In a report released on Aug. 17, benefits consulting firm Mercer projected that almost every key Internal Revenue Code (IRC) limit for qualified retirement plans will rise from 2023 to 2024. The 2024 limits will reflect increases in the Consumer Price Index for All Urban Consumers (CPI-U) from the third quarter of 2022 to the third quarter of 2023. Only the catch-up contribution limit, which has a relatively large rounding value, is expected to stay the same next year. It has set at $7,500.
Below you will find the summary of these expectations:
Contribution Limits for 2024
|Limit Description||2023 Limit ($)||2024 Projected Limit ($)|
|401(k) Contribution Limit||22,500||23,000|
|403(b) Contribution Limit||22,500||23,000|
|Eligible 457 plan elective deferals||22,500||23,000|
|Catch-Up Contribution Limit (401(k), 403(b), 457)||7,500||7,500|
|415(b) Defined Benefit Plan Annuity Limit||265,000||275,000|
|415(c) Defined Contribution Plan Maximum Annual Addition||66,000||68,000 (could reach 69,000 with significant inflation)|
|414(q)(1)(B) Highly Compensated Employee and 414(q)(1)(C) Top-Paid Group Limit||150,000||155,000|
|416(i)(1)(A)(i) Officer Compensation for Top-Heavy Plan Key Employees||215,000||220,000|
|401(a)(17) and 408(k)(3)(C) Compensation||330,000||340,000 (could reach 345,000 with significant inflation)|
- 415(b) defined benefit plan annuity limit will increase to $275,000 from $265,000.
- The 415(c) defined contribution plan maximum annual addition is expected to increase to $68,000 from $66,000. Still, if significant inflation occurs in August and September, the 415(c) limit could reach $69,000.
- 414(q)(1)(B) highly compensated employee and 414(q)(1)(C) High earner group limit is forecast to increase to $155,000 from $150,000.
- 416(i)(1)(A)(i) officer compensation for top-heavy plan key employees will increase to $220,000 in 2024 from $215,000 in 2023.
- In the forecast, 401(a)(17) and 408(k)(3)(C) compensation crease to rise from $330,000 in 2023 to $340,000 in 2024, with Mercer noting that the limit could increase to $345,000 with significant inflation in August and September.
Will IRA Contribution limits increase in 2024?
In line with the expectations here is the limit increase;
2024 Traditional and Roth IRA Contribution Limits
IRA contribution limits and catch-up contributions will increase from $6,500 ($7,500 if you're over age 50) in 2023 to $7,000 ($8,000 if you're over age 50) in 2024.
2024 SEP-IRA Contribution Limits
SEP-IRA contribution limits will increase to $68,000 annually for 2024, up from $66,000 in 2023.
2024 SIMPLE IRA and SIMPLE 401(k) Contribution Limits
The SIMPLE IRA and SIMPLE 401(k) contribution limits will increase from $15,500 in 2023 to $16,000 in 2024.
2024 Health Savings Account (HSA) Contribution Limits
The HSA contribution limit for single people will increase from $3,850 in 2023 to $4,150 in 2024. Family coverage will increase from $7,750 to $8,300.
2024 Flexible Savings Account (FSA) Contribution Limits
Healthcare FSA contribution limits will increase from $3,050 in 2023 to $3,200 in 2024. Note that other types of FSAs (such as dependent care FSAs) have different limits.
The recent projection by Mercer, indicating an anticipated increase in nearly all key Internal Revenue Code (IRC) limits for qualified retirement plans in 2024, offers insight into the reasons behind these changes and their potential advantages. In addition, we'll explore how individuals considering an investment in a Gold IRA can capitalize on these changes to enhance their retirement portfolios.
Reasons Behind the Changes:
- Inflation Safeguard: One of the primary drivers of these adjustments is the need to safeguard retirement savings against the erosive effects of inflation. Mercer's projections are rooted in the Consumer Price Index for All Urban Consumers (CPI-U) data, tracking the cost of living from the third quarter of 2022 to the third quarter of 2023. These adjustments are crucial to ensure that contribution limits keep pace with the rising cost of goods and services, ultimately preserving the real value of contributions.
