An employer sponsored retirement plan – such as a 401(k), 403(b), or 457 – can be an excellent way to save for retirement. These plans can help reduce your tax burden, provide a range of investment options, and allow your employer to add to your retirement savings. With all these benefits, it makes sense to contribute as much as you can each year.
The amount you can contribute to your 401(k) or similar plan will increase in 2024. However, most retirement plans won’t automatically update your contribution amount to account for the higher limit. Therefore, you need to understand how these limits have changed and update your financial plan accordingly.
Past 401(k) Contribution Limit Increases
The IRS reevaluates retirement plan contribution limits each year based on the inflation rate. These annual adjustments are known as cost-of-living adjustments – commonly shortened to COLAs. Unsurprisingly, COLAs have varied drastically over the past several years as inflation has been uneven.
See the table below for a summary of recent 401(k) contribution limit increases.
401(k) Contribution Limits in 2023
Before you begin to consider 2024 contributions, it is wise to ensure that you have added as much to your 401(k) as possible for 2023. You can add to your plan until December 31st and your contributions are limited to $22,500. Your employer can also contribute up to a combined maximum of $66,000. If you are age 50 or older, you can add an additional $7,500 as a catch-up contribution.
Increases to 401(k) Contribution Limits in 2024
With the 2024 COLA, you’ll be able to add up to $23,000 to your 401(k) next year – a $500 increase from 2023. In addition, your employer may offer matching, profit sharing, or another type of contribution. The combined amount you and your employer can contribute in 2024 is $69,000 – up from $66,000 last year.
If you are age 50 or older, you can make additional “catch-up” contributions. The limit for catch-up contributions will remain at $7,500 in 2024 — the same as 2023.
See the table below for a summary of 2024 contribution limits.
Steps to Take Now to Grow Your 401(k) in 2024
Getting the most benefit from your 401(k) means more than contributing enough to reach the limit. You also need to consider your investments, contribution timing, and overall financial plan. Take the following actions as soon as possible to help your 401(k) grow.
1. Update Your Financial Plan
Work with your financial advisor to incorporate your planned 401(k) contributions into your financial plan. An accurate estimate of your retirement account balances is extremely important to ensuring you have enough money to retire when the time comes.
2. Increase Your Contributions ASAP
There’s a strong chance your plan won’t automatically increase your contributions to account for the higher limits – even if you currently contribute the maximum. Instead, you will need to manually adjust your per-paycheck salary deferral.
3. Take Full Advantage of Employer Match
Even if contributing the maximum amount to your 401(k) doesn’t fit into your budget, consider adding at least enough to get the full employer match if your company offers one. Keep in mind that some employers only match during the months that you make contributions. This means that front-loading your 401(k) in the first months of the year could cause you to miss out on matching contributions for the rest of the year.
4. Review Your Investments with An Experienced Financial Advisor
Contributing to your 401(k) is only part of the equation. You also need to choose the right investments to match your goals and tolerance for risk. An experienced financial advisor can help you review the investment options your company offers and choose the right ones for your situation.
An effective financial professional will do more than help you choose investments. They can help you put your goals into words and determine how much you need to save to achieve them. Then, they can support you as you manage the daily decisions that keep you on the path to retirement success.
Review your 401(k) with the Experienced Advisors at Meld Financial
At Meld Financial, our team of tax, legal, and investment professionals has been helping clients achieve their retirement goals for nearly four decades. We have the tools and experience to help you maximize your retirement accounts – including your 401(k).
Our experienced team will develop your Financial Fingerprint™ – a comprehensive wealth management plan that is quick to assemble, easy to understand, and simple to modify as your circumstances change. Financial Fingerprint™ includes a plan to maximize the benefits of your 401(k) and achieve your retirement goals.
Contact us today to get started.
