Heads up, Benefits and Payroll professionals: Employee contribution limits to their retirement accounts are higher for 2024. Most of the increases are $500 bumps, similar to most years, but a few major changes are in store as a result of congressional action.
Starting January 1, the Setting Up Every Community for Retirement Enhancement Act (aka Secure 2.0), signed into law in late 2022, eliminates the 10% early withdrawal penalty for:
- accessing retirement funds for personal or family emergencies
- victims of natural disasters (backdated to January 26, 2021), and
- survivors of domestic abuse.
Contribution limits for workplace retirement plans (WRPs) and individual retirement accounts (IRAs) will eventually include an annual cost-of-living adjustment, possibly by 2025. That’s because the IRS hasn’t completed a formulation yet for it.
Some employees may need this reminder: Under section 603 of Secure 2.0, if employees have wages that exceed $145K in one year, any retirement plan catch-up contributions they make in the following year will need to be made to Roth accounts to avoid a tax penalty.
So-called “high-wage” earners will pay federal income tax on the full amount of their catch-up contributions.
A little more leeway to sock away retirement savings
Here is a rundown of contribution changes for 2024 (for the complete list, click here):
- Individuals can contribute up to $23,000 to their 401(k), 403(b) and most 457 plans, plus federal government thrift savings plans (TSPs). That’s a $500 jump from 2023.
- The catch-up contribution limit for employees aged 50 or older for 401(k), 403(b), 457 and TSP plans remains $7,500 for 2024. That sets the total contribution limit at $30,500.
- For single taxpayers covered by a Workplace Retirement Plan, the phase-out range is between $77K to $87K, up from $73K to $83K.
- For married couples filing jointly, if the spouse putting money toward an IRA is also covered by a workplace retirement plan, the phase-out range is between $123,000 and $143,000. The range in 2023 was between $116,000 and $136,000.