The 2024 retirement plan contribution limits are here for 401(k)s, 403(b)s, 457(b)s, IRAs, Roth IRAs, HSAs, FSAs, SIMPLE IRAs, and SEP IRAs. In general, the retirement plan contribution limits are going up because they are all indexed to inflation.
Retirement plan contribution limits don't go up every year. Instead, the contribution limits generally go up every two-to-three years. However, we have been in special times due to elevated inflation.
The 2024 Social Security cost of living adjustment (COLA) increased by 3.2%. And the maximum amount of earnings subject to the Social Security tax (taxable maximum) also increases in 2024 to $168,600.
To help put that into perspective, the Social Security COLA went up by 8.7% in 2023 and 5.9% in 2022.
Inflation Is Why Retirement Plan Contribution Limits Increase
As you can see from the chart, inflation really started to pick up in February 2021, peaked in 2022 and has been coming back down.
Therefore, you can expect the retirement contribution limit increases in 2025 to be minimal to none.
401(k) and 403(b) Employee Contribution Limit For 2024
In 2024, the 403(b) and 401(k) maximum employee contribution limit increase by $500 to $23,000. In addition, the employer 401(b) and 401(k) contribution limit is $46,000 in 2024, for a combined maximum total of $69,000. The catch-up contribution limit for those over the age of 50 remains at $7,500 for 2024. In other words, if you're over 50, you can contribute $23,000 + $7,500 = $30,500 to your 401(b) or 401(k) plan.
If you want to compare the figures to prior years, the total employee contribution limit for those under 50 will was $22,500 in 2023. And it was $20,500 in 2022, and up from $19,500 in 2021. This sizable jump from 2022 to 2023 was the largest 401(k) and 403(b) retirement contribution increase in the history of the 401(k) and 403(b). Typically, the maximum annual contribution limit increase for these plans has been between $500 to $1,000.
The catch-up 401(k) contribution limit increased to $7,500 in 2023 from $6,500 in 2022 for those over 50.
Want some guidance on how much money to put into your retirement plan? Here's a post I wrote on how much you should save in your 401k by age. It's important to have some 401k by age target goals to keep you focused. Everything is relative in personal finance. You might think you're saving a lot in your 401(k), when in reality, you could be falling behind.
401(k)/403(b)/401(a) Employer And Total Contribution Limit For 2024
What some people do not realize is that their own employee contribution limit is only one part of the 401(k) and 403(b) plan contribution limit. There is also a employer portion of the contribution limit, which many employers elect to participate in, which is actually much more. Therefore, strategically, you want to work for an employer who also contributies to your 401(k) or 403(b) in terms of profit-sharing and company matching.
In 2024, the employer maximum contribution limit rises to $46,000. That's an additional $2,500 compared to 2023 when it was $43,500. Therefore, the total combined contribution limit in 2024 is $69,000 for those under 50. If you are over 50, then the total contribution limit is $7,500 more, or $76,500.
Take a look at this chart I put together on the historical 401(k) contribution limits.
2024 Contribution Limit For 457(b) Plans
A 457(b), also known as a deferred compensation plan, is offered to state and local government employees such as police officers, firefighters, or other civil servants.
Some highly paid executives at certain nonprofits like hospitals, charities, and unions are also able to use 457(b) plans.
You can think of the 457(b) plan as a 401(k) for a government or tax-exempt organization worker. However, there are a couple of unique differences that make a 457(b) even more attractive.
457(b) contribution limits will also increase from $22,500 to $23,000 in 2024. Note that 457(b) plans have unique catch-up contribution rules. So please consult with your plan administrator if you are interested in putting more in your 457(b).
Roth IRA Contribution Limits
Contribution limits for Roth IRAs increases by $500 to $7,000 in 2024 up from $6,500 in 2023. If you are over 50, then you can contribute $8,000 in 2024, or an extra $1,000.
Be aware that not everybody can contribute to a traditional or Roth IRA, unlike a 401(k) or 403(b). The income limit for singles to contribute the maximum amount to a Roth IRA in 2024 is $145,999. The contribution amount starts getting phased out from $146,000 up to $160,999. Once you make $161,000 or more, you are ineligible to contribute to a Roth IRA.
For married couples, the income limit to contribute to a Roth IRA is $229,999. The phase out begins from $230,000 to $239,999. Married couples with a combined $240,000 or more in income are ineligible to contribute.
If you are a parent, opening up a custodial Roth IRA for your children is a no brainer. And if you are a student making money in middle school, high school, college, and in your 20s, please contribute to a Roth IRA. I regret not contributing to a Roth IRA when I was younger. If I did, I would have over $200,000 today.
For those of you who are older and are considering doing a Roth IRA conversion, it's probably not going to be very beneficial. Paying taxes on a higher income doesn't make sense.
Traditional IRA Deduction Limits For 2024
Contribution limits for traditional IRAs increase by $500 to $7,000 in 2024 up from $6,500 in 2023. If you are over 50, then you can contribute $8,000 in 2024, or an extra $1,000.
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 the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.
- For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000 in 2024. This is up from 2023's range of $73,000 to $83,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the 2024 phase-out range is increased to between $123,000 and $143,000. In 2023, the range was between $116,000 and $136,000.
- 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 in 2024. This is up from between $218,000 and $228,000 in 2023.
