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Whether you use an IRA to supplement your company plan or as a primary mode for retirement savings, you need to understand how these accounts work and the applicable limitations. Most importantly, you need to know how much you can contribute each year to maximize savings while avoiding unwelcome tax penalties.
The IRS recently announced increases to IRA contribution limits for 2024 and the related tax deductions. You should take time to understand the new limits and incorporate them into your financial plan as soon as possible.
IRA Contribution Limits in 2024
Each year, the IRS reviews inflation data and determines whether IRA contribution limits should be raised. Given the high inflation in 2023, they increased the 2024 contribution limits for Traditional and Roth IRAs as well as employer sponsored SEP and SIMPLE IRAs.
With the new contribution limits you’ll be able to contribute $7,000 to your Traditional IRA, Roth IRA, or a combination of the two in 2024 – $500 more than you can add for 2023. These types of IRAs also allow you to contribute up to $1,000 as a ‘catch-up’ contribution if you are aged 50 or older. The catch-up contribution limit was not raised for 2024.
The contribution limit for employer sponsored SEP IRAs was raised to $69,000 in 2024 – a $3,000 increase from the prior year. However, it is important to keep in mind that you can only contribute up to 25% of your salary to this type of plan.
For SIMPLE IRAs, the contribution limit was raised to $16,000 in 2024 – a $500 increase. Like Traditional and Roth IRAs, these plans allow for catch-up contributions if you are aged 50 or older. The catch-up limit for SIMPLE IRAs was not changed for 2024 and remains $3,500.
See the table below for a summary of 2024 IRA contribution limits.
Past IRA Contribution Limits
Due to the annual inflation review, contribution limits for IRAs tend to rise over time. It is important to understand how these limits have changed. This will allow you to better predict the amount you will be able to contribute in future years.
As you can see from the chart below, contribution limits do not change every year but there is a somewhat predictable, steady increase over time.
Traditional and Roth IRA Contribution Limits in 2023
As you review the new 2024 limits, keep in mind that there is still time to contribute to your IRA for 2023. You can add up to a total of $6,500 to your Traditional and Roth IRAs until the tax filing deadline.
As previously mentioned, you can contribute an additional $1,000 as a catch-up contribution if you’re aged 50 or older. As you plan your last-minute contributions, remember to account for these new Roth IRA income limits and Traditional IRA deductibility.
IRA Tax Deduction Updates for 2024
Some contributions to Traditional IRAs are tax deductible. However, the amount you can deduct depends on your tax filing status, income, and whether you or your spouse are covered by a retirement plan at work.
The Traditional IRA deductibility limits were increased to account for inflation in 2024. See the table below to determine if you are eligible to deduct your contributions.
If you are Married Filing Separately or your income is slightly above these limits, speak to a financial advisor to learn if you are eligible to deduct part of your contributions. Also, keep in mind that you can still contribute to a Traditional IRA if your income is above the applicable threshold – you just won’t receive a tax break for your contribution.
Unlike a Traditional IRA, you can only contribute to a Roth IRA if your income is below a certain level. These thresholds were also increased for 2024 to account for inflation.
See the table below for a summary of Roth IRA income limits in 2024.
If your income is above the limit, you still might be able to add funds to a Roth IRA using a strategy called back-door Roth contributions. There are important caveats to using this method, so be sure to discuss it with an experienced financial advisor.
Incorporate the New IRA Limits into Your Financial Plan
If you aim to contribute the maximum to your IRA, you will likely need to update your contributions to reflect the 2024 limits. Do this as soon as possible to get the full benefits of investing your cash.
As you adjust your IRA contributions, work with an experienced financial advisor to update your retirement savings plan to accommodate the new savings amount. An experienced advisor can help you determine the optimal amount to add to your IRA, weigh the tax implications of Traditional and Roth accounts, and choose investments to match your situation.
Review Your Retirement Strategy with Meld Financial
The team of tax, legal, and investment professionals at Meld Financial has the tools and experience to help you manage your IRA contributions effectively. We have spent nearly four decades helping clients prepare for a successful retirement and we will do the same for you.
Through our vast experience, we developed a proprietary wealth management program called Financial Fingerprint®. This comprehensive plan is quick to assemble, easy to understand, and simple to modify as your circumstances – like IRA contribution limits – change. Your Financial Fingerprint® considers all retirement accounts and provides a plan for them to work together in achieving your goals.
Contact us today to learn more and get started with your Financial Fingerprint®.
