New IRS Rules for Retirement Plans: 401(k) Contribution Limits, IRA Updates & More

The new IRS rules for retirement plans could help boost savers toward their retirement goals. The limits for contributions to 401(k) plans have increased for 2024. Other updates to the rules for individual retirement accounts (IRAs) and other types of retirement accounts may mean significant adjustments for your saving strategy moving forward.

Here are key changes to note about the IRS 2024 limits and new rules for retirement plans.

New Contribution Limit for 401(k) Plans

One of the biggest updates for 2024 is a higher contribution limit for 401(k) plans.¹ The maximum contribution amount has increased by $500, which means individuals under age 50 can save up to $23,000 in their 401(k) plan this year. The new $23,000 limit also applies to 403(b) plans, the federal government's Thrift Savings Plan and most 457 plans. Plus, savers who are age 50 or older by December 31 can make annual catch-up contributions up to $7,500 in 2024.

Contribution Limits & Deductions for IRA Plans

The IRS 2024 limits for contributions to IRA plans rose slightly from 2023: Taxpayers can now save up to $7,000 per year in a traditional or Roth IRA.¹

However, updated rules for 2024 could affect how much, if any, of your IRA contributions you can deduct from your taxes. Once your adjusted gross income for the year reaches a certain amount, your ability to claim IRA contributions as deductions begins to phase out. The IRS recently made cost-of-living increases to the adjusted gross income limits for both traditional and Roth IRAs.

Traditional IRAs

Deduction eligibility for contributions to a traditional IRA begins to phase out starting at an adjusted gross income of $123,000 per year for couples filing jointly or $77,000 per year for individuals filing alone or as the head of household.² This is an increase from $116,000 for joint returns and $77,000 for single returns in 2023.

Roth IRAs

Contribution eligibility for Roth IRA plans now begins to phase out starting with adjusted gross income that exceeds $230,000 for couples filing jointly or $146,000 for individuals. Couples filing jointly with an adjusted gross income of $240,000 or individuals with an adjusted gross income of more than $161,000 cannot make Roth IRA contributions.

Changes to Other Retirement Plans

The new IRS rules for retirement plans also affect other types of savings accounts this year. For savings incentive match plan for employees (SIMPLE) plans, the contribution limit has increased to $16,000 (up from $15,500 in 2023).² The contribution limit to simplified employee pension (SEP) plans has increased to $69,000 from $66,000 last year.

Saver's Credit Changes

The IRS's cost-of-living updates for 2024 also affect taxpayers' eligibility for the saver's credit. This tax credit allows some individuals to deduct up to 50% of the contributions to their retirement accounts. This year, households that are married and filing jointly are eligible for the saver's credit if their adjusted gross income does not exceed $77,000 (up from $73,000 in 2023). Individuals are eligible if their adjusted gross income is below $57,375 (up from $54,750 last year).

Whether you're saving for retirement through an employer-sponsored 401(k), an IRA or a combination of methods, it's a good idea to consult with a financial professional as you plan for the future.

Sources

1. Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits.
2. COLA increases for dollar limitations on benefits and contributions. https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions.