The IRS on Wednesday raised the amount that Americans can set aside for retirement in their 401(k) and other tax-deferred plans next year.
Beginning in 2024, workers will be allowed to contribute up to $23,000 to their 401(k), an increase of $500 from this year. The increase applies to other retirement savings accounts, including the 403(b) plan, most 457 plans and the federal government’s Thrift Savings Plan.
Catch-up contributions for savers age 50 and older will remain unchanged at $7,500.
The agency also boosted the contribution maximums for IRAs and lifted the limit to $7,000 for 2024, up from $6,500 in 2022. The catch-up contribution amount for IRAs will stay at $1,000.
The IRS makes such cost-of-living adjustments annually, but in times of high inflation, the increases are more significant and impactful for taxpayers.
Just a fraction of people — about 8.5% — who contribute to a retirement account hit the maximum in 2018, according to a recent Congressional Research Service report.
Under the latest changes, more Americans could qualify for Roth IRAs, which tax contributions upfront, allowing individuals to grow their investment earnings tax-free (unless the money is withdrawn before an individual is 59½ years old).
The newest income phaseout from the IRS will rise to a range of $146,000 to $161,000 for individuals and heads of households, up from between $138,000 and $153,000 in 2023. The phaseout will climb to $230,000 to $240,000 for married couples who are filing jointly, an increase from the previous range of $218,000 to $228,000.
One in four Americans has no retirement savings, according to a recent report from PwC, a professional services network. It reports that U.S. households with individuals between the ages of 25 and 64 have a massive retirement savings deficit, with a total of $3.68 trillion less in savings than they should have in order to be prepared.
Federal Reserve research suggests that the median retirement account balance in the U.S. was just $65,000 in 2019.
The IRS is also expected to announce soon the annual inflation adjustment to income tax brackets and the standard deductions for 2024.