2024 IRS Updates: 401(k), IRA, & More
The Internal Revenue Service (IRS) has announced significant updates for 2024, impacting various Retirement plans, including 401(k), Individual Retirement Accounts (IRA), and Roth IRAs. These changes, primarily influenced by cost-of-living adjustments (COLA), offer important implications for individuals and employers in planning their retirement contributions and strategies.
1. 401(k) Plan Contribution Limits
For 2024, the contribution limit for 401(k) plans has been increased to $23,000, up from $22,500 in 2023​​​​. This increase allows individuals to contribute more towards their 401(k) plans, aiding in better preparation for retirement.
Key Points:
- Applies to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
- Encourages higher savings to accommodate increased living costs.
2. Roth 401(k) Plans
A notable change for Roth 401(k) involves the removal of mandatory distributions during the account holder’s lifetime. This change, effective in 2024, allows individuals to keep their funds in a Roth employer plan without the obligation of mandatory withdrawals at the Required Minimum Distribution (RMD) age​​.
Key Points:
- Offers more flexibility and control over retirement funds.
- Beneficiaries of these plans will still be subject to distribution rules.
3. Tax-Qualified Retirement Plans
The IRS has adjusted several limits for tax-qualified retirement plans for 2024, reflecting the need to accommodate for cost-of-living increases​​​​.
Key Adjustments:
- Defined benefit plan annual accrual limit increased to $275,000.
- Defined contribution plan annual addition limit increased to $69,000.
- Elective deferrals annual limit increased to $23,000.
- Annual compensation limit rose to $345,000.
- Compensation thresholds for key employees and highly compensated employees adjusted upwards.
2023 Plan Limits
| 401k/403b Deferral Limit | $22,500 |
| Defined Contribution Plan 415 Limit | $66,000 |
| Age 50+ Catch Up Limit | $7,500 |
| Definition of HCEs | $150,000 |
| Compensation Limit | $330, 000 |
| Age 50+ Catch-Up Limit | $265, 000 |
4. Traditional IRAs
The traditional IRA sees several updates for 2024, including an increase in the annual maximum deductible amount from $6,500 to $7,000​​​​.
Key Updates:
- Adjustments in the adjusted gross income limits for determining deductible contributions.
- Phase-out range changes for both single filers and married couples.
- The dollar limit for catch-up contributions for individuals aged 50 or over remains unchanged at $1,000.
5. Roth IRAs
For Roth IRAs, there are changes in the adjusted gross income limits for determining maximum contributions​​. Key changes include:
- For married couples filing jointly or qualifying widow(er)s, the limit has been increased to $230,000.
- For single filers and heads of household, the limit is now $146,000.
- Adjusted gross income phase-out ranges for contributions have been increased.
Closing Thoughts
The IRS updates for 2024 are designed to reflect the changing economic landscape and cost-of-living increases. These adjustments provide opportunities for individuals to enhance their retirement savings and plan more effectively for their future. It is crucial for individuals and employers to understand these changes and incorporate them into their financial planning strategies. For detailed guidance, consulting a Prosperity Financial Advisor or visiting the IRS Notice 2023-75 is recommended.
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