The IRS announced new contribution limits to employer retirement accounts (401(k)s, 403(b)s, most 457(b) plans, and the Thrift Savings Plan) and individual retirement accounts (IRAs, Roth IRAs). Along with increased contribution limits, the income limits to be able to contribute to a Roth IRA and to deduct contributions to a traditional IRA are receiving a bump for 2024 as well.
- 401(k)/403(b) employee contribution limits increased to $23,000 for 2024.
- IRA and Roth IRA contribution limits also increased and are up to $7,000.
- The income limit to be able to directly contribute to a Roth IRA ranges from $146k – $161k for single filers and $230,000 – $240,000 for married filing jointly.
- The total contribution limit for employer retirement accounts also grew to $69,000. This is the limit for all employee, employer, and after-tax contributions.
2024 Employer Retirement Account Contribution Limits
The employee contribution limit for employer retirement accounts, think 401(k)s, 403(b)s, the Thrift Savings Plan and most 457(b) plans is increasing to $23,000. A $500 bump from 2023. The total limit which includes employee and employer contributions rises to $69,000, a $3,000 boost from last year.
The catch-up contributions available to employees who are 50 or older remains unchanged for the new year at $7,500.
After-tax 401(k) Contribution Limits
Once you hit the limit to what you can contribute as an employee, $23,000 for 2024, you may be able to save more in your 401(k) through after-tax contributions. That’s where the combined limit of $69,000 comes into play. If your 401(k) plan allows you can make additional after-tax contributions up to the $69,000 limit.
Consider an example where your employer makes a flat $5,000 401(k) match and your 401(k) plan allows after-tax contributions. Once you’ve made your $23,000 contribution you can contribute an additional $41,000 of after-tax contributions.
Your after-tax contributions will continue to grow tax-free and you will owe taxes on their withdrawal in retirement similar to traditional 401(k) contributions.
After-tax 401(k) -> Mega Backdoor Roth
An even better option if your 401(k) plan allows it is to do an immediate Roth conversion on your after-tax contributions. Since the contribution is made with after-tax dollars there will be no tax owed on the Roth conversion, and your converted funds will grow tax-free and can be withdrawn tax-free in retirement. You can learn more about the Mega Backdoor Roth at this link.
2024 IRA (Individual Retirement Account) Contribution Limits
The contribution limit on IRAs is getting a $500 increase for 2024 as well. Individuals can contribute up to $7,000 to Roth and Traditional IRAs, up from $6,500 last year. The 50 and over catch-up contribution will remain at $1,000.
The income limits to contribute to a Roth IRA or to make a tax-deductible traditional IRA contribution are increasing as well. These limits can be a little confusing because the amount you can contribute or deduct decreases once you earn above a certain amount, and if you are married the limits also vary based on whether you or your spouse have access to an employer retirement plan like a 401(k).
2024 Roth IRA Income Limits
The income limits for a Roth IRA are relatively straightforward compared to the rules around the traditional IRA. For a Roth IRA in 2024 single taxpayers can make the full contribution if your income is $146,000 or less. Above $146k as you make more income the amount you can contribute is reduced until you make $161,000 at which point you can no longer directly contribute to a Roth IRA.
Although, if your income is too high to contribute to a Roth IRA directly you can still make a backdoor Roth IRA contribution.
The phaseout limits for married couples filing jointly contributing to a Roth IRA go from $230,000 to $240,000. Both of these limits increased $12,000 from last year, so more folks should be eligible to contribute to a Roth IRA directly in 2024.
2024 Traditional IRA Income Limits
Income limits to deduct contributions to a traditional IRA follow a similar pattern. There’s a range of income where your ability to deduct contributions is phased out and the actual limit depends on your tax filing status and on whether you or your spouse have access to a workplace retirement plan.
If you are a single filer and you don’t have a workplace retirement plan, or if you are married filing jointly and neither you nor your spouse have a workplace retirement plan then there aren’t any income limits and your traditional IRA contribution will be deductible.
Single filers with a workplace retirement plan have an income limit phaseout range from $77,000 to $87,000.
For married filers where the spouse making the contribution has a workplace retirement plan the income limit phaseout range is $123,000 to $143,000.
For married filers where the spouse making the contribution does not have a workplace retirement plan, but the other spouse does, the income limit phaseout range is $230,000 to $240,000.
These limits are also increases from last year.
Qualified Charitable Contributions
Along with increases to retirement contributions, the amount that you can contribute from your retirement account to charity also increased. A QCD (Qualified Charitable Distribution) allows you to roll funds directly from your IRA to a qualified charity. QCDs satisfy RMD rules and you can exclude the amount donated from your taxable income. The QCD increases by $5,000 for 2024 up to $105,000.
Should you make any changes based on these increases?
If you’re maxxing your 401(k) contribution you’ll want to review your planned contributions for 2024. For IRAs and Roth IRAs, compare your expected income for 2024 to the new limits and adjust any automatic contributions you already have set up.
If you are unsure where your income will fall or if you’ll have the cash to contribute to your Roth or traditional IRA you can always wait until you file your taxes the next year to make your contributions. So, you could make 2023 IRA contributions up to tax-day 2024.
While it doesn’t quite make up for the spike in inflation we’ve seen the past few years, it is nice to be able to stash away a few more dollars tax-free for retirement. Make sure to review your income and planned contributions for next year to take advantage of additional contribution limits especially if you’ve turned 50 and can start making catch-up contributions.