IRS increases 2024 contribution limits for 401(k) and IRAs

On Wednesday, the Internal Revenue Service announced it will increase the amount individuals can contribute to their 401(k) plans in 2024.

In the upcoming year, the individual contribution level will rise to $23,000, from $22,500 in 2023.

Furthermore, the IRS released technical guidance regarding all of the cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2024.

Increase in contribution limits

The contribution limit for employees in 2024 who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan was bumped up to $23,000.

The limit on annual IRA contributions will increase by $500 to $7,000, while the IRA catch‑up contribution limit (for individuals aged 50 and over) was amended under the SECURE 2.0 Act of 2022 to include an annual cost‑of‑living adjustment. However, for 2024, it will remain at $1,000.

There were no changes to the catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan. Those limits will remain at $7,500 for 2024.

As such, individuals age 50 and older who participate in 401(k), 403(b), most 457 plans and the Thrift Savings Plan can contribute up to $30,500, starting in 2024.

The catch-up contribution limit for employees 50 and over who participate in SIMPLE plans will stay at $3,500.

The IRS also announced an increase in income ranges for determining eligibility to make deductible contributions to traditional IRAs, Roth IRAs and to claim the Saver's Credit.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions.

If, during the year, either the taxpayer or the taxpayer's spouse was covered by a retirement plan at work, the deduction may be reduced or phased out until it is eliminated, depending on filing status and income. If neither is covered by a retirement plan at work, the phase-outs of the deduction do not apply.

The phase‑out ranges for 2024 are:

• Increased to between $77,000 and $87,000 for single taxpayers covered by a workplace retirement plan.
• 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.
• Increased to between $230,000 and $240,000 for an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered.
• 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.
• Increased to between $146,000 and $161,000 for singles and heads of household for taxpayers who make contributions to a Roth IRA is.
• For married couples filing jointly, increased to between $230,000 and $240,000.

Also, the phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income limit for the Saver's Credit (Retirement Savings Contributions Credit) for low- and moderate-income workers is $76,500 for married couples filing jointly; $57,375 for heads of household; and $38,250 for singles and married individuals filing separately.

The amount individuals can contribute to their SIMPLE retirement accounts increased to $16,000.

Additional changes made under SECURE Act are as follows:

• The limitation on premiums paid with respect to a qualifying longevity annuity contract will remain $200,000.
• An adjustment to the deductible limit on charitable distributions. For 2024, this limitation increased to $105,000.
• Added a deductible limit for a one-time election to treat a distribution from an individual retirement account made directly by the trustee to a split-interest entity. For 2024, this limitation increased to $53,000.