In an update that promises broader opportunities for retirement savings, the Internal Revenue Service (IRS) has raised the cap on contributions to 401(k) and Individual Retirement Account (IRA) plans for 2024. This move, reflective of the changing economic landscape, is set to impact small business owners and their employees significantly.
Starting in 2024, the annual contribution limit for 401(k) plans will increase to $23,000, up from the previous $22,500. Simultaneously, the limit for IRA contributions will also rise to $7,000, marking a $500 increment from the current figure.
The IRS delineated these adjustments in Notice 2023-75PDF, providing comprehensive guidance on the cost?of?living changes affecting pension plans and other retirement-related items.
For employees participating in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, the heightened $23,000 cap presents a tangible opportunity to bolster their retirement nest eggs. Furthermore, individuals aged 50 and over can take advantage of the unchanged catch-up contribution limit of $7,500, allowing for a total contribution potential of $30,500.
Small business owners, particularly those offering SIMPLE (Savings Incentive Match Plan for Employees) retirement accounts, should note the contribution limits here remain at $3,500 for employees over 50 in 2024.
Additionally, the IRS has updated the income ranges affecting deductible contributions to traditional IRAs, contributions to Roth IRAs, and eligibility for the Saver’s Credit. These adjustments ensure that more individuals can benefit from these savings vehicles, a crucial consideration for small business owners and their staff who may be navigating the complexities of retirement planning.
For example, single taxpayers with a workplace retirement plan will find the deduction phase-out range between $77,000 and $87,000. For married couples filing jointly, this range shifts to $123,000 to $143,000 if the contributing spouse is covered by a workplace retirement plan.
Small Business Deals
It’s important for small business owners to communicate these changes to their employees, as these enhanced contribution limits can significantly affect retirement planning strategies.
The SECURE 2.0 Act of 2022 also plays a pivotal role, maintaining a $1,000 IRA catch-up limit for 2024 and instigating further changes, such as the fixed $200,000 limitation on qualifying longevity annuity contracts.
Charitable individuals will find the deductible limit on charitable distributions raised to $105,000, and a new provision allows for a one-time election to treat a distribution made directly by an IRA trustee to a split-interest entity up to $53,000.
These developments represent a substantial shift in retirement planning. Small business owners and their employees stand to gain from these increased limits, providing a silver lining to those aiming to secure their financial futures in an uncertain economic climate.
Small businesses are encouraged to revise their retirement benefits offerings and consult with financial advisors to ensure they maximize these new benefits for themselves and their teams. With the IRS adjustments, 2024 is poised to be a year where retirement savings strategies can be recalibrated for better financial security and growth.
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