July 12, 2024

2024 Retirement Savings Boom: IRS Raises Contribution Limits, Opportunities Expand

Image Credits: Stefani Reynolds/AFP via Getty Images

The IRS has recently made significant changes that could positively impact your retirement savings. In a move aimed at helping Americans secure their financial futures, the IRS has raised the contribution limits for 401(k) and IRA accounts in 2024. Let’s delve into the details and see how these changes can benefit you.

401(k) and Other Tax-Deferred Plans Get a Boost

Starting in 2024, workers can contribute up to $23,000 to their 401(k) accounts, an increase of $500 from the previous year. This change also applies to other retirement savings accounts, such as the 403(b) plan, most 457 plans, and the federal government’s Thrift Savings Plan. For those aged 50 and older, catch-up contributions will remain unchanged at $7,500.

IRAs Get a Lift

Not just 401(k)s, IRAs also receive a boost. The contribution limit for IRAs has been raised to $7,000 for 2024, up from $6,500 in 2022. The catch-up contribution amount for IRAs will remain at $1,000. These adjustments provide even more flexibility for your retirement savings strategy.

Impact of High Inflation

The IRS regularly makes cost-of-living adjustments, but in times of high inflation, these increases can be more significant and impactful for taxpayers. So, these changes are not only about keeping up with the times but also about helping you make the most of your savings in the face of economic challenges.

Opportunities for Roth IRAs

One notable effect of these changes is that more Americans could qualify for Roth IRAs. These accounts tax contributions upfront, allowing your investment earnings to grow tax-free (unless withdrawn before you’re 59½ years old). This means more tax advantages for your retirement savings.

Income Phaseout Adjustments

The income phaseout thresholds for retirement savings have also been adjusted. For individuals and heads of households, the new range is $146,000 to $161,000, up from between $138,000 and $153,000 in 2023. For married couples filing jointly, the phaseout range has increased to $230,000 to $240,000, up from $218,000 to $228,000. These changes allow more people to benefit from tax-advantaged retirement accounts.

The Retirement Savings Gap

It’s worth noting that many Americans need to save more for retirement. One in four Americans has no retirement savings, according to a recent report from PwC. U.S. households with individuals aged 25 to 64 face a significant retirement savings deficit, with a total of $3.68 trillion less in savings than they should have. These IRS changes aim to help bridge that gap.

A Glimpse at the Median Balance

Federal Reserve research suggests that the median retirement account balance in the U.S. was just $65,000 in 2019. These changes can be crucial in increasing this figure and ensuring a more secure retirement for many.

What’s Next?

The IRS is expected to announce the annual inflation adjustment to income tax brackets and the standard deductions for 2024. Stay tuned for more updates on how these changes might further impact your financial planning.

In conclusion, the IRS’s move to raise retirement contribution limits for 2024 is a significant step towards securing your financial future. These changes give you more opportunities to boost your retirement savings and take control of your economic well-being. Make the most of these adjustments and ensure you’re on the path to a more secure retirement.

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