IRS Unveils Increased 2024 IRA Contribution Limits
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If you were wondering, “Will IRA contribution limits increase in 2024?”, the IRS just gave you your answer.
The IRS recently released the updated 2024 IRA contribution limits. These modifications bring a slightly higher contribution ceiling and expanded income ranges. These changes will offer more saving opportunities for IRA holders and individuals with employer-sponsored retirement plans.
Here's a quick summary of the updates:
Increase in 2024 IRA Contribution Limits
To keep up with cost-of-living adjustments, the annual contribution limit for IRAs will increase to $7,000 in 2024, up from $6,500 in 2023. This adjustment provides individuals with the opportunity to save more for retirement and potentially benefit from tax advantages offered by traditional and Roth IRAs.
SIMPLE IRA Limits Receive a Boost
The SIMPLE IRA plan (Savings Incentive Match Plan for Employees) is a retirement account type tailored for small-business employees and self-employed individuals.
In 2024, contributors to SIMPLE IRAs will have the opportunity to invest up to $16,000, marking an increase from the previous limit of $15,500.
Health Savings Account (HSA) Limits Rise Significantly
If you don’t have a Health Savings Account (HSA), you may want to consider funding one in 2024. These specialized accounts offer flexibility in saving for medical expenses while potentially reducing your taxable income for the year.
In 2024, HSA contribution limits stand at $4,150 for individuals with self-only health coverage, while those with family coverage can contribute up to $8,300. For individuals aged 55 and above, there's an opportunity for an extra boost in savings, as they can make a catch-up contribution of an additional $1,000.
The minimum annual deductible for high-deductible health plans (HDHP) increased to $1,600 (self-only) and $3,200 (family coverage). Meanwhile, the maximum out-of-pocket limits for HDHPs are now $8,050 (self-only) and $16,100 (family coverage). These limits include deductibles, copayments, and other qualified expenses, though not premiums.
Not sure if you’re eligible to contribute to an HSA? Download our Account Guide to find out if you qualify.
SEP IRA and Individual 401(k) Limits Increase As Well
The contribution limits for individual 401(k)s and SEP IRAs have increased slightly for 2024 compared to 2023. Here are the current limits:
- In 2024, the total individual 401(k) contribution limit increases to $69,000, up from $66,000 in 2023.
- For those aged 50 and older, there is an additional catch-up contribution limit of $7,500. This remains unchanged from the previous year.
- The lesser of 25% of your employer compensation (based on up to $345,000 of compensation) or $69,000 (up from $66,000 in 2023)
Note: The contribution deadlines for IRAs and 401(k)s are different. You can generally contribute to an IRA for the current tax year until the tax filing deadline for that year (including extensions). For 401(k)s, the deadline is usually the end of the calendar year.
Slight Increase in 401(k) Contribution Limits
The contribution limit for employees who participate in 401(k) plans, 403(b) plans, most 457 plans, and the federal government's Thrift Savings Plan is increasing. In 2024, the new limit is set at $23,000, up from $22,500 in 2023.
Catch-Up Contribution Limits Remain Unchanged
One instance where we didn’t see change was in regard to catch-up contribution limits. Catch-up contributions are increased opportunities for individuals aged 50+ to further boost their retirement savings.
The catch-up contribution limit for traditional and Roth IRAs remains at $1,000. This allows those aged 50 and older to contribute up to a total of $8,000 across their IRAs for the year.
Similarly, the catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the Thrift Savings Plan remains at $7,500 in 2024. This means participants in these plans who are 50 or older can contribute up to $30,500, starting in 2024.
For participants aged 50 and older who contribute to SIMPLE plans, the catch-up contribution limit remains at $3,500 in 2024.
Income Ranges and Deductible Contributions
Income is one of the most important determining factors for contributing to certain types of IRAs.
For example, your ability to contribute to a Roth IRA, claim the Saver’s Credit, or enjoy tax deductions on your traditional IRA contributions, are all dictated by your earned income for the year.
Here are the significant changes to income limits:
Traditional IRA Tax Deduction Income Range
The phase-out range for single taxpayers covered by a workplace retirement plan will increase to between $77,000 and $87,000, up from $73,000 and $83,000.
This means a single taxpayer is only able to enjoy the full benefit of tax-deductibility of a traditional IRA contribution if they earn less than $77,000. Meanwhile, a single taxpayer earning over $77,000 but less than $87,000 may still deduct a portion of their IRA contribution from their taxes.
For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range will increase to between $123,000 and $143,000, up from $116,000 and $136,000.
For those not covered by a workplace retirement plan and married to someone who is, the phase-out range will be $230,000 and $240,000, up from $218,000 and $228,000. The phase-out range for a married individual filing a separate return and covered by a workplace retirement plan remains between $0 and $10,000.
Roth IRA Income Limits
To contribute to a Roth IRA, the income phase-out range for singles and heads of household is increased to between $146,000 and $161,000, up from $138,000 and $153,000.
So, if you earn more than $146,000 as a single taxpayer in 2024, you will only be able to make a partial contribution to a Roth IRA.
For married couples filing jointly, the phase-out range is now $230,000 and $240,000, up from $218,000 and $228,000. The phase-out range for a married individual filing a separate return and contributing to a Roth IRA remains between $0 and $10,000.
The income limit for the Saver's Credit, which supports low- and moderate-income workers, is now $76,500 for married couples filing jointly, up from $73,000. For heads of household, it's $57,375, up from $54,750, and for singles and married individuals filing separately, it's $38,250, up from $36,500.
Qualified Charitable Distribution (QCD) Limit Rises with COLA
Qualified charitable distributions (QCDs) allow IRA holders to reduce their required minimum distributions. Instead of taking their RMD, some IRA holders choose to donate all or a portion of their RMD to a charitable organization of their choice. As long as the donations are made directly from the IRA to the charity, the donated amounts are not taxable.
In 2022, the SECURE Act 2.0 set out a new policy to begin indexing QCDs for inflation. So, in 2024, the QCD limit will rise to $105,000. This will allow IRA holders to donate up to $105,000 of their RMD to a 501(c)(3) of their choosing.
Take Advantage of Expanded Contribution Limits at Entrust
These updated contribution limits aim to encourage more Americans to save for retirement and enjoy the tax advantages available through various retirement plans.
With a self-directed IRA (SDIRA), you can combine these expanded tax-preferred opportunities with expanded investment options.
Once you open your SDIRA, you’ll be able to invest your retirement funds in a wide range of alternative assets like real estate, private equity, precious metals, and more. By increasing asset diversification, you may be able to increase the resiliency and overall returns of your holdings.
For more detailed information on these changes and retirement-related cost-of-living adjustments for 2024, you can refer to IRS Notice 2023-75.
If you find yourself torn between a traditional or Roth IRA, download our Tax-Free vs Tax-Deferred Guide. This resource delves into the advantages of both account types and offers valuable insights on selecting the right one for your unique situation and financial goals.