401(k) Contribution Limits For 2024

WRITTEN BY: Gideon Drucker, CFP® AIF® ECA

As you may already know... the beginning of year is a great time to take a look at your 401(k) contribution settings!

While you may already be on track to max out your contributions (or perhaps you like front-loading your contributions), it’s still a good time to check and then confirm if there are any remaining opportunities to fund your accounts given the updated limits.

For example, maybe you’re on track to put in $21,500 for the year (and the 2024 limit is $23,000)…

Now, in the grand scheme of things, that lost $1,500 isn’t a big deal. But that $1,500 compounding inside of a tax-free Roth, and then ultimately, distributed to you as tax free in retirement…well, we can do the math, but, it adds up!! (And of course, you may not be trying to max out your retirement account for specific reasons, I'm just giving an example.).

A quick further aside... if you’re self-employed and have 1099 income and you have a SEP IRA set up (like I have personally) those 2023 tax year contributions can be contributed at any point before Monday, April 15th (and actually, you'll need to wait until your taxes are filed before you can contribute as you need to know your final AGI.)

Ok, onto the 2024 new contribution limits for retirement accounts:

401(k) and 403(b) Increase: From $22,500 to $23,000
Catch Up 401(k) Contributions (50+ years old): Remains $7,500
IRAs: From $6,500 to $7,000
Total 401(k) Contribution Eligibility: from $66,000 to $69,000

A few notes here:

As a reminder, this $23,000 applies to both Pre-Tax Contributions, Roth Contributions, or any combination of the two. (You can choose to put in $11,500 to your Pre Tax 401k and $11,500 to your Roth 401k aka 50/50% split, all of it to the Roth or all of it to the Pre-Tax).
You can choose to use your bonus to get a jump start on these contributions. I, personally, prefer spacing it out throughout the year in most cases (forced dollar cost averaging) but if you’re investing funds each month anyway and don’t mind it affecting your cash flows organizationally…this can be a helpful move!
Catch up contributions refer only to people aged 50 and above. Once you hit 50, the government lets you add an additional contribution to your 401k and IRA’s to literally “make up” for years that you may not have contributed previously.
The IRA Contribution limits applies to the Backdoor Roth IRA as well. So if you are funding your Traditional IRA with after-tax dollars in order to move that over to your Roth account, you can now add an additional $500 for tax year 2024….Cool!
Ok, I may have thrown you for a loop with the last factoid around the total IRS Limit amount. The $69,000 refers to the total contribution amount between your employee contributions, the employer (matching or flat addition) contributions, AND any After-Tax 401k contributions if your company allows for these contributions. So if you've set up your Mega Backdoor Roth IRA, this means you have an After-Tax 401k that you can fund each year and then convert directly into the Roth portion of your retirement accounts. This means extra money moving into your Tax-Free Bucket!

New 2024 AGI Contribution Limits:

Roth IRA: From $146,000 to $161,000 for single filing, From $230,000 to $240,000 filing jointly

Adjusted Gross Income determines your eligibility for being able to contribute directly to a Roth IRA (technically your AGI is the starting point to arrive at Modified Gross Income (MAGI)) So, if your AGI is lower than $146,000 this year you can contribute to a Roth IRA without having to contribute via Backdoor Contributions…and same story if you’re married and your income is below $230k. The sliding scale just means that you are starting to get phased out. So if you’re in the middle of this range, it means you can contribute some amount to a Roth IRA but not the full amount that lower income people can.
You may be above these income limits regardless so this change doesn’t affect you so much. I bring this up because sometimes one-off events artificially lower your income (Like taking time off, starting a new business, having kids etc. and create opportunities to contribute extra funds directly when your income is below the threshold.)
- For example, let’s say you change jobs in the middle of the year and take some time off, or you’re starting a new business and it’s taking time to get off the ground, or you’re getting married and your spouse doesn’t work so your income (which was above the single taxpayer MAGI amount) is now slightly under the married filing jointly limit because your spouse isn’t contributing any additional income. These are exactly the type of things we discuss with our clients throughout the year!

Ok team, as always, we are here to chat! Schedule your 15 minute "Right Fit" call here to discuss...