On November 1, 2023, the IRS made a significant announcement that will impact both employers and employees. The agency released the 2024 Retirement Plan Contribution Limits, introducing several changes that can influence retirement savings strategies for the upcoming year. In this blog post, we will break down the key points of the IRS announcement and explain what employers should be aware of to support their employees’ financial planning.
- 401(k), 403(b), and 457 Plans: The IRS has increased the contribution limit for employees who participate in 401(k), 403(b), and most 457 plans. In 2024, employees can contribute up to $23,000, up from $22,500. Employers offering these plans should inform their employees about this limit change, as it provides an opportunity to save more for retirement.
- Individual Retirement Accounts (IRAs): The annual contribution limit for individual retirement accounts (IRAs) has also increased. In 2024, individuals can contribute up to $7,000, up from $6,500. For those aged 50 and over, the catch-up contribution limit remains at $1,000. Employers should ensure that their employees are aware of these changes, as IRAs are a popular retirement savings vehicle.
- Catch-Up Contributions: Employees aged 50 and older who participate in 401(k), 403(b), SIMPLE, and most 457 plans can make catch-up contributions. The catch-up contribution limit for these plans remains at $7,500. This means that employees in these plans can contribute a total of up to $30,500 in 2024. For those in SIMPLE plans, the catch-up contribution limit remains at $3,500. Employers should remind eligible employees of these catch-up opportunities to boost their retirement savings.
- Income Ranges for Deductible Contributions and Saver’s Credit: The income ranges for determining eligibility for deductible contributions to traditional IRAs, contributions to Roth IRAs, and claiming the Saver’s Credit have all increased for 2024. This affects the tax benefits employees may receive when making contributions to these accounts. Employers should communicate these changes, as they can impact employees’ tax planning.
- For single taxpayers covered by a workplace retirement plan, the phase-out range has increased to between $77,000 and $87,000.
- For married couples filing jointly, the phase-out range, when the spouse making the IRA contribution is covered by a workplace retirement plan, has increased to between $123,000 and $143,000.
- For an IRA contributor not covered by a workplace retirement plan but married to someone who is, the phase-out range has increased to between $230,000 and $240,000.
- For a married individual filing separately and covered by a workplace retirement plan, the phase-out range remains between $0 and $10,000.
Additionally, the income phase-out range for taxpayers making contributions to a Roth IRA has increased for both singles and heads of household, as well as for married couples filing jointly. Employers should ensure employees understand the implications of these income ranges on their retirement contributions and tax benefits.
- Saver’s Credit: The income limit for the Saver’s Credit, designed to benefit low- and moderate-income workers, has also increased for 2024. Employers should inform eligible employees of this change to encourage participation in retirement savings programs.
- For married couples filing jointly, the income limit is now $76,000, up from $73,000.
- For heads of household, the income limit has increased to $57,375 from $54,750.
- For singles and married individuals filing separately, the income limit is now $38,250, up from $36,500.
- SIMPLE Retirement Accounts: The amount individuals can contribute to their SIMPLE retirement accounts has increased to $16,000, up from $15,500. Employers offering SIMPLE retirement plans should update their plan documents and inform employees of this change.
The IRS’s announcement of the 2024 Retirement Plan Contribution Limits brings important changes that can significantly impact retirement savings strategies. Employers should take the initiative to inform their employees about these changes and provide guidance on how to make the most of the new contribution limits. By doing so, employers can help their workforce plan for a more financially secure retirement.