A recent article authored by Mark Henricks on Yahoo Finance explores various tips for your personal retirement planning as the 401(k) contribution limits are projected to increase in 2024.
401(k) contribution limits should continue their upward climb in 2024, according to a recent projection by Mercer. However, easing inflation now means lower forecasts for 401(k) and other retirement plan contribution limits for next year.
After rising substantially from $20,500 in 2022 to $22,500 for 2023, Mercer projects the annual cap to go up just $500 in 2024. That means a new 401(k) contribution limit of $23,000 for 2024, which should still be plenty beneficial for you.
Projected Retirement Contribution Limits for 2024
According to the report, Mercer envisions the IRS increasing contribution limits by $500 in 2024 for not only 401(k)s, but also 403(b) and eligible 457 plans. Again, that means limits on contributions jumping up to $23,000, compared to $22,500 in 2023.
This 2023 increase came on top of a $1,000 increase in 2022 compared to 2021. If the 2024 increase occurs as projected, that will make it one of the smaller increases to the annually adjusted limit in the last few years.
What This Projected 2024 Increase Could Mean for You
Understanding and adhering to these limits is central to strategic retirement planning. This allows you to maximize savings without going beyond the boundaries set by tax laws.
Maximizing contributions lets you take advantage of either tax-deferred growth with a traditional 401(k) or after-tax savings in retirement with a Roth 401(k). Your company may even offer employer matching contributions that could provide even more growth opportunity.
If you don’t contribute up to the maximum, you could be leaving valuable benefits on the table. However, you don’t want to go over the limit, as that can have hefty negative consequences. Specifically, your excess contributions could wind up being taxed twice.
When you contribute beyond the limit, the IRS can demand you immediately pay taxes on the excess funds, according to your current tax bracket. But that’s not all. Later when you withdraw the funds, just as with all 401(k) withdrawals, you’ll owe taxes yet again on these already-taxed funds. For those under 59.5 years old, you could end up also paying a 10% early withdrawal tax too.
To view the full article on Yahoo Finance click here.
Copper Leaf Financial, LLC is a fee-only, registered investment advisor, serving clients nationwide from offices in Williston and Rutland, VT. One of the firm’s main areas of focus is on providing 401k retirement plan solutions for businesses. Copper Leaf is part of a group that serves more than 1,500 retirement plans and is helping over 50,000 Americans on their journey to retirement. Our approach is based on a simple fiduciary promise: to do what’s right for you, your company and your employees, no matter what. In addition to building new plans we offer employers with existing retirement plans a complementary second opinion on the health of their plan.
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