As we anticipate IRS tax changes in 2024, there are substantial modifications on the horizon for retirement plans that could significantly impact your financial strategies.
You may have been considering retiring early, but the possibility of saving more may put that plan on hold.
From increased contribution limits to adjustments in income phase-out ranges, here are 15 key alterations set to take effect in 2024.
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Retirement plan limits are up
Entering 2024, the contribution limits for 401(k), 403(b), 457 plans, and the federal government's Thrift Savings Plan will be set at $23,000, up from $22,500.
This opens new avenues for individuals to engage in tax-advantaged retirement savings and reinforces the capacity to build wealth for the future.
This increase in limits not only allows for expanded contributions but serves as an opportunity to maximize tax-advantaged savings.
Increased limit on annual IRA contributions
Next year, the limit on annual contributions to an IRA steps up to $7,000 from the previous $6,500, accompanied by an additional catch-up contribution limit of $1,000 for individuals 50 and older.
This increase presents a golden opportunity for older individuals to fortify their IRA savings, providing an added layer of security to their retirement nest egg.
Catch-up contribution limits for 401(k) and similar plans
If you're 50 and older and participating in 401(k), 403(b), and most 457 plans, here's some news: The catch-up contribution limit remains at $7,500 for 2024.
In plain terms, this allows you to contribute up to $30,500 starting next year. At the same time, the catch-up contribution limit for employees 50 and older who participate in SIMPLE plans remains $3,500 for 2024.
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Phase-out range adjustments for workplace retirement plan contributions
For singles with workplace retirement plans, the phase-out range is increasing to between $77,000 and $87,000, up from between $73,000 and $83,000.
That means more people might now qualify for tax-saving opportunities, turning your higher income into potential tax advantages.
Individuals in higher income brackets can still enjoy the benefits of tax advantages, but this adjustment means that even more people might now be eligible for these tax-saving opportunities.
Phase-out range changes for IRA contributions
In 2024, for married couples filing jointly, if the contributing spouse is covered by a workplace retirement plan, the phase-out range now stands between $123,000 and $143,000, up from the previous $116,000 to $136,000.
Couples can now optimize their tax strategies by contributing to IRAs, taking advantage of the updated phase-out range, and making the most of potential tax benefits.
IRA contributions for non-covered spouses
For an IRA contributor married to someone covered by a workplace retirement plan, the phase-out range is now $230,000 to $240,000, an increase from the previous range of $218,000 to $228,000.
Couples can continue diversifying their retirement savings, making the most of potential tax benefits within the adjusted phase-out range.
Changes for married individuals filing separately
The phase-out range for a married individual filing a separate return covered by a workplace retirement plan remains between $0 and $10,000 and is not subject to an annual cost of living adjustment.
This range allows for some contribution benefits for married individuals filing separately, catering to unique financial situations.
Increased income phase-out range for Roth IRA contributions
The income phase-out range for individual taxpayers making contributions to a Roth IRA is now between $146,000 and $161,000 for singles and heads of household, up from the previous $138,000 to $153,000.
The expanded income range enables more individuals to contribute to Roth IRAs, offering tax-free growth potential in retirement.
Changes in income phase-out range for married couples
For married couples filing jointly, the income phase-out range for Roth IRA contributions is increased to between $230,000 and $240,000, up from the previous $218,000 to $228,000.
Also, the phase-out range for a married individual filing a separate return who contributes to a Roth IRA will not be subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
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Changes in income limit for the Saver's Credit
Also known as the Retirement Savings Contributions Credit, the income limit for the Saver's Credit (designated for workers with low and moderate incomes) is increased to $76,500 for married couples filing jointly, up from $73,000.
The limit is $57,375 for heads of household, up from $54,750, and $38,250 for singles and married individuals filing separately, up from $36,500.
Workers with lower and moderate incomes can now enjoy increased Saver's Credit benefits, encouraging more individuals to save for retirement.
Enhanced contribution limits for SIMPLE retirement accounts
The amount individuals can contribute to their SIMPLE retirement accounts is increased to $16,000, up from the previous $15,500.
This boost in contribution limits allows individuals covered by SIMPLE plans to accelerate their savings and build a more robust retirement fund and a brighter financial future for themselves.
Qualifying longevity annuity contract limitations
Under the Secure 2.0 Act, the limitation on premiums paid for qualifying longevity annuity contracts remains at $200,000 for 2024.
This limitation ensures that individuals can strategically incorporate longevity annuities into their retirement plans without exceeding a specified premium amount.
Deductible limit adjustment on charitable distributions
The deductible limit on charitable distributions, as introduced by the Secure 2.0 Act, is increased to $105,000 for 2024, up from $100,000.
This adjustment offers individuals greater flexibility in making charitable contributions directly from their retirement accounts, potentially optimizing their tax positions and doing some good at the same time.
Deductible limit for a one-time election on IRA distributions to split-interest entities
Also, under the Secure 2.0 Act, the deductible limit for a one-time election to treat a distribution from an individual retirement account made directly by the trustee to other entities is increased to $53,000 for 2024, up from $50,000.
This adjustment provides additional options for charitable giving, allowing individuals to make strategic decisions about their IRA distributions to benefit split-interest entities.
As you navigate these impending changes to retirement plans in 2024, it's crucial to assess how they align with your financial goals and retirement strategy.
Are you capitalizing on heightened contribution limits? Have you contemplated adjustments to your income and Roth IRA contributions?
Reflecting on these modifications can help fine-tune your retirement plan for the coming year and beyond. You might even be able to retire with $500,000 (maybe more!) if you increase your retirement savings in 2024.
FinanceBuzz is not an investment advisor. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.