- 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. It remains between $0 and $10,000.
2024 SEP-IRA Contribution Limits
If you own a small business, you might offer you and your employees a SEP-IRA retirement plan. SEP-IRA contribution limits will increase to $69,000 in 2024 up from $67,000 in 2023.
In order to contribute the maximum $69,000 to a SEP-IRA, your small business would need to pay an employee at least $276,000. This is due to the contribution range that runs between 0-25% of compensation. In other words, a company can contribute up to 25% of an employee's salary to a SEP-IRA. The SEP-IRA, in turn, is a business deduction that lowers a business's taxable income.
Keep in mind, employers must provide all of their employees with the exact same percentage. This means they can't discriminate and contribute something like 10% to junior employees and 20% to senior employees. All employees would need to receive the same percentage contribution regardless of their tenure or performance.
2024 SIMPLE IRA and SIMPLE 401(k) Contribution Limits
If a business doesn't offer a SEP-IRA, it might offer a SIMPLE IRA or SIMPLE 401(k) to save money. Contribution limits will increase to $16,000 in 2024. That's an additional $1,000 higher than the $15,000 limit for 2023.
2024 Health Savings Account (HSA) And Flexible Savings Account (FSA) Contribution Limits
While the Health Savings Account and Flexible Savings Account are technically not for retirement purposes, people use them to save for retirement anyway. The HSA and FSA should be used for medical-related expenses. Contributions are made pre-tax. However, any money leftover can be saved.
For single people, the HSA contribution limit will increase from $4,150 in 2024. Family coverage is always double the single coverage, so for 2024 it increases to $8,300. Also, individuals who are 55 and older can contribute an additional $1,000.
As for prior years, the individual limit went from $3,650 in 2022 to $3,850 in 2023. And the corresponding family coverage went from $7,300 to $7,700 in 2023.
The HSA is only possible if you have a High Deductible Health Plan (HDHP). You really have to weigh the pros and cons because sometimes, a HDHP will cost you more than a low deductible health plan with higher premiums.
Personally, I've decided to get a regular Gold plan, which precludes me from getting a Health Savings Account.
2024 Estate Tax Exemption
Although the estate tax exemption is not a retirement plan, it's worth knowing what it is every year for estate planning purposes. The 2024 estate tax exemption rises to $13.61 million per person or $27.22 million for married couples.
In 2023, the limits were $12.92 million per person, up from from $12.06 per person in 2022, and $11.7 million per person in 2021. For married couples, the 2023 estate tax exemption was $25.84 million.
These are record-high estate tax exemption amounts that are set to expire in 2025. Let's see what happens.
In addition to the increased estate tax exemption amount, the gift tax annual exclusion amount in 2024 rises to $18,000. It's been ticking up an average of $1,000 every 1-2 years.
Therefore, if your estate is above the estate tax exemption amount or plans to be, it would be wise to start giving more money away while living. You can also now superfund a 529 plan with $90,000 in 2024.
The 401(k) Is The Best Retirement Plan
Out of all the retirement plans, the 401(k) is the most powerful given it has the highest contribution limit. If you can max out you 401(k) and then contribute to a Roth IRA, you will have the best retirement combination.
As a retiree, you want to diversify your retirement income sources for taxation purposes. You don't really know what taxes will be in the future. Therefore, it's good to diversify.
Take a look at the below example. It shows how much you could have in your 401(k) by age if you were to max it out every year using the 2022 limit of $22,500. With an 8% compound annual return, you would have over $1 million in your 401(k) by age 45 and close to $5 million by age 60.
The lesson learned from the chart above is: always contribute the maximum you can to your 401(k) and ALL tax-advantaged retirement accounts. Over time, your retirement account balances will grow larger than you will ever expect due to compounding.
Here are the 2024 retirement contribution limits. The contribution limits for the 401(k), 403(b), 457, Roth IRA, and traditional IRA all go up.
Retirement Contribution Limits Should Continue To Go Up
The increase in retirement contribution limits for 2023 is a good sign that the government is on our side. The government won't let inflation it away our buying power too much. That said, it's still important to build passive income through our taxable investment accounts.
In addition, building a rental property portfolio is also a great way to generate retirement income. Personally, half of our retirement income comes from real estate. It's best we rely on our own efforts to take care of our financial future.
Retirement will come before you know it. When it does come, you want to have plenty in your retirement accounts to pay for the rest of your life. Social Security benefits should pay out as well. But again, it's best not to count on the government for retirement.
Recommendations For A Better retirement
1) Utilize a free wealth planner to track your wealth. My favorite free wealth management tool is Empower. I've been using Empower to track my net worth, x-ray my investment portfolios for excessive fees, and plan for retirement since 2012.
Boldin is a good alternative to Empower, but it is not free. Built specifically for retirement planning, Boldin features more customizable features. The more you can stay on top of your finances, the better you can optimize your financial future.
2) Educate yourself more about retirement planning. Pick up a hardcopy of my new Wall Street Journal bestseller, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. With 28 years of finance experience, I go deep into investing, retirement planning, family planning, and more. You've only got one life to live. You might as well make the most of it!
2024 Retirement Plan Contribution Limits is a Financial Samurai original post. For more personal finance content, join 60,000+ others and sign up for my free weekly newsletter.