On November 1st, 2023, the Internal Revenue Service (IRS) unveiled updated retirement contribution limits for retirement plans beginning in 2024. In summary, the agency stated that these adjustments are part of its commitment to help Americans secure their financial futures. Previously, in August 2023, the IRS announced a two-year transitional period for employers to implement a Roth IRA catch-up requirement. Specifically, that transitional period fell under the provisions of the SECURE 2.0 Act of 2022 (SECURE 2.0 Act). The information included in this blog post explains the new limits released by the IRS.
401(k) Retirement Contribution Limit Increase
Firstly, the IRS raised the contribution limit for 401(k) plans in 2024, allowing individuals to contribute up to $23,000. This is an increase from the previously set amount of $22,500 in 2023. Explicitly, the IRS stated that this raise is a positive step towards helping workers save more for their retirements.
IRA Retirement Contribution Updates
Equally important, for those individuals who utilize Individual Retirement Accounts (IRAs), there are also notable updates. Indeed, the limit on annual contributions to an IRA will be $7,000, up from $6,500 in the previous year. However, under the SECURE 2.0 Act, the IRA catch-up contribution limit for individuals aged 50 and over remains at $1,000.
Catch-Up Contributions
Lastly, individuals aged 50 or over participating in most retirement plans can make catch-up contributions of up to $7,500. Hence, an individual could contribute up to $30,500 starting in 2024 if they fall into this category.
Income Ranges and Deductions
Additionally, the income ranges to make a deductible retirement contribution to traditional IRAs and Roth IRAs were also adjusted. Knowing this is crucial for understanding the tax advantages one might receive based on their income level.
- For single taxpayers covered by a workplace retirement plan, the phase-out range will be between $77,000 and $87,000. This range is up from between $73,000 and $83,000.
- The phase-out range for married couples filing jointly has expanded to between $123,000 and $143,000. This range is up from between $116,000 and $136,000.
- If a plan does not cover an individual, but another plan covers their spouse, the range is now $230,000 and $240,000. This range is up from between $218,000 and $228,000.
- Married individuals filing separate returns and covered by a workplace retirement plan maintain a phase-out range between $0 and $10,000.
Roth IRA Retirement Contribution Adjustments
The income phase-out ranges for those contributing to a Roth IRA have also changed for 2024. The new limits are as follows:
- For singles and heads of household, the income phase-out range is now between $146,000 and $161,000. This range is up from $138,000 and $153,000.
- Married couples filing jointly will find their phase-out range increased to between $230,000 and $240,000. This range is up from $218,000 and $228,000.
- Married individuals filing separately and contributing to a Roth IRA maintain a phase-out range between $0 and $10,000.
Saver’s Credit Update and SIMPLE Retirement Account Contributions
Additionally, the Saver’s Credit, which benefits low- and moderate-income workers, has also increased. Details of the new Saver’s Credit limits include the following:
- $76,500 for married couples filing jointly, up from $73,000,
- $57,375 for heads of household, up from $54,750, and
- $38,250 for singles and married individuals filing separately, up from $36,500.
Lastly, individuals contributing to SIMPLE retirement accounts can now contribute up to $16,000, an increase from $15,500.
Employer Takeaways
In conclusion, employers should know that the IRS has also made several additional adjustments aside from those already mentioned. These changes include:
- limitations on premiums paid for qualifying longevity annuity contracts,
- deductions for charitable distributions, and
- one-time elections for distributions from individual retirement accounts.
Interested parties can find more detailed information on these retirement-related adjustments for 2024 in Notice 2023-75.
Finally, any employers acting as fiduciaries must comply with duties under the Employee Retirement Income Security Act (ERISA). This includes keeping employee records containing benefit information for at least six years after the filing date.