Maximize Your Retirement Savings in 2024: A Comprehensive Guide

Planning for retirement is a crucial aspect of financial stability, and understanding the contribution limits for various retirement accounts can help you make the most of your savings. In 2024, the IRS has set new contribution limits for 401(k) and IRA accounts, which can significantly impact your retirement planning. At O1ne Mortgage, we are committed to helping you navigate these changes and optimize your financial future. For personalized mortgage services, call us at 213-732-3074.

401(k) Contribution Limits for 2024

In 2024, you can contribute up to $23,000 to an employer-based retirement plan, including 401(k), 403(b), and most 457 plans. If you are 50 or older, you can make an additional catch-up contribution of $7,500, bringing your total contribution limit to $30,500. Here’s a quick overview:

• 2024 contribution limit (49 and under): $23,000
• 2024 catch-up contribution (50 and older): $7,500
• 2024 total contribution limit (50 and older): $30,500

401(k) Contribution Limits With Matching Funds

Employer matching funds do not count towards your basic 401(k) contribution limit. However, the IRS does set a cap on the total amount you can contribute, including matching funds:

• 2024 total contributions (49 and under): $69,000
• 2024 total contributions (50 and older): $76,500

It’s important to note that your 401(k) contribution cannot exceed 100% of your compensation.

IRA Contribution Limits for 2024

For 2024, you can contribute up to $7,000 to a traditional or Roth IRA. If you are 50 or older, you can make an additional catch-up contribution of $1,000, bringing your total contribution limit to $8,000. Here are the details:

• 2024 IRA contribution limit (49 and under): $7,000
• 2024 catch-up contribution (50 and older): $1,000
• 2024 total contribution limit (50 and older): $8,000

Your IRA contributions must be made using earned income, and they cannot exceed your compensation for the year. For example, if you earn $3,500 in 2024, your maximum IRA contribution is $3,500. Married couples filing jointly can each make the maximum contribution to an IRA as long as their combined income exceeds the amount they are contributing, even if one spouse does not meet the income requirement.

You can contribute to an IRA even if you also contribute to a 401(k) at work. However, be aware of Roth IRA income limitations and IRA deduction phaseout information for 2024. You can also split your contribution between a traditional and a Roth IRA, as long as your combined total does not exceed $7,000 ($8,000 if you are 50 or older).

SIMPLE IRA and SEP-IRA Contribution Limits

SIMPLE IRAs and SEP-IRAs are designed for businesses and self-employed individuals and have higher contribution limits than regular IRAs. For 2024, the contribution limits are as follows:

• SIMPLE IRA: $16,000 with a $3,500 catch-up contribution for those 50 and older
• SEP-IRA: $69,000 or no more than 25% of income, whichever is less, with an additional $7,500 catch-up contribution for those 50 and older

Roth IRA Income Limits for 2024

To be eligible to make a Roth IRA contribution, you must fall within the IRS income requirements. Here are the income limits for 2024:

If your income falls within a phase-out range, where you are only eligible to make a partial contribution, you can estimate your contribution amount using a worksheet in IRS Publication 590-A, Contributions to Individual Retirement Accounts (IRAs).

What to Do if You Contribute Too Much to an IRA or 401(k)

Contributing too much to your IRA or 401(k) can trigger additional taxes. Any excess contributions, plus any interest or gains they accumulate, are taxed at 6% per year for each year the money remains in your retirement account. The tax you owe will not exceed 6% of the combined value of your IRA accounts at the end of the year.

You can avoid paying the 6% tax by withdrawing your excess contributions, along with any earnings they have generated, before the due date for individual tax returns. For contributions made in 2023, that deadline is April 15, 2024. To ensure you receive these funds by the deadline, request them at least a month in advance.

How to Withdraw Excess Funds

Ask your 401(k) plan administrator or IRA provider for a corrective distribution that includes the excess money you contributed and the interest or appreciation you earned on it. You should receive Form 1099-R, which shows how much income you generated when you took out your excess contribution so you can add it to your taxable income.

How Are Retirement Plan Contribution Limits Determined?

The IRS reviews more than 60 tax provisions each year for inflation, including the value of various tax credits, standard deductions, and retirement plan contribution limits. When the cost of living increases substantially, retirement contribution limits are likely to increase. In years when the cost of living remains relatively stable, fewer (or smaller) annual adjustments are likely to happen.

Even in a year like 2024, when cost of living adjustments are robust, some items do not change. For example, IRA catch-up contributions are set to adjust annually, but they remain consistent from 2023 to 2024. The IRS usually announces adjustments for each tax year late in the prior year, so taxpayers have the information they need for tax planning.

The Bottom Line

Maximizing your contributions to tax-advantaged 401(k) plans and IRA accounts can help you reach your retirement savings goals faster. Annual IRS adjustments are designed to help retirement savers keep pace with inflation. Following IRS guidelines can ensure you do not under- or over-fund your accounts, allowing you to get maximum tax benefits without triggering additional taxes.

At O1ne Mortgage, we are dedicated to helping you achieve your financial goals. For expert mortgage services and personalized advice, call us at 213-732-3074. Let us help you secure a brighter financial future.