- Economic Dynamics: These changes also mirror the prevailing economic dynamics during the specified period. The rise in annuity limits, contribution ceilings, highly compensated employee thresholds, officer compensation, and compensation limits reflects an economy experiencing growth and increasing income levels.
- Consistency in Catch-Up Contribution Limit: The decision to maintain the catch-up contribution limit at $7,500 stems from a practical perspective. This relatively large rounding value simplifies administrative and calculation processes.
Benefits of the Changes for Retirement Savers:
The increase will have following benefits for retirees;
- Tax Advantages of Increased Contributions:
- Tax-Deferred Growth: Contributions made to traditional 401(k)s and IRAs are typically tax-deductible, meaning they reduce your taxable income in the year you make the contributions. These contributions reduce your current income tax liability. The money you contribute then grows tax-deferred, which means you only pay taxes on the earnings once you withdraw the funds in retirement. This tax deferral allows your investments to grow faster since you're not paying taxes on gains yearly.
- Lower Current Tax Liability: By contributing more to these retirement accounts, you reduce your taxable income for the year of contribution. These contributions can lower your current tax bill, putting more money back in your pocket.
- Compound Interest: Higher contribution limits mean you can save more over time, which increases the potential for compound interest to work in your favor. Compound interest allows your investments to generate earnings on the original contributions and the previous gains, leading to exponential growth over time.
- Tax Diversification: Having a mix of pre-tax (traditional) and post-tax (Roth) retirement accounts can provide tax diversification in retirement. Increased contribution limits allow you to put more money into both types of accounts, giving you flexibility in retirement to choose how and when to withdraw funds to minimize your tax liability.
- Maximizing Employer Matches: If your employer offers a 401(k) match, higher contribution limits allow you to take full advantage of this benefit. Employer matches are essentially free money, and by contributing more, you can maximize the match, further boosting your retirement savings.
- Promoting Retirement Preparedness: The upward adjustments in contribution limits are a potent encouragement for individuals to bolster their retirement savings. With extended life expectancies and the growing importance of self-funded retirement plans, these changes empower individuals to accumulate more substantial nest eggs for their golden years.
- Preservation of Purchasing Power: By factoring in inflation, these alterations ensure that the purchasing power of retirement savings remains resilient. These alterations are pivotal for retirees who wish to maintain their quality of life despite the escalating living costs.
- Enhanced Savings Flexibility: These adjustments offer greater flexibility to individuals in tailoring their retirement savings strategies. Those with the means can harness the full potential of the elevated limits. In contrast, others can continue at their current savings rates without feeling unduly pressured.
- Attraction for Employers: Employers may see these changes as an opportunity to attract and retain top talent by providing competitive retirement benefits. Higher limits can make employer-sponsored retirement plans more appealing to potential employees, strengthening recruitment and retention efforts.
- Security in Retirement: Ultimately, these changes aim to bolster retirees' financial security. With rising contribution limits, individuals have the potential to accumulate more substantial retirement assets, offering the promise of a more comfortable and secure retirement.
Although more modest, the anticipated uptick in 401(k) contribution limits in 2024 reflects ongoing efforts to adapt to changing economic conditions and encourage retirement savings. Individuals looking to capitalize on these changes and bolster their financial security in retirement should consider consulting financial advisors and exploring investment strategies such as Gold IRAs to navigate an evolving economic landscape effectively.
Leveraging Gold IRAs in Light of These Changes:
Investing in a Gold IRA can be an astute strategy in light of these alterations. Precious metals like gold often serve as a hedge against inflation and economic uncertainties. As contribution limits rise and investors seek ways to preserve the purchasing power of their savings, allocating a portion of their retirement portfolio to gold can provide stability and potential growth. Gold's historically low correlation with traditional financial assets also adds diversification benefits, reducing overall portfolio risk.
By including gold in your retirement strategy through a Gold IRA, you align with the changing contribution limits and enhance the resilience and diversity of your retirement portfolio. To learn more about how Augusta Precious Metals can assist you in this endeavor, Click below and take the first step toward securing your financial future.
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