Inflation is excellent news for those saving for retirement. At least for individuals seeking to maximize their contributions to retirement accounts such as a 401(k), conventional IRA, or 403(b), the following strategies are recommended (b). The increase in the maximum retirement contributions for 2024 will allow people seeking to pay less in taxes in 2024 to conceal more of their income from taxation.
Employer Retirement Plans Contribution Limits for 2024
In 2024, participants who had a 401(k), 403(b), or 457 plan via their employer will be able to contribute a maximum of $22,500. This increases the 2022 401(k) contribution limits by $2,000.
Additionally, catch-up contributions are growing. Next year, workers aged 50 or older in 2024 will be permitted to contribute an extra $7,500 as a catch-up contribution. This implies that as an employee of a firm, a total of $30,000 can be donated.
The 401(k) maximum contribution limit for self-employed employers is significantly higher. Contributions to your 401(k) plan by you and your employer will be capped at $66,000 in 2024. In addition, business owners aged 50 or older can pay a catch-up contribution of $7,500.
Limits on Cash Balance Plan Contributions in 2024.
The cash balance plan is a good tax planning strategy for high-income business owners. Unlike 401(k) plans (k), there is no contribution cap. In 2024, however, the maximum amount you may contribute to a cash balance plan will grow due to inflation.
Your actual annual payments will be computed actuarially based on the pension’s guaranteed benefits, the participant’s age, and the plan’s existing funds. In 2024, a pension plan’s maximum permissible defined benefit increases from $245,000 to $265,000 per year.
If you earn at least $500,000 per year and would like to save more on a pre-tax basis for retirement, consult your tax expert and tax-planning financial advisor to determine if establishing a cash balance pension plan might be advantageous.
In 2024, IRA Contribution Limits Will Increase
In 2024, both Roth IRA and regular IRA contribution limits will rise. In 2022, the contribution ceiling was increased from $6,000 to $6,500. Sadly, the catch-up contribution to an IRA remains at $1,000.
Roth IRA eligibility in 2024, your modified adjusted gross income (MAGI) must be less than $153,000 or $228,000 if you file jointly. This is an increase from the levels in 2022 of $144,000 (or $214,000 when filing jointly).
Consider what you are presently setting aside for retirement and seek to raise your contributions annually. When preparing for retirement, do not assume that you are saving enough to replace your income once you leave work simply because you are contributing the annual maximum to your retirement account.
You can use the tax savings from your pre-tax contributions to your 401(k), cash balance pension plan, or profit-sharing plan as an incentive to save more. Over the following decade, this might save you tens of thousands of dollars in taxes. Tax savings for high-income business owners might be in the millions of dollars if they optimize the benefits of both a profit-sharing and a cash-balance pension plan.