The Internal Revenue Service (IRS) announced the 2024 Cost-of-Living Adjustments (COLA), setting the stage for new opportunities and considerations in managing personal finances. In this blog post, we’ll delve into the key highlights of the 2024 COLA and explore what it means for employees participating in various retirement plans.
Changes in Contribution Limits
One of the most anticipated aspects of the annual COLA announcement is the adjustment of contribution limits for retirement plans. This year, the IRS has shared a modest increase. Employees engaged in 401(k), 403(b), and most 457 plans, as well as participants in the federal government’s Thrift Savings Plan, will now see a revised contribution limit of $23,000, up from the previous $22,500.
The catch-up contribution cap for individuals aged 50 and above engaged in 401(k), 403(b), and most 457 plans, along with the federal government’s Thrift Savings Plan, remains unchanged at $7,500 for the year 2024. Consequently, those aged 50 and older participating in these plans can now contribute a total of $30,500 starting in 2024.
The limit on annual contributions to an IRA increased to $7,000, up from $6,500. The SECURE 2.0 Act introduced a modification to the IRA catch-up contribution limit for individuals aged 50 and over by incorporating an annual cost-of-living adjustment. Despite this adjustment, the limit stands at $1,000 for the coming year.
The income thresholds for the Saver’s Credit, also recognized as the Retirement Savings Contributions Credit, has increased about 4.5%. The Saver’s Credit makes retirement savings more attainable for low- and moderate-income workers. For married couples filing jointly, the limit has been raised to $76,500 from $73,000. Heads of household now have a limit of $57,375, up from $54,750, while singles and married individuals filing separately see a new limit of $38,250 (an increase from $36,500).
Additionally, the allowable contribution amount to SIMPLE retirement accounts has been raised to $16,000, marking an increase from the previous limit of $15,500.
Understanding the Impact
While the increase may not be as dramatic as in previous years, it signals a subtle shift in the financial landscape. The uptick in contribution limits offers individuals an opportunity to boost their retirement savings, aligning with the ever-changing cost of living. This adjustment is especially relevant for those who are diligent about optimizing their retirement portfolios and making the most of available tax advantages.
Considerations for Employees
For employees participating in a workplace retirement plan, now is an opportune time to revisit financial goals and reassess contribution strategies. With the new limit in place, individuals may want to consider whether they can comfortably increase their contributions to take full advantage of the adjusted cap. Additionally, those nearing retirement may find it beneficial to consult with financial advisors to ensure their retirement plans align with their long-term objectives.
While the increase in contribution limits may not be groundbreaking, it underscores the importance of staying attuned to the dynamic nature of personal finance. BPAS University offers a wealth of resources to help you stay informed, stay empowered, and make the most of the opportunities that lie ahead in your financial journey. Visit u.bpas.com for more!
Information regarding the adjustments in the cost of living for various retirement-related aspects in 2024 can be found in Notice 2023-75, accessible on IRS.gov. Note: COLA numbers for Puerto Rico have not yet been released.