The Internal Revenue Service announced that the amount individuals can contribute to their 401(k) plans in 2024 has increased to $23,000, up from $22,500 for 2023. In addition, the limit on annual contributions to an IRA increased to $7,000, up from $6,500 in 2023. Not bad!
Given the new three legs of the retirement stool consist of you, you, and you, these retirement contribution limits for 2024 are important. Contribution limits must continue to increase to keep up with inflation. As a result, we must continue to save and invest more to hopefully beat inflation.
Most of us can no longer count on pensions in retirement. If you have a pension, count yourself as a lucky lottery winner. I'd take a pension for life any day over a 401(k) plan. The value of a pension is more than you think!
Without any increase in the retirement age or a reduction in the benefit amount, Social Security is expected to not be able to pay full benefits between 2034 – 2037. The Social Security reserves will run out, at which point, only an estimated 75% of benefits will be paid out.
As a result, folks under age 45 shouldn't count on getting 100% of their Social Security benefits getting paid out. In fact, it may be best not to count on Social Security at all.
Highlights Of Retirement Contribution Changes For 2024
Here are the main highlights of the retirement contribution limits for 2024. Take full advantage!
1) 401(k), 403(b), 457 Plans, Thrift Savings Plan 2024
The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan, is increased to $23,000, up from $22,500.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan remains at $7,500 for 2024.
Therefore, participants in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan who are 50 and older can contribute up to $30,500, starting in 2024. The catch-up contribution limit for employees 50 and over who participate in SIMPLE plans remains at $3,500 for 2024.
2) IRA Contribution Limits 2024
The limit on annual contributions to an IRA increased to $7,000, up from $6,500. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 to include an annual cost‑of‑living adjustment but remains at $1,000 for 2024.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2024.
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.
Income Phase-out Ranges To Be Able to Contribute To A Traditional IRA For 2024
How much of your IRA contribution you can deduct on your taxes depends on your income level and whether or not you or your spouse have a 401(k) or other retirement plan at work.
- For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000, up from between $73,000 and $83,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000, up from 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, up from between $218,000 and $228,000.
- 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 and remains between $0 and $10,000.
The Income Threshold To Contribute To A Traditional IRA Is Low
The low income thresholds in order to contribute and get the full deduction on a traditional IRA have always bummed me out. The 2024 income thresholds of $83,000 for singles and $143,000 for married filers seem arbitrary. These incomes are in the 22% marginal income tax bracket. Why shouldn't higher income earners have the same right to contribute to a traditional IRA for the full deduction as well?
For the financial health of our citizens, we should be encouraging everyone to save for retirement and benefit, not just selected groups. Goodness knows there are plenty of people with higher six-figure incomes who get in financial trouble later on due to a lack of saving.
The sooner we enable all workers to save for their retirement, the better.
Income Phase-out Ranges For 2024 For Roth IRA Contributions
The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $146,000 and $161,000 for singles and heads of household, up from between $138,000 and $153,000. In other words, once you earn more than $161,000 as a single taxpayer or $153,000 as a head of household, you can't contribute a dollar to a Roth IRA.
For married couples filing jointly, the income phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.
We know from the 2024 tax brackets that $146,000 – $161,000 for singles and $230,000 – $240,000 for married couples puts them in a reasonable 22% marginal income tax bracket.
But does it make sense to exclude folks in the 24% marginal income tax bracket? A 24% marginal income tax income is a middle-class income in higher-cost areas of the country.
Government Might Be Saving Taxpayers Money By Limiting Roth IRA Contributions
Contributing to a Roth IRA when you're in the 24% marginal income tax bracket is likely a wash. Contributing to a Roth IRA or doing a Roth IRA conversion when you're in the 32% marginal tax bracket will most likely make you a tax loser.
I doubt most retirees will be paying a higher than 24% marginal tax rate in retirement than while working. Let's be real.
In order to generate today $191,951+ in income and distributions as a single, you'll need an investment portfolio of $4.8 million today returning 4%. For married couples, you'll need an investment portfolio or net worth of more than $9.6 million. That’s not going to happen for 95%+ of Americans since a top 1% net worth starts at about $13 million today.
So maybe the government is actually being thoughtful and saving income earners in the 24% and higher tax brackets money! As a reminder, Roth IRA contributors pay taxes up front so they don’t have to pay taxes upon withdrawal.
