase-out limits to see if you can deduct more or qualify for a Roth IRA.
SIMPLE IRA contributions are also getting a raise, with the limit increasing to $16,000 from $15,500.
The bottom line? You’ll have more room to build your retirement savings in 2024. Review the new limits and make sure your savings strategy takes full advantage of these higher contribution amounts. And if you're 50 or older, make sure to utilize catch-up contributions to supercharge your retirement funds.
Need an extra set of eyes to make sure you’re maximizing every tax-advantaged savings opportunity? We’re here to help! Reach out today to consult with our team of tax experts.