If you’re planning your retirement and contributing a considerable amount every year toward your savings, you may be aware of the contribution limits set by the Internal Revenue Service (IRS). These limits can change from year to year, and with inflation hitting 40-year highs the past few years, the IRS is expected to adjust the maximum contribution limits for 2024.
This increase could impact your savings strategy, and it’s important to plan ahead. Here are some practical ways to prepare yourself for if the retirement contribution limits rise in 2024.
Qualified account contribution limits
An official announcement is expected to come in October, but here are the expected changes to the contribution limits for 2024.
| Account Type | 2023 | 2024 |
|---|---|---|
| 401(k), 403(b), 457 employee contribution limit | $22,500 | $23,000 |
| 401(k), 403(b), 457 total contribution limit | $66,000 | $68,000 |
| IRAs (Traditional, Roth) | $6,500 | $7,000 |
| SEP IRA | $66,000 | $68,000 |
| SIMPLE IRA | $15,500 | $16,000 |
| Health Savings Accounts | $3,850 (single) | $4,150 (single) |
Data source: Benefits Pro
1. Reevaluate your budget
If you are contributing the maximum amount currently allowed, an increase in contribution limits may require a reevaluation of your budget.
Consider allocating additional funds toward retirement savings to take advantage of increased contribution limits and ensure you are on track for your retirement goals.
2. Plan for tax impacts
Taking advantage of the increased limits could help reduce your current tax liability while boosting your retirement savings. However, it can also lead to higher taxes in retirement.
It is important to plan ahead for potential tax implications and consider strategies such as Roth IRA conversions or tax-deferred annuities to minimize taxes in retirement.
3. Consider catch-up contributions
If you’re age 50 or older, catch-up contributions could be a valuable tool in maximizing your retirement savings. Catch-up contributions are additional funds that can be contributed to certain retirement accounts beyond the normal contribution limits.
This means that you may be able to set aside more money for retirement than you previously thought possible, allowing you to build your nest egg more quickly and efficiently. For 2024, catch-up contributions are expected to stay the same as 2023. Catch-up contributions will remain at $7,500 for 401(k)s and $1,000 for IRAs.
4. Consider alternative retirement savings accounts
While contributing to a 401(k) plan can be an excellent way to save for retirement, it may be useful to consider alternative savings accounts such as individual retirement accounts (IRAs). In addition to a 401(k) plan, contributing to an IRA can help diversify your retirement portfolio and allow you to supplement your savings as needed.
If you are self-employed, take a look at SIMPLE and SEP IRAs.
5. Review your retirement plan regularly
With changing contribution limits, it’s essential to review your retirement plan regularly. This review will help you observe how much you’re contributing and what adjustments you need to make. Be sure to take into account potential changes in tax laws and the overall state of the economy.
Retirement planning can seem challenging, especially when there are changes in contribution limits that could impact it. Retirement contribution limits are an important aspect of planning for your future. If these limits increase in 2024, it may require adjustments to your retirement plan. However, with careful consideration and planning, you can prepare yourself for any potential changes.
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These practical steps can help you secure your financial future. The key is to remain proactive and adaptable and to remain focused on achieving your retirement goals. Remember, it is never too early to start planning for your future and taking advantage of every opportunity to save for your retirement.
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