Still Wish I Had Contributed To A Roth IRA When I Could Have
I wish I had contributed to the Roth IRA when I was younger. If I had, I would have over $200,000 in my non-existent Roth IRA today. My Roth IRA would have provided for some nice retirement diversification since all of the money can be withdrawn without taxes.
From 1993-1995, I was working at McDonald's and other service jobs in high school. Then I did more odd jobs in college from 1995-1999. However, the Roth IRA was introduced as part of the Taxpayer Relief Act of 1997. Junior year of college was spent studying abroad in China and senior year (1998-1999) was focused on finding a job!
As a 23-year-old recent college graduate in 1999, I simply didn't know much about the Roth IRA so I didn't contribute. By the time 2001 rolled around when I did know more, my income had already surpassed the income threshold.
Now that I know better, I've opened up Roth IRA accounts for my kids. I will make them work to earn up to the Roth IRA maximum contribution amount. Not only will they build a healthly Roth IRA balance by the time they graduate high school, they should also build work ethic and character.
As for me doing a backdoor Roth IRA, I'm not interested. I know it will help diversify my retirement since I'm investing, but perhaps I'm just lazy.
Income Limit Threshold For Saver's Credit
The income limit for the Saver's Credit (Retirement Savings Contributions Credit) for low- and moderate-income workers is:
- $76,500 for married couples filing jointly, up from $73,000
- $57,375 for heads of household, up from $54,750
- $38,250 for singles and married individuals filing separately, up from $36,500.
The amount individuals can contribute to their SIMPLE retirement accounts is increased to $16,000, up from $15,500.
Additional changes made under SECURE 2.0 are as follows:
- The limitation on premiums paid with respect to a qualifying longevity annuity contract to $200,000. For 2024, this limitation remains at $200,000.
- Added an adjustment to the deductible limit on charitable distributions. For 2024, this limitation is increased to $105,000, up from $100,000.
- Added a deductible limit for a one-time election to treat a distribution from an individual retirement account made directly by the trustee to a split-interest entity. For 2024, this limitation is increased to $53,000, up from $50,000.
Details on these and other retirement-related cost-of-living adjustments for 2024 are in Notice 2023-75, available on IRS.gov.
Always Take Full Advantage Of The Contribution Limits
For a more secure retirement, please try to contribute the maximum to your available tax-advantaged retirement plans. In addition, try and contribute the maximum to your IRA or Roth IRA while you can! There's a decent chance your income will eventually surpass the threshold where IRA contributions are possible.
One of the benefits of working again in 2024 is to start contributing to my solo 401(k) plan again. I haven't consulted since 2015. Therefore, my solo 401(k) plan has fallen behind from where I'd like it to be for my age.
It would be nice to earn $23,000 in tax-deferred income in 2024 as I max out my solo 401(k). Any extra income will be saved and invested for my children's education.
Reader Questions
What are your thoughts about the various 2024 retirement plan contribution limits? The $23,000 employee maximum to a 401(k), 403(b), or 457 plan seems like a good amount now. Are you taking full advantage? Thoughts on the backdoor Roth IRA if you've already maxed out your 401(k)?
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Oops, think I made a mistake on that last comment.
Roth 401k gains may not be taxable, have to check on that one.
401k Roth gains not taxable.
Mega backdoor it the shiznit
Yes, I have the same Roth 401k option. That said if you are maxing out the full $76,500 or more as the years progress you’ll have a sizeable 401k. The interest/gains made on the after-tax contributions in the Roth 401k are subject to income tax when withdrawn. If you roll the after-tax into a Roth IRA the interest/gains are NOT taxable. In other words move the after-tax into the Roth IRA as soon as you can.
Sam, just curious, why aren’t you contributing to an I-401k currently? I assume you have an S-Corp or the like for FS and have been generating income from this blog. That would afford you the opportunity to contribute to a retirement account. Also, your contribution limit to the I-401K would not be $23k, but $69k as the S-corp can match your personal contribution and then you can contribute profit sharing as well. Cheers!
Solo 401(k)? I don’t have independent consulting income. But I do write in the conclusion of this post,
“One of the benefits of working again in 2024 is to start contributing to my solo 401(k) plan again. I haven’t consulted since 2015. Therefore, my solo 401(k) plan has fallen behind from where I’d like it to be for my age.
It would be nice to earn $23,000 in tax-deferred income in 2024 as I max out my solo 401(k). Any extra income will be saved and invested for my children’s education.”
