IRS Update: 401(k), IRA and HSA Contribution Limits for 2024

As we welcome a new year, it’s critical to stay informed about the updated contribution limits for retirement accounts. For those nearing retirement, being aware of these changes can help maximize your savings and ensure a comfortable retirement.

The 401(k), Individual Retirement Account (IRA), and Health Savings Account (HSA) are three key vehicles that offer tax advantages for retirement savings. Here’s what you need to know about the contribution limits for each of these accounts in 2024.

Read below, or watch this video to learn more about the new 2024 Retirement Savings Figures announced by the IRS.

401(k) Max Contributions increase to $23,000 for 2024

The 401(k) plan remains one of the most popular retirement savings plans for Americans. It’s an employer-sponsored plan that allows employees to save and invest a portion of their paycheck before taxes are taken out.

For 2024, the contribution limit for employees who participate in 401(k) plans has been adjusted for inflation.

Standard Limit: The new standard limit is $23,000.

Catch-Up Contributions: For those aged 50 and over, the catch-up contribution limit is $7500 which is an additional allowance over the standard limit.

It’s essential to take advantage of these limits, if possible, especially if your employer matches a portion of your contributions. The employer match is ‘free money’ and can significantly boost your retirement savings.

The amount you contribute to a 401(k) is a combined amount between your Roth and Traditional 401(k) contributions.

Your 401(k) contribution limit is completely separate from your IRA contribution limit.

There are no income limitations that restrict how much you could put into a 401(k).

Individual Retirement Accounts (IRA) Max Contributions increase to $7,000 for 2024

IRAs are personal savings plans that allow you to set aside money for retirement with tax-free growth or on a tax-deferred basis.

The IRA also sees a change in contribution limits due to inflation adjustments.

Standard Limit: The new limit for total annual contributions to all of your traditional and Roth IRAs combined is $7,000.

Catch-Up Contributions: The catch-up contribution limit for individuals aged 50 and over remains an additional $1,000 beyond the standard limit.

Whether you choose a traditional IRA, which offers tax-deferred growth, or a Roth IRA, with tax-free growth and withdrawals, maximizing your contribution can significantly benefit your tax situation and retirement readiness.

The IRA contribution limit is a combined amount, whether you do Traditional, Roth or a combination.

Traditional IRA Income Tax Deductibility Phase-out Limits increase in 2024

For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000 for 2024.

For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000 for 2024.

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 increased to between $230,000 and $240,000 for 2024.

For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

If neither you, nor your spouse, is covered by a workplace retirement plan you can deduct the full amount of your Traditional IRA against your income taxes.

Roth Contribution Income Phaseouts for 2024

For single taxpayers the Roth contribution Income phase-out range is increased to between $138,000 and $153,000 for 2024.

For married couples filing jointly, the Roth contribution Income phase-out range is increased to between $230,000 and $240,000 for 2024.

For a married individual filing a separate return, the Roth contribution Income phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

Health Savings Accounts (HSA) Contribution Limits for 2024

An HSA is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High-Deductible Health Plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit.

For 2024, individuals with HSAs will see an increase in contribution limits.

Individual Coverage: The limit for those with self-only HDHP coverage is $4,150.

Family Coverage: For those with family HDHP coverage, the limit is $8,300.

Catch-Up Contributions: For HSAs you must be a little older for a catch-up contribution, 55. That HSA catch-up contribution amount is $1,000 per person.

While you can put the full $8,300 into your personal account as an HSA contribution, you can only put $1,000 into your own HSA account. If your spouse is 55+ and part of your family HDHP coverage, they would need to open up their own HSA account to be able to put in the $1,000 for their catch-up contribution.

Using an HSA to pay for medical expenses can effectively reduce your overall healthcare costs in retirement, as the money is triple tax-advantaged: contributions are tax-deductible, the balance grows tax-free, and withdrawals for qualified medical expenses are not taxed.

Strategies to Maximize Your Contributions

Understanding the new limits is one thing, but effectively integrating them into your retirement strategy is another. Here are some actionable strategies:

Start Your Contributions Early in the Year

Contributing early in the year can take advantage of compounding interest over time. Even if you can’t contribute the maximum amount upfront, consider setting up a monthly automatic contribution to spread it out throughout the year.

Aim for Maximum Contribution

If it’s financially feasible, aim to contribute the maximum amount allowed. This ensures you’re taking full advantage of the tax benefits and will have more funds accruing interest over time.

Get Your Full Employer Match

If your employer offers a matching contribution on your 401(k), make sure you’re contributing enough to get the full match. This is essentially a 100% return on your investment up to the match limit.

Over 50? Use Catch-Up Contributions

If you’re 50 or older, take advantage of catch-up contributions. These additional amounts can make a big difference in your retirement savings, especially if you got a late start.

Aim for Tax Diversification, not just investment diversification

Diversify your tax exposure by balancing contributions between different types of accounts. For instance, contributing to both a traditional 401(k) and a Roth IRA can provide tax benefits now and in the future.

Consult a Financial Professional

Consider working with a financial advisor to tailor your contributions to your specific financial situation, particularly as you near retirement. A tailored approach can help you optimize your savings and tax situation.

Stay Informed of the latest updates and Adjust Accordingly

The IRS often adjusts retirement account contribution limits annually. Stay informed and be prepared to adjust your retirement savings contributions accordingly. A proactive approach will help you maximize your contributions and set the stage for a more secure retirement.

As you navigate through your retirement savings journey, remember that understanding the rules and limits is just one part of a larger retirement strategy. Working with a financial advisor can provide you with personalized advice and strategies tailored to your unique financial situation.

By keeping these updated contribution limits in mind and applying strategic financial planning, you can better prepare for a comfortable and financially secure retirement. Make 2024 the year you take full control of your retirement planning and set a course for a future that’s as rewarding as it is secure.

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