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2024 Updated Contribution Amounts

Wooster Corthell |

As we step into 2024, staying informed about the latest retirement account contribution limits is crucial for strategic tax planning and maximizing your retirement savings. This year brings some significant updates that can impact your investments!

Understanding the 2024 Contribution Limits

Updated Limits: Each year, the IRS reviews and often adjusts the contribution limits for various retirement accounts to keep pace with inflation and cost-of-living changes. For 2024, these limits have seen notable increases, providing an opportunity for individuals to contribute more towards their retirement savings. The key updates include:

  • 401(k), 403(b), 457, and SARSEP Limits: The contribution limit has been increased to $23,000. For those aged 50 or older, the catch-up contribution limit is now $7,500 bringing the employee contribution limit to $30,500.

  • SIMPLE IRAs Limits: The contribution limit has increased to $16,000.

  • IRA and Roth IRA Limits: The contribution limit for IRA and Roth IRA is now $7,000. For those over the age of 50 there is an additional catch-up contribution allowance of $1,000 bringing the limit to $8,000.

Strategies for Maximizing Contributions

  1. Max Out Your 401(k): In 2024, aim to contribute the maximum allowed amount of $23,000 to your 401(k). This increase enables you to set aside more pre-tax dollars, reducing your taxable income.

  2. IRA Contributions: With the new IRA and Roth IRA contribution limit of $7,000, ensure you're maximizing these accounts. For those with a Traditional IRA, remember that contributions can reduce your taxable income.

  3. Catch-Up Contributions: If you're 50 or older, leverage the increased $7,500 catch-up contribution to save more as you near retirement.

Tax Planning Around Your Contributions

  • Choosing Between Traditional and Roth Accounts: Deciding whether to contribute to a Traditional or Roth account is a key tax-planning decision. Traditional accounts offer immediate tax deductions, while Roth accounts provide tax-free withdrawals in retirement.

  • High-Income Earners: Consider a backdoor Roth IRA strategy, especially if you're phased out of direct Roth IRA contributions. This involves making a non-deductible contribution to a Traditional IRA and then converting it to a Roth IRA.

  • Utilizing HSA Contributions: HSAs offer triple tax advantages and can be used to cover medical expenses in retirement tax-free.

The Importance of Timing

  • Early Contributions: Making your contributions early in the year allows more time for your investments to grow, potentially maximizing the compounding effect.

  • Year-End Planning: Review your contributions at year's end to ensure you've maximized your limits and tax benefits.

The increased contribution limits for 2024 present a fantastic opportunity to enhance your retirement savings and tax planning. By understanding these limits and employing strategic approaches, you can significantly boost your retirement nest egg.

For personalized advice on maximizing your retirement contributions book a meeting with Wooster Corthell. Stay updated with the latest financial strategies by following us on LinkedIn. A well-planned approach to retirement savings today can lead to a more secure and comfortable retirement tomorrow.

 

Tax Planning: Wooster Corthell does not act as an account of tax planner; this is not to be construed as tax advice. Please consult your account or tax preparer to discuss your personal tax needs.