But I am contributing to a SEP IRA plan for my wife and me. I look forward to doing both in 2024!
Related: How To Save Over $100,000 Pre-Tax In Retirement Accounts
I missed that you have been contributing to a SEP-IRA. SEP-IRA to Solo 401(k) “same same but different.” I see no reason why you wouldn’t have the option to contribute to a solo-401K currently instead of the SEP if that was your preference. The solo 401(k) is an individual 401(k) for a business owner with no employees. Your business does not need to be limited to consulting. You can also use the plan to cover both you and your spouse. You can contribute to both plans simultaneously but the aggregate can not exceed the max contribution amount of 69K for 2024.
It’s me and my wife on the S-corp SEP IRA. So I don’t think I can also contribute to a solo 401(k). Am I mistaken here? That would be double dipping where I contribute something like 20% of operating profits to SEP and then whatever left over I contribute another max to solo 401k to minimize upfront taxes.
Doesn’t seem right. Correct me if I’m wrong!
Sam,
I enjoy your financial observations and advice. I’ve read through many of your articles and it helps validate my own knowledge and learnings over the years.
Regarding 401(k) contribution limits the IRS allows I’m surprised that few financial advisory sites discuss the after-tax contributions. For 2024 contribution limits are as follows:
* Pre-tax $23,000
* Age 50 and over catch-up $7,500
* Total employer and employee contribution limit $69,000($76,500 with catch-up)
* For those over 50 the after-tax limit is $69,000 minus $30,500 minus employer contribution/match
Some 401(k) plans allow for in-service roll overs into a Roth IRA(mega backdoor)
Another option is to wait until 59.5 years of age and roll over ONLY the after-tax amount into a Roth IRA(mega backdoor). I’m 62 and have been maxing this out for a number of years. While you have to have the income to do it most of the people on your site are all high earners as you point out.
There is also the standard IRA to Roth IRA regular backdoor contribution that is not tax deductible for high earners. For 2024 this is $7,500
This…
My 401k plan allows me to immediately “roll over” my after-tax contributions ($76,500 – $30,500 = $46,000 minus employer match) to the Roth 401k portion of my plan.
Hopefully this will allow me to strategically withdraw to stay under taxable income levels to minimize taxes.
Forcing catch-up contributions into a Roth (a tax increase for those over 50) is thankfully postponed until 2026.
Thanks for posting this and for being so timely on so many topics I always want to know about! I tend to get always curious about what the new year’s limits and ranges will be this time of year. It’s really helpful for thinking about my financial planning and setting new goals. Speaking of goals I need to review what goals I set for this year before I can get my new ones set up!
You stated “Social Security is expected to fully run out by 2034.” However, this isn’t true – this is the date that SS is projected to not be able to pay full benefits (about 3/4 at that point if nothing changes).
You’re correct. The reserves are projected to run out. Some say 2034, some say 2037.
As a result of changes to Social Security enacted in 1983, benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted.1 At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76 percent of scheduled benefits. Thus, the Congress will need to make changes to the scheduled benefits and revenue sources for the program in the future. The Social Security Board of Trustees project that changes equivalent to an immediate reduction in benefits of about 13 percent, or an immediate increase in the combined payroll tax rate from 12.4 percent to 14.4 percent, or some combination of these changes, would be sufficient to allow full payment of the scheduled benefits for the next 75 years.
When Will SS Be Exhausted
The article you link to is 13 years old. If we want to know the financial status of Social Security, we can read the 2023 report by the Trustees. In case the link below doesn’t work, just google “ Status of the Social Security and Medicare Programs: A SUMMARY OF THE 2023 ANNUAL REPORTS.”
According to this 2023 report, there is only funding to pay full benefits until 2033, which is one year earlier than they reported last year.
https://www.ssa.gov/OACT/TRSUM/tr23summary.pdf
Good catch! I’ve updated. thanks.
I’m confident there will be changes made to keep 100% payout after 2033. But I’m not counting on SS in my financial planning model for retirement.
Interesting — “Most of us can no longer count on pensions in retirement. If you have a pension, count yourself as a lucky lottery winner. I’d take a pension for life any day over a 401(k) plan. The value of a pension is more than you think!”
I’m taking a buyout of the pension for a very modest pension that I had going. Primarily because the pension payment is a) not tied to COLA and b) does end with my mortality and c) reduces if I designate a survivor’s beneficiary.
