Savers will be able to add another $500 a year to their 401(K)s and other retirement accounts beginning in 2024, the IRS confirmed today.
Employees are subject to annual contribution limits that determine how much they can add to their retirement accounts. But every year it is increased in line with the cost of living.
Starting next year, the limit will increase from the current level of $22,500 to $23,000. The new amount also applies to 403(b), most 457 plans and Thrift Savings Plans.
And contribution limits for IRAs will also increase from $6,500 to $7,000. Catch-up contributions remain unchanged for IRAs at $1,000.
In 2024, more Americans will also be able to contribute to tax-advantaged Roth IRA accounts. This year, savers can only contribute the full limit if they are single and their income is less than $138,000 or a head of household and $153,000.
Savers will be able to add another $500 a year to their 401(K)s and other retirement accounts starting in 2024, the IRS confirmed today
But this is expected to rise to $146,000 and $161,000 respectively. The cap was introduced to prevent highly paid workers from taking advantage of such tax breaks.
How much employees should contribute to their retirement accounts is a hot debate.
Earlier this year, certified financial planner Rachael Burns told DailyMail.com that as a general rule of thumb, anyone making more than $75,000 should max out their annual 401(K) contributions.
“If you make $75,000 and you don’t have children, but you have someone to share your living expenses with, then maxing out your 401(K) is probably a realistic goal,” she told DailyMail.com.
Burns added, “It’s hard to put a specific income figure on it, like if you have to take care of a family of four on an income of $75,000, you’re not going to have nearly enough money to max out your 401(K). to be able to spend.’
It also depends on where you live, she added, as spending is significantly higher in some states and cities than in others.
“But the most important thing is to prioritize 401(K) savings,” she said. ‘If you are looking for a nice new car or a renovation of your house, it is important to first ensure that you save enough for your pension. That must always be a priority.’
Certified financial planner Rachael Burns says anyone making more than $75,000 a year should max out their 401(K) contributions
By maximizing contributions to pension pots, employees can benefit from tax-deferred growth.
With a traditional 401(K) plan, employees do not have to pay taxes on their retirement savings, but they do have to pay income taxes during retirement.
But in the intervening years, savers can benefit from compound growth on their pot. This is the interest that accrues on your savings, allowing your money to effectively snowball over time.
For example, if an employee were to put an additional $500 into their 401(K) next year and it would yield a 10 percent investment return, they would end the year with $550.
The following year, interest on the $550 amount would accrue.
“The difference can be shocking because the compound growth of those increases over ten, twenty, thirty years can make a huge difference,” Burns previously told DailyMail.com
“You need to keep increasing your savings so you’re prepared because the cost of living will continue to rise by the time you retire.”