IRS Reveals Newly Revised Retirement Contribution Limits for 2024

The new changes allow 401(k) participants aged 50 and above to contribute up to $30,500 towards their retirement.
IRS Reveals Newly Revised Retirement Contribution Limits for 2024
A sign outside the Internal Revenue Service building is seen in Washington on May 4, 2021. Patrick Semansky/AP Photo
Naveen Athrappully
Updated:
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Contribution limits for retirement plans like 401(k) and Individual Retirement Account (IRA) have been raised by $500 for the next year, according to a recent update by the Internal Revenue Service (IRS).

“The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan, is increased to $23,000, up from $22,500,” the IRS said on Nov. 1. “The limit on annual contributions to an IRA increased to $7,000, up from $6,500.” The catch-up contributions for both retirement accounts have been kept the same. For IRA, the catch-up contribution is set at $1,000 for 2024, while for 401(k), it remains at $7,500.

A catch-up contribution allows individuals aged 50 and above to make additional contributions to their IRS or 401(k) accounts. Such individuals are closer to the age of retirement and, thus, have less time to grow their assets.

“Participants in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,500, starting in 2024,” the agency noted, referring to the $23,000 contribution limit and $7,500 catch-up contribution.

The $500 boost in contribution limits for 401(k) and IRA plans can help customers boost their tax-free savings.

As far as 401(k) accounts are considered, contributions come directly from an employee’s salary prior to charging taxes. A larger contribution limit, therefore, indicates that individuals can build up a bigger pre-tax retirement fund. Moreover, $500 in extra contribution allows the person to have a lower taxable income.

Like with 401(k), the $500 increase in contribution means the extra money will grow tax-free in the account. For IRA accounts, the IRS may allow deducting contributions from the income tax return.

“Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year, either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income,” said the IRS.
“If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.”

New IRA Phase-Out Ranges

Phase-out ranges are used by the agency to manage the extent to which individuals can gain from tax benefits like deductions, exemptions, and credits. In its latest press release, the IRS announced new phase-out ranges for IRA accounts next year:
  • For single taxpayers covered by a workplace retirement plan, the phase-out range has been raised to $77,000-$87,000, up from $73,000-$83,000—an increase of $4,000.
  • For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range next year will be $123,000-$143,000, up from between $116,000 and $136,000—an increase of $7,000.
  • 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 set to be between $230,000 and $240,000, up from a range of $218,000 and $228,000—an increase of $12,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range will remain unchanged between $0 and $10,000.
In addition to 401(k) and IRA accounts, the IRS also announced certain changes to other retirement accounts.

For individuals contributing to Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) accounts, the contribution limit has been raised from $15,500 to $16,000 for 2024. The catch-up contribution for the plan remains unchanged at $3,500.

For those who invest in Saver’s Credit, also known as the Retirement Savings Contributions Credit, the IRS has changed the income limit.
  • The limit has been raised from $73,000 to $76,500 for low and moderate-income married couples filing jointly.
  • For heads of households, the limit for 2024 will be $57,375, up from $54,750.
  • The limit has been raised to $38,250 from $36,500 for singles and married individuals who file separately.

Hardship Withdrawals

IRA’s boost in contribution limits for 401(k) accounts comes as a growing number of Americans are withdrawing money from their retirement accounts due to ongoing financial hardships.
In the second quarter of this year, 15,950 individuals made a hardship withdrawal from their 401(k) account, according to an analysis done by Bank of America (BofA) on their customers’ employee benefits programs. This is up 12 percent from Q1 and 36 percent from Q3, 2022.

BofA calculates that 2.5 percent of retirement account holders borrowed from their accounts in Q2. Average loans taken by individuals came in at $8,550. Nearly 14 percent of account holders had at least one loan in default during Q2, slightly down from 14.3 percent in Q1.

“This year, more employees are understandably prioritizing short-term expenses over long-term saving. However, it’s critical that employees continue to invest in life’s biggest expense: retirement,” Lorna Sabbia, head of retirement and personal wealth solutions at BofA, said in a statement.

The typical contribution to 401(k) in the second quarter was $1,460, which was down 23 percent from Q1. The average 401(k) account balance by the end of June 2023 was $82,300, up almost 10 percent from $75,050 by the end of December 2022.

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