Since it is a very modest pension, we’ll bring it into an IRA and let it grow indefinitely as we live a very modest lifestyle and would rather have the money be part of the overall pool that’s growing. Our hope is the draw when RMDs are required….
Yeah I completely agree, I wish I was not in a pension at all. I am at a large university system which still has a pension. The way it works is that there is a mandatory 7% of your university base salary taken off pre-tax for the pension, and I cannot opt out of it. Minimum retirement age is 55, but you get next to nothing like 21% of your base salary if you retire that early. They really milk you each year from 55 to 65 and if you wait until age 65 you get a reasonable pension ~ 72% of your base salary, but that is after working continuously at the same place for 25-30 years!
Now my plan does not allow for a lump sum option, so lets say I retire at 65. The pension plan is paying me back WITH MY OWN MONEY (the 7% that has been taken out monthly from my paycheck and that has accrued interest over 25-30 years!). So at that point I will have deposited and accrued over $1M into the pension plan and they will be paying me back with my own money for about 8-10 years! So I would have to live until 75 to get a single dollar from the pension plan that was not my own money. Now conversely lets say I take the pension at 65, and then die at 70, I LOSE all the money and benefits, and the pension plan makes money OFF ME! It a total crock of shit, which is why they are all dying. Furthermore, the “pension” is just a promise, they can change it at any time and curtail the benefits before you retire, and so now that the university also offers a traditional 403b plan, that about half of people opt-in to, that there will be many less people contributing to the pension and so the end of it has already begun..
So can you explain the real benefits of a pension to me? Is there something I am missing?
Thanks for the negative perspective on a pension! I appreciate it.
If you die early, can your spouse or relative take it over?
“They really milk you each year from 55 to 65 and if you wait until age 65 you get a reasonable pension ~ 72% of your base salary, but that is after working continuously at the same place for 25-30 years!”
I would say earning 72% of your final base salary for life is sweet! The key is to live as long as possible.
Contributing only 7% of your base salary to a pension is also low. If you earn $100,000 a year, you’d have to contribute 23% of your salary to a 401(k) and hope it grows.
I think you got it good, unless you truly hate your job. Then I don’t know.
I agree with Sam here. What state is your pension in? In Cali (CalStrs) you pay about 9% in but the employer pays about 19%! In terms of survivor benefit, you could always just do the 100% benefit and cover your spouse with a life insurance policy. Run the numbers and you might find that’s your best bet. Retirement sweet spot is also 60-62 in CalStrs.
I ran the numbers in my case of a modest payment not tied with COLA, the pension would have been a small part of what we expect to see in our normal investment and 401k required minimum distributions at whatever age they will be when we need them, it made sense to get the lump sum added into our portfolio. It depends on if you’re planning for retirement or planning for legacy. I’d like to think we’re planning for legacy.
Yeah I think it is a grass is greener on the other side senario. Look the bottom line is that if I work for a place for 25-30 years I want to have 100% assurity of my benefits and know exactly how much money I have secured that no one else can touch. A pension is a promise, it can vanish in thin air. Dont be fooled that the company ‘contributes’ 19% or whatever, thats not your money, someone else will receive that money. Yes you can select a beneificiary but then that curtails your monthly payment and who knows if it will pay off or even what the benfits for a surviving spouse will be? It is really similar to social security.. how secure do you feel that you will actually get anything from social security? It is the same feeling with an underfunded pension..
As I stated, for my current plan there is no lump sum payment option. So even the remote possibility that I could work 25-30 years and then start taking a pension in retirement and then die a few years later and LOSE eveything I put in and everything I worked for??! That is totally unacceptable to me and it actually happens to people! Imaging the thought after 30 years and in retirement oh I hope I dont die this year and lose all my benefits..
Now I also max out a 403b and 457. But there is no employer match. What I wouldn’t give to contribute and max out a 401 and have employer match, that is all your money. You can pass it on to kids and do whatever you want with it after you retire.
Hi Sam – I’m surprised you don’t mention the backdoor Roth, in which you contribute after-tax money to a traditional IRA and immediately convert this to a Roth. This is an option no matter what your income. My partner and I have done this for over a decade, and our Roths are now six figures, which can be passed tax free to our heirs.
Sure, has the limits changed? I’ve never done one. What tax rate are you paying when you do a backdoor Roth IRA? I think at 24% it’s a push. But if you have maxed out your 401(k) anyway and are still investing in a taxable portfolio, then why not contribute $7,000 in 2024.
Here are some related thoughts:
Is Doing A Backdoor Roth IRA Worth It?
A Roth IRA Conversion Is Probably A Waste Of Time And Money For Most
I’m confused about the “it it worth it” rationale. If you had a hypothetical $6k in a CD account earning 10% interest (hypothetical!) you are getting taxed on $600/yr interest vs moving that same $6k to a Roth. I get that the $6k was initially taxed based on your existing marginal rate but I’m not following your logic on the Roth. Even if you think you will be taxed at a far lower rate in retirement how you can’t ignore the nontaxable investment earnings over the life of the Roth?
I guess it makes more sense if you are comparing investing in a pre-tax account like a 401k vs a Roth but the flexibility/more investment options available in a Roth vs a 401k is also a consideration.
The back door Roth IRA is not a push if you’ve already contributed the max to a 401K. Once the 401K is maxed it’s either invest in a non tax advantaged brokerage account or contribute the yearly max to a an IRA and then immediately convert it to a Roth IRA (back door). Ideally, you max contribute to 401k, then max the back door Roth IRA, then remaining funds are invested into a non tax advantaged brokerage account.
Yes, you’re right. Is the backdoor Roth IRA what you’re doing?
Yes, I max out my solo 401K (66K for 2023) and then I contributed the max to a Traditional IRA. Literally the next minute I click a few buttons on Schwab’s website and it gets converted into a Roth IRA. So easy, it’s kind of ridiculous. Additional savings then go to a non-tax advantaged brokerage account.
Amazing! Do the income rules not apply to you for traditional IRA contribution?
Because to contribute $66K to a 401K from employer and employee means your business has to earn $300,000+.
Are you contributing the traditional in after tax dollars?
Please review this post when I first started doing research on contributing to a Solo 401(k). The formula decides how much you can contribute as an employee and employer to a Solo 401(k). Maybe things are different now?
Solo 401(k) Contribution Equation
You can use this example to easily calculate your own contribution amount after you’ve calculated your Operating Profits. Just remember 92.35% X 15.3% X 50% to apply to your operating profits and then multiply by the result by 20% to get your employer profit sharing contribution.
Contributing $31,010 to your self-employed 401k plan is quite a hefty sum that will quickly add up to a large retirement nest egg over time. You are essentially saving 31% of your gross income or a hero worshipping 41% of your operating income.
Doing some simple math, you need to make an operating income of at least $180,000 after the 1/2 Self-Employed tax deduction to be able to contribute $36,000 in profit sharing + $18,000 employee contribution to equal the maximum $54,000 a year. Easier said than done. But an operating profit figure to shoot for all the same.
Self-Employed 401(k) Plan Details
Note: The reason why self-employment tax for a sole proprietor is based on 92.35% of self-employment income instead of the whole amount is this:
1. 92.35% = 100% – 7.65% employer’s portion of SE tax (6.2% social security tax + 1.45% medicare tax)
2. Normally, an employer incurs a 7.65% expense on each dollar paid to an employee. However, a sole proprietor does not pay himself a salary so he can’t deduct the 7.65% of SE tax on his Schedule C. The SE tax gets deducted directly on the form 1040 instead of Sch C. But for the sole proprietor the SE tax is a real expense, so that’s why the formula shows a reduction of 7.65% to the SE income.
Yes, the contributions to the Traditional IRA are with after tax dollars.
If your income is above the limit to have your trad IRA contributions be deductible, then there’s no additional tax hit for the Roth conversion. I’ve done it several times. Fidelity makes it super easy. I’m sure the other brokerages do, too.
It just gets messy if you have a traditional IRA already that has pre-tax funds in it, because you would have to calculate the percentage of pre-tax funds in the account and any conversion you make would have to recognize income on that percentage of the amount of the conversion (if I understand that correctly). But if you have no pre-tax contributions in your trad IRA, the Roth conversion is easy and costs you nothing.
Is it still a wash if backdoor Roth contributions are in addition to maxing 401k/available tax deferred options?
Whats the reason to not put extra cash into a Roth, vs into a taxable brokerage?
You’re right. Might as well, depending on your liquidity and cash flow needs. Have to double check timing on when you can use the Roth IRA funds after contribution in case something like a house you want to buy comes up.
Backdoor mega is with after tax money (and no pre tax available) so it’s a home run cuz that money would goto taxable account instead of the Roth.
This is a must