Get ready to save more in your retirement plan and IRAs in 2024! The Treasury Department has adjusted how much you can contribute to your employer sponsored retirement plan and Individual Retirement Accounts (IRAs). For 2024, they are now as follows:
Individual Retirement Accounts (IRAs) and Roth IRAs: you can now contribute $7,000 to Individual Retirement Accounts for 2024. If you are over the age of 50 by 12/31/2024, you can add a “catch up contribution” of $1,000, meaning you can save $8,000 in an IRA for 2024. (note: remember that 2023 contributions can be made until 4/15/2024.)
The income ranges for determining eligibility to make deductible contributions to traditional Individua Retirement Accounts (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2024. If during the year either the taxpayer of 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.
For single taxpayers who are covered by an employer sponsored retirement plan the phase-out range is between $77,000 and $87,000.
For married filing jointly the phase-out covers income ranging from $123,000 to $143,000 if a spouse who makes the IRA contribution is covered by an employer sponsored retirement plan.
If the IRA contributor is not covered by an employer sponsored retirement plan but they are married to someone who is, the income phase out for deductibility is between $230,000 and $240,000.
The phase out range for making Roth IRA contributions is $230,000 to $240,000 to couples married filing jointly.
For singles and head of household the phase out range is $146,000 to $161,000.
If you earn too much to contribute to a Roth IRA, you can make a non-deductible IRA contribution and convert it to a Roth IRA, which is often called a “backdoor Roth IRA contribution”. However, if you have existing funds in a traditional IRA there are tax implications of the “backdoor Roth contribution.” More on this here
The income limit for the Saver’s Credit is $76,500 for married filing jointly, $57,375 for Heads of Household and $38,250 for singles and married filing separately.
401(k)s, 403(b)s, most 457 Plans, and the federal government’s Thrift Savings Plan: You can now save $23,000 in these plans for 2024, which is $500 more than in 2023. If you are age 50 or older by 12/31/2024 you can save an additional $7,500 in these plans for 2024, bringing your maximum contribution to $30,500.
SEP IRAs and Solo 401(k)s: If you are self-employed or a small business owner, you can now save $69,000 in these plans for 2024. This is the amount you can contribute as an employer as a percentage of your salary. The compensation limit used in the savings calculation is now $345,000 for 2024.
After-tax 401(k) contributions: If your employer allows after-tax contributions, you can also take advantage of the $69,000 limit for 2024. It is an overall cap that includes your pretax or Roth salary deferrals plus any employer contributions (but does not include catch-up contributions if you will be 50 or older on 12/31/2024).
SIMPLE IRA: The limit on these accounts is now $16,000 for 2024. The catch-up contribution for those of you who will be 50 or over on 12/31/2024 is $3,500, bringing the total contribution for 2024 to $19,500.
Defined Benefit Plans: The limit on the annual benefit of a Defined Benefit Plan is $275,000 for 2024.
Due to the complicated rules around all the above, LTWM highly recommends seeking the advice of a qualified income tax professional such as a CPA or Enrolled Agent (EA). As always, please contact your Lake Tahoe Wealth Management Financial Planner to discuss the optimal method for saving for your future or if you have any questions.