As the 2023 tax season kicks into top gear, have you started thinking about 2024 yet? While most tax planning is accomplished throughout the year, getting a head start can help make 2024 a smooth ride. If you traditionally max out your 401(k) or IRA, your regular contributions should be updated to account for the latest increase in limits by the IRS. The contribution amounts have increased, as well as the phase out limits for IRA contributions.
For employee retirement accounts like 401(k), 403(b), and most 457 plans, the contribution limit increased $500 to $23,000 for 2024. The catch-up contribution for individuals 50 and over remains at $7,500, giving these individuals a total limit of $30,500. SIMPLE plans also increased to $16,000, while the catch-up contribution for individuals 50 and over remains at $3,500.
IRA contribution limits also increased by $500 to $7,000. Like the employee retirement accounts, the catch-up for individuals 50 and over remained the same, giving these individuals an additional $1,000 of contributions totaling $8,000. Part of the SECURE 2.0 Act passed by Congress includes an annual cost-of-living adjustment for the IRA catch-up provision, but it did not affect the 2024 amount.
Generally, taxpayers will only contribute to a traditional IRA when it is deductible, and there are certain conditions that must be met for it to be deductible. If the taxpayer or taxpayer’s spouse is covered by a retirement plan at work, the deduction can be phased out, depending on filing status and income. If neither has a retirement plan at work, the phase outs will not apply.
The phase out ranges for traditional IRAs have increased for 2024 to the following amounts depending on filing status:
- Single – $77,000 to $87,000
- Married Filing Jointly (Covered by workplace retirement plan) – $123,000 to $143,000
- Married Filing Jointly (Spouse is covered by a workplace retirement plan) – $230,000 to $240,000
- Married Filing Separately and covered by workplace – $0 to $10,000
Roth IRA contributions are limited based on filing status and income, regardless of workplace retirement plan activity. The phase out ranges for Roth IRA contributions follow:
- Single – $146,000 to $161,000
- Married Filing Jointly – $230,000 to $240,000
- Married Filing Separately – $0 to $10,000
If you have any questions about how these increases might affect you or how you can optimize the changes, please feel free to contact